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Tea Prices May Climb as India Output Drops, Labor Costs Rise

Oct. 8 (Bloomberg) -- Tea prices in India, the biggest grower after China, may climb as labor costs rise and crop damage from pest attacks widens a production deficit, according to the state-run Tea Board of India.

An wage increase at gardens in West Bengal from April will force McLeod Russel India Ltd., the largest tea plantation owner, and rivals to lift prices, Tea Board chairman Basudeb Banerjee said in a phone interview yesterday. The eastern state accounts for 20 percent of the nation’s output.

Higher prices may push up costs for companies including Unilever Plc and Tata Global Beverages Ltd., owner of Tetley brands, and boost profits at Indian growers including McLeod and Jayshree Tea & Industries Ltd. The nation’s output fell for three straight months through August as pests damaged plants in Assam, which accounts for more than half the country’s crop.

“The production shortfall this year in India is going to widen the inventory pipeline and that will ensure prices stay high,” said Aditya Khaitan, McLeod’s managing director.

The supply deficit may widen to as much as 100 million kilos by March and April, from 60 million kilos this year, he said, repeating an estimate made last month. Output this year may be 10 million to 15 million kilos lower than last year’s 979 million kilos, Tea Board’s Banerjee said.

Prices have climbed by 15 rupees to 20 rupees a kilo to 150 rupees to 180 rupees in north India, said Khaitan.

A rebound in output in Kenya, the biggest producer of black tea, and Sri Lanka, the second-biggest supplier, won’t ease the Indian shortage, as the Asian nation imposes a 100 percent tax on imports, Khaitan said.

Kenyan Output

Kenya’s output may jump 11 percent this year to 350 million kilos, from 314 million kilos last year, the nation’s tea board said Sept. 30. Sri Lanka’s harvest increased 21 percent to 221.3 million kilograms from January to September, data from the nation’s tea board show.

India produced 584.9 million kilos in the January-to-August period, 1.7 percent lower than a year ago, the tea board said yesterday. Shipments advanced 8 percent to 124.1 million kilos from 114.7 million a year earlier, the board said.

Exports this year may be little changed from last year’s 198 million kilos, Banerjee said.

To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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