McLeod Russel India unhurt by tea loss

Crop damage in India offset by price rises driven by demand.

A jump in tea prices will allow McLeod Russel India, one of the largest tea producers in the world, to shrug off concerns that adverse weather might cut its earnings.

Excessive rain, particularly in June, July and October, led to the loss of 6 per cent of the company's tea crop this year.

But the supply shortfall has been offset by higher auction prices resulting from an increase in demand.

"Production has been stagnant, but demand has increased by 2.5 per cent per annum," said Kamal Baheti, the chief financial officer of McLeod Russel India.

He expects tea prices to increase by 8 per cent next year, maintaining a trend in which prices have increased 60 per cent in the past three or four years.

"Any loss in crop has been fully compensated [for] by price rise, and any rise in price is always positive for profitability," Mr Baheti said.

The price of tea was averaging 149 rupees per kg this year, he said.

The company has also mitigated the risk of weather damage to crops by expanding cultivation to Vietnam and Uganda, boosting tea production to 96 million kg so far this yearcompared with 42 million kg in 2004.

McLeod Russel slipped 5.08 per cent to 199.9 rupees on the Bombay Stock Exchange yesterday, but the stock has risen more than 100 per cent since June last year.

India has experienced a continuous month-by-month slump in tea production this year, in particular after pest infestations that cut yields in Assam, the country's largest tea-producing state.

The rise in demand for tea is partly attributable to the product being competitive in price with other consumer beverages.

Julian Gale, a tea specialist, said supermarkets were reluctant to pass on the higher prices they were paying in the auction room.