“God’s country for tea” may see increased attention due to price anomalies

Per the FT, India-based and listed McLeod Russel, the world’s largest tea producer, bought Ugandan-based James Finlay and its six tea estates for $30m “at the end of a year in which tea prices have reached record levels as poor weather affected crops.” The firm’s hitherto 80 million kilos of annual production (of which 30 million is exported) stemmed primarily from estates located in Assam, West Bengal and Vietnam, and the Ugandan purchase will add between 10-15 million more kilos.  “Our strategy, going forward, is that between 20-30% of our total production should come from outside India in the next five years,” remarked the company’s managing director, Aditya Khaitan, back in July.

Tea prices have soared this year–the world price for black tea hit a high of $3.18/kg in September, up from an average price of $2.38/ kg in 2008–due mainly to an abnormally bad drought that hit India, Sri Lanka and Kenya during the first several months of 2009, which underscored the need for diversification.  However, as the linked article mentions, “the United Nations Food and Agriculture Organization predicts that tight global supplies should be eased by normal weather patterns in leading producer regions in 2010.”  Moreover, the current high prices may understandably cause a relative bumper crop going forward and hence oversupply.  That suggests that the spread relating to African tea firms, which the piece notes “trade at a considerable discount to their Indian counterparts,”–is likely to become exacerbated in the near term, making further future takeovers even more likely.  “Logically, I would love to go to Africa because it is god’s country for tea.  The first focus will be Kenya.  Once we go there, we will start looking for opportunities,” Khaitan mused.