Pricing and operations
Tea pricing for most operations was above that of last year, with our estates being rewarded for concentrating their efforts on the production of high quality teas. Total sales volumes were lower.
Shipping logistics have been a challenge throughout the year with many delivery delays experienced by customers. With volatile trading conditions persisting into 2022, shipping logistics will take some considerable time to settle, particularly with the recent flooding impact at Durban Port in South Africa in April 2022.
India
Our estate crop for 2021 was on par with last year. The impact of continued poor and varied weather meant that our crop did not recover to 2019 levels.
Our net selling prices firmed significantly for both Dooars and Assam CTC teas from demand in the internal packet tea market, up over 10% against the prior year. Darjeeling prices were up on prior year by 11%, due to good quality and improved first flush volumes. 2022 has seen the last of the limited tea stocks left over from 2021 sold and the first auction of the new season opened in March 2022 with strong pricing. The market has remained firm for the early part of the new season and going forward pricing will be determined by regional production volumes and demand.
The Assam Orthodox (rolled leaf tea) market, however, was down 3% on prior year as it continued to be impacted by ongoing political and economic volatility in Iran which subdued demand and kept prices relatively flat.
North India market pricing overall has remained strong due to limited supply and is supported by 100% import tariffs. North India export volumes were down c.9%, with prices in the export market remaining under pressure with reduced sales of Orthodox tea.
State elections were held in Assam and West Bengal in March 2021, with no change to the incumbent Governments in each State. Wage negotiations were concluded in both States resulting in 22% and 15% increases in Assam and West Bengal respectively.
Investment in replanting continued with 167Ha of planting completed (2020: 164Ha) and a further 120Ha uprooted in preparation for future planting.
Bangladesh
Despite a slow, dry start to the season, Bangladesh reported a record crop up 15% on the prior year. The impact of several years of investment in replanting and irrigation contributed to our improved yields.
Our average net selling price remained strong through the season, up 20% on prior year, with limited COVID restrictions allowing local demand to flourish whilst being supported by very low volumes of imports.
National production achieved record levels at 12% up on prior year, principally as a result of a 40% increase in bought leaf volumes. The continued rapid escalation of the bought leaf sector volumes, if left unchecked, presents challenges to the market with a risk that potential oversupply results in downward pressure on pricing.
2022 has seen prices remain under pressure for prior season teas due to the high volumes of inventory carried forward. The market for new season teas has started firm and is expected to remain relatively stable as stocks are now depleted and the new season production has yet to gain momentum. Pricing thereafter will be driven by the level of production over the summer months.
Wage negotiations for 2021/2022 are ongoing between the Bangladesh Tea Association and the Trade Unions and are due to be settled imminently. Provisions have been made for expected increases relating to 2021.
Having reduced replanting in 2020 to concentrate on infilling young tea areas, the total area planted in 2021 was increased to 143Ha (2020: 105Ha), of which 131Ha was replanting and 12Ha was newly planted areas.
Kenya
Our Kenyan estates produced their second highest ever crop in 2021, albeit down 8% on the previous year. The national crop was also the second highest on record.
As a part of many ongoing initiatives to address structural issues within the tea industry in Kenya, the Government in July implemented a reserve pricing mechanism for The Kenya Tea Development Agency (“KTDA”) teas which make up over c.66% of the national production. This intervention has had a positive impact on prices for higher quality teas within the Kenyan market, including those produced by the Group. The “all average price” at Mombasa auction was 3% up on 2020, driven principally by improved quality teas. Export levels were c.9% up on 2020 with strong demand from Pakistan, Egypt, Russia, UAE and Sudan. Low retail pricing and increased competition from other beverages in western markets continues to be a challenge for the industry.
Our average selling price in 2021 was up on prior year by 6%. We have continued to outperform our commercial grower competitors in the district with a price differential of 16%, by concentrating on quality. In 2022 our prices continued to firm initially but then weakened towards the end of the first quarter with predictions of a normal long rains season. In aggregate, our average selling prices in the five months to the end of May 2022 were significantly higher than the same period of 2021 though the benefit of this has been partially offset by lower production volumes. Pricing levels looking forward will depend on production volumes and the impact of the reserve pricing policy for KTDA teas.
Wage rates increased by 7% for 2020 and 2021 and negotiations are ongoing for 2022 and 2023.
We replanted a total of 50Ha (2020: 47Ha) whilst uprooting 52Ha for replanting in 2022.
Malawi
Our Malawi crop in 2021 was the second highest on record, up 15% on 2020, with strong cropping throughout the year and good out of season rains at the mid-year point.
Fertiliser prices in 2021 increased by 45%. The impact of this on the cost of production was mitigated by careful management of usage.
Malawi prices remained under pressure for much of the year with teas from the plainer West of Rift Kenyan’s still proving a value substitute to buyers. Our average selling price was 3% down on 2020 due to the lag effect of prices responding to an improving Kenyan market. The auction was temporarily suspended in the early part of 2021 due to the previously reported lack of clarity around interpretation of VAT rules on local sales for export.
Global logistics issues, including a lack of containers and delayed shipping times, has resulted in deliveries taking much longer to reach customers.
While selling prices in 2022 in Malawi have firmed, they are below those of the same period of 2021. The market is expected to be volatile for a period due to uncertainty relating to logistics and will also be influenced by the general direction of the Kenya market. Our production volumes in Malawi for the year so far are in line with that of last year.
A minimum wage was implemented for the tea industry in Malawi in January 2021. Negotiations are ongoing with the union, with further increases expected from August 2022.
On 26 May 2022, the Reserve Bank of Malawi announced that it will stop supporting the currency and allow the exchange rate to reflect market fundamentals. This is expected to result in a devaluation of the Kwacha of c.25%.
There was no replanting in Malawi for a second successive year, a decision taken to conserve resources in light of difficult trading conditions.
Instant tea, branded tea & tea rooms
India
Sales volumes of our packet tea in India fell by 14%, whilst net prices increased by 11%. Despite increasing demand for tea, packet sales have come under pressure due to fierce competition in the branded market. However, the packet tea operation has continued to innovate with new product development and the release of new product lines in Ready to Drink, fortified (health) teas and premium tea bags.
Instant tea production in 2021 was up marginally on the previous year. Sales volumes and average prices however were both down 10% due to lower demand from a key customer, leading to a lower contribution from the operation.
Due to COVID lockdowns, our tea lounges and kiosks were closed periodically during 2021. These outlets continue to be developed as part of the India marketing and value addition strategy.
UK
Trading improved for Jing Tea as COVID restrictions were eased in many of its markets, but revenue remained below pre-pandemic levels. Supplies into the EU have also been impacted by Brexit with the business contracting for EU warehousing space during the year to alleviate import complexities. Jing launched its Ready to Drink Jasmine Pearls Sparkling Tea in 2021, which has gained initial positive traction in the market.