Mega Trends in the Global Tea

Industry

Anshuman Kanoria, Managing Partner

Balaji Agro International

Supply & Demand

Considerations

Indian Tea – Your cup of cheer… today and tomorrow!

Indian Tea – Your cup of cheer… today and tomorrow!

Presentation by

Anshuman Kanoria, Managing Partner,

Balaji Agro International, India

On August 31st, 2011 at the 2nd AnnualNorth American Tea Conference, Boston

Kangra

Darjeeling

Assam

Terai,Dooars

Meghalaya,Mizoram, Nagaland,Tripura,Arunachal

Nilgiri

Kerala,Tamilnadu(South India)

Indian Tea Industry Overview• Spread over 508,000

hectares• Produces approx. 985

million kg tea• Chief growing areas are:

– Assam– South India incl Nilgiri– Dooars and Terai– Darjeeling– Kangra / Uttaranchal

Looking back at Indian Tea

Production Yield per Qnty Value perYear ( Tons ) Hect. ( Kg ) ( In tons ) Kg ( Rs. )

1945 229038 741 167638 2.161955 307704 961 166708 6.821965 366374 1072 199365 5.771975 487137 1341 218480 11.261985 656162 1641 214937 32.731995 756016 1770 167996 71.912005 945974 1703 199050 91.992010 966403 - 193293 134.26 (US$ 3 perkg)

AND NOW LOOKING FORWARD…….

2016 1100000 Higher 195000 ????

EXPORTProduction Yield per Qnty Value per

Year ( Tons ) Hect. ( Kg ) ( In tons ) Kg ( Rs. )

1945 229038 741 167638 2.161955 307704 961 166708 6.821965 366374 1072 199365 5.771975 487137 1341 218480 11.261985 656162 1641 214937 32.731995 756016 1770 167996 71.912005 945974 1703 199050 91.992010 966403 - 193293 134.26 (US$ 3 perkg)

AND NOW LOOKING FORWARD…….

2016 1100000 Higher 195000 ????

EXPORT

Production comparison ( India crop Jan – June’11 )

Variance %

Region 2011 2010 2011/2010 + / (-)

North India 236.2 212.3 23.9 11.3

South India 122.1 126.7 -4.6 -3.6

All India 358.3 339.0 19.3 5.7

* Qnty. in mil. Kgs

0 50 100 150 200 250

2011

2010

South India

North India

Crop 2011

Auction Price Comparison – Indian ORTHODOX2011~12 n 2010~11

Months

2011/12 US$/Kg 2010/11 US$/Kg % Var2010-11

Apr 141.63 3.15 128.59 2.85 10.00

May 141.57 3.15 146.68 3.27 -3.40

June 149.11 3.32 161.18 3.58 -7.50

July 167.48 3.73 172.21 3.82 -2.80

Aug 169.18 3.75

Sept 169.33 3.76

Oct 160.72 3.58

Nov 160.49 3.51

Dec 151.34 2.67

Jan 131.37 2.62

Feb 125.62 2.78

Mar 120.05 2.67

ORTHODOX ( Auc.Avg. )

80

100

120

140

160

180

Avg

. (R

s/K

g)

Month

A COMPARISION ( ORTHODOX )

2011/12

2010/11

• Lower orthodox prices for some grades: Result of higher Assam crop and payment issues due to embargo on Iran

• Presents great buying opportunities.

Price trends

Auction Price Comparison – DARJEELING2011~12 n 2010~11

Months

2011/12 US$/kg 2010/11 2009/10 % Var 2010-11

Apr 377.71 8.40 354.25 354.98 6.50

May 338.06 7.50 268.42 258.32 26.00

June 309.96 6.90 275.09 175.79 11.30

July 379.86 8.45 307.66 254.83 23.40

Aug 256.98 175.87

Sept 260.48 164.61

Oct 256.57 174.86

Nov 240.47 197.03

Dec 238.30 161.58

Jan 196.42 147.56

Feb 137.16 147.59

Mar 153.71 160.64

DARJEELING ( Auc.Avg. )

0

50

100

150

200

250

300

350

400

Av

g.

(Rs/

Kg

)

Months

A COMPARISION ( DARJEELING )

2011/12

2010/11

2009/10

• Strong demand for Darjeeling. • 2 years of drought resulted in low 1st flush stocks• larger offerings of 2011 seen as buying opportunity• Strong domestic demand has pushed up base prices

Price trends

Auction Prices ( CTC and Dust) ( North India )

Months * CTC leaf & all Dust

2011 2010 2009 2008

Jan 102.23 98.45 87.98 72.20

Feb 91.42 94.07 81.35 63.72

Mar 78.72 79.41 78.01 62.29

Apr 124.17 106.56 115.96 97.46

May 125.44 113.55 133.48 91.14

Jun 129.23 116.66 127.10 101.02

Jul 124.76 118.77 112.92 92.90

Aug 125.56 115.05 94.57

Sep 122.63 115.10 103.90

Oct 126.11 120.06 105.58

Nov 120.74 121.61 100.03

Dec 113.87 114.05 94.18

North India ( Auc.Avg. )

Monthly Prices Of All Tea At South Indian Auction01

Jan-00

Jan-00

Jan-00

Jan-00

Jan-00

Jan-00

Jan-00

Jan-00

Jan-00

Jan-00

Jan-00

Jan-00

Months

Pri

ce

in

Rs

./K g 2008 (P)

2007

2006

Monthly Prices Of All Tea At All Indian Auction01

Jan-00

Jan-00

Jan-00

Jan-00

Jan-00

Jan-00

Jan-00

Jan-00

Jan-00

Jan-00

Jan-00

Jan-00

Months

Pri

ce

in

Rs /K g 2008 (P)

2007

2006

PRICE COMPARISION ( NORTH INDIA AUCTIONS )

405060708090

100110120130140

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Month

Pric

e ( R

s / K

g ) 2011

2010

2009

2008

Higher prices of April to June are easing off on the back of larger crop

Price outlook

Price Comparison – South IndiaOrthodox

40

50

60

70

80

90

100

110

120

130

140

Rs

/ Kg

Week

SOUTH INDIA ORTHODOX AUCTION AVERAGE

2009

2010

2011

• South India prices settling to 2010 levels after being slightly higher.• South India teas still among the most competitive teas worldwide.

Price trends

COLOMBO AUCTIONS( Weekly Price comparison )

150.00

200.00

250.00

300.00

350.00

400.00

450.00

500.00

US

Ce

nts

/ K

g

Week

CEYLON AUCTION AVERAGE

2009

2010

2011

• Firm price trend• Jan to June 2011 crop seen approx 1.3% below 2010 ( 164.8 million kgs versus 167 m)

MOMBASA AUCTIONS( Weekly Price comparison )

150

170

190

210

230

250

270

290

310

330

US

Ce

nts

/ K

g

Week

MOMBASSA AUCTION AVERAGE

2009

2010

2011

• Higher price trend in 2011. Kenyan crop well off record highs of 2010• Kenya Jan to June 2011 crop approx 16.3% less than 2010 ( 178.4 million kgs vs 213)

Domestic Factors

• Govt supporting orthodox production - a commitment to tea exports.

• Orthodox production in India currently approx 80 million kilos : Expected to grow to about 100 million by 2016.

• Increase in small holdings : 157,504 with 163,326 hectares under tea. Produce approx 257 million kilos (26% of Indian crop). Up from about 11% in 2000.

• Inflationary increase in production costs. Over 25% wage hike to Darjeeling plantation workers this year.

• Climate change starting to impact tea production: Not much change in overall temperature or rainfall but more extreme conditions.

• Tea Research Association in India working to reduce potential impact of climate change.

Workers and Ethical Sourcing

• Indian tea industry committed to social welfare of its workers without external pressure.

• Indian tea sector spends approx 10% of total cost of production by way of additional social expenses for workers.

• Tea - The largest private sector employer in India. Individual tea estates virtually self sustaining communities. In last decade largest production increase came from small holdings (below 10 Hectares under tea)

• Small holdings :157,504 with 163,326 hectares under tea. Produce approx 257 million kilos (26% of Indian crop). Up from about 11% in 2000.

• Tea- Provides remunerative livelihood to rural communities.

Direct Employment and Statutory provisions for welfare of workersDirect employment

Social Costs incurred by Indian Tea Plantations

Statutory provisions

ESTIMATED NUMBER OF PERMANENT LABOUR DIRECTLY EMPLOYED IN TEA PLANTATIONS:

• Women Workers: 6,30,642

• Male Workers: 6,00,180

• 18 to 21 years: 28,678

• Total Workers: 12,59,500

The following facilities are to be provided to workers under the Plantation Labour Act,1951

• Housing, Drinking Water, Free Medical treatment,

• Primary Education and Crèches for children

• Protective clothing (Umbrella/raincoat, slippers, blankets etc.)

• Workers are not allowed to work in excess of 48 hours a week

• Weekly holidays, Workers are also entitled to avail leave with wages.

• In North India by virtue of existing agreements and practices workers are provided with subsidized rations, Fuel, Dry tea, etc.

▪ Welfare of tea workers is enshrined in comprehensive labour legislation in India.

▪ Collective bargaining has matured and wage settlements are reached at bipartite / tripartite levels at periodic intervals.

▪ Stake holders are subjecting themselves to social audits on ethical practices by international agencies.

Traceability and Sustainability

• Over 75% of Indian production comes from organised plantation sector: Tea is traceable from cup to bush.

• Balance Leaf comes from small holdings: Tea is traceable from cup to manufacturing facility.

• Sustainability: India committed to sustainable agriculture with focus on environment, soil, labor. An ongoing process.

• Prices remain unviable in many areas. Without economic viability coming from remunerative prices, no sustainability for plantations.

The Industry’s Commitment to Sustainability, Quality & Safety

• Adoption of GAP and GMP that enrich and conserve the soil and minimize bio-sphere pollution.

• Quality Assurance Programme through HACCP certifications.

• Increasing use of eco-friendly packaging.

• ISO certification.

• Adoption of PFA standards for imports and exports.

• Tea Board set up national committee on MRL related issues. On top of the agenda.

• Trade interacting with Research Associations, other producing countries and importers on the MRL issue.

• Ethical Labor Practices

Domestic Consumption and Exports

• Domestic consumption in India : Growing at about 2.5% per annum.

• Exports in 2011 : Lower than 2010 to date

• Drop chiefly on account of lower exports to Iraq and Iran.

• Iran a key orthodox importer from India. US embargo has resulted in payment issues and affected exports.

• Egypt and Pakistan: Lower exports thus far. Adverse effect on South India prices.

• Silver lining : Growing interest in milk tea in South East Asia including China and Japan. China emerging as an important importer for Indian CTC teas.

Major Import Destinations of Tea from India

Qty (M.Kgs.)Value (Million

US $.)Unit Price

($/Kg.)

Russian Federation 44.65 107.75 2.41Kazakhstan 9.04 27.91 3.09United Kingdom 15.7 43.01 2.74Netherlands 2.28 11.93 5.23Germany 3.74 17.57 4.7Poland 2.95 8.82 2.99U.S.A. 8.79 34.26 3.9Canada 2.15 8.07 3.75U.A.E. 20.04 59.57 2.97Iran 11.23 36.02 3.21Iraq 16.2 42.54 2.63Egypt 5.45 10.2 1.87Afghanistan 12.52 19.64 1.57Sri Lanka 3.86 10.75 2.79Kenya 1.84 2.45 1.33Japan 2.88 16.21 5.63Pakistan 7.5 13.85 1.85Australia 4.37 25.28 5.78

TOTAL EXPORTS 191.49 540.7 2.82

Name of the Countries

Jan to December 2009 • USA -7th largest importer of Indian tea in quantity terms. 6th largest in value terms.

• USA – ranks 5th in unit price per kilo of Indian tea exports from India

• Canada - Follows USA in unit price per kilo of tea imported. Low quantities overall.

Source: Tea Board of India

Indian Tea Exports to USA

April to March

PACKET TEA

TEA BAG

BULK TEA

INSTANT

TEA

Year Qty,000 kgs

ValueMioUS$

Qty Value Qty Value Qty Value Total Qty,000 kgs

2009-10 895 3.95 1,152 8.43 6,123 17 1,642 9.96 9,812

2008-09 861 3.26 792 6 5609 15.29 1632 8.82 8,894

2007-08 1392 4.39 1072 5.30 5837 14.52 1595 9.40 9,896

2006-07 1040 3.06 803 3.69 5167 12.48 1753 11.46 8,763

2005-06 1306 3,95 1093 5.56 5205 12.42 1693 8.86 9,297

Quantity: In Thousand Kilos. Value: In Millions of US$

Source: Tea Board of India

Major Tea Exporters to USA – A Perspective

• 2 major exporters to US :Argentina and China.

• China production : Up from 1000 million kgs in 2006 to 1370 million kgs in 2010. Yet total exports constant around 300 million kgs. Great increase in domestic consumption. Can production growth keep pace with consumption growth?

• Indonesian production : Declined from 156 to 129 million between 2005-2010

• Kenya production 2010 : All time record of 400 million kgs. Next highest production 369 million kgs. 2011 already down.

• Indian exportable surplus even in 2016 projected to remain steady.

• Exports of bulk teas from India to USA grew 16.66% in 2010 compared to 2009. This was after many years of negligible growth.

• Clearly India will remain a key player on the US tea import scene.

• Indian and Chinese consumption / exportable surplus – single largest factor in establishing future world prices.

The Case for Indian Tea in North America

• Is India a reliable long term tea supplier? Is it a good idea to incorporate it in your assortment and blends? The clear answer is yes.

• Exportable surplus available

• No other tea producer offers the great variety and diversity of flavours in classic teas that India offers.

• Indian tea best suited for North American chai/latte segment, teabag and specialty segment.

Indian teaprojection

Production (Est) Domestic Consumption (Est)

Exportable Surplus available

Production year

2010 985,000,000 kgs 800,000,000 kgs 185,000,000 kgs

2016 1,100,000,000 kgs 905,000,000 kgs 195,000,000 kgs

North America and Indian Tea: Factors

Why I am pushing the case for Indian tea today :• Specialty tea: Availability from Darjeeling, Assam tippy orthodox and top CTC

and Nilgiri. Sufficient quantity for US demand growing at almost 20% p.a.

• Value for money: A tea to suit most budgets. Wide range of qualities.

• ‘Ethical’ certified and organic teas gaining market share in North America : Growing number of Indian estates .

• Organic tea production currently approx 10 million kgs in India – expected to double by 2016. In sync with growing North American demand.

• The Indian tea industry -a Business with a heart : committed to worker welfare.

• Sustainability and traceability factors : In sync with global requirements.

• Govt of India committed to promoting Indian tea in the US : Launched the 5-5-5 scheme with USA as one of its 5 chief focus markets.

• India will actively promote its teas in North America.

We invite you to unravel and experience theMystique of our teas.

BALAJI AGRO INTERNATIONAL