The wage inflation which is concerning central banks and investors worldwide spurred a 62% jump in trading losses at Camellia’s tea operations, as pickers forced an international round of double-digit pay rises.
Shares in Camellia, the UK-listed engineering-to-avocados group, tumbled by 10.7% at one point to their lowest in 13 years.
The group said that revenues at its tea operations rose by 6.0% to £77.3m in the first half of 2022, encouraged by higher prices in many markets.
Prices of benchmark North Indian orthodox tea, as drunk in the likes of Iraq, Iran and Russia, reached 352.16 rupees per kilogramme at auction in July, the highest on data going back five years, after floods and pests depressed the country’s harvest.
India’s overall tea output fell by 20% to 360.19m kilogrammes in the first half of this year, data from the state-run Tea Board show.
“Disruption in Sri Lanka,” another major tea-growing nation, where protests forced the resignation of Gotabaya Rajapaksa as president two months ago, has also supported prices, Camellia said, reporting “significantly higher” prices for its Assam orthodox teas.
Firmer prices of Indian and Kenya CTC teas, as favoured in countries such as Egypt and the UK, also helped offset weaker values of Bangladeshi and Malawi leaves to lift group revenues.
‘Significant increase in wages’
However, Camellia’s trading loss in tea expanded by 62% nonetheless, to £12.8m, as the group battled with mounting garden wage bills
“The benefit of the price increase in India was insufficient to offset the impact of lower production coupled with a significant increase in wages in the West Bengal region effective from the start of the year,” the group said.
“Wages in West Bengal increased 15% for 2022.”
‘Will impact profitability’
The group faces further wage increases too, with Assam wages up 13% from last month, “which will impact profitability in the second half of the year”, and Malawi pickers enjoying a similar uplift.
“Bangladesh is also experiencing significantly higher wage inflation backdated to the start of 2021 from ongoing negotiations,” Camellia said, with the country’s tea workers rejecting a 20.8% pay increase as had been agreed by the government and union.
Now a 41.7% pay rise, also backdated, is on the table for Bangladeshi pickers, although some are reportedly demanding a 150% pay rise.
“The final agreement has yet to be concluded and negotiations are continuing,” the company said.
‘Below market expectations’
Camellia added that while it was difficult to forecast its full-year results, given unpredictability of conditions for both its agriculture and engineering divisions, the rising wage bill could leave the group facing a year-on-year profits decline.
“Taking account of the latest position on the Bangladesh wage negotiations, if current trends continue… the adjusted profit before tax for the group for the year will now be below market expectations and below that of last year.”
Camellia shares, having touched 5,204p at one point, their weakest since April 2009, recouped some losses to close at 5,400p, down 7.3% on the day.
The group added that “diversifying our interests in agriculture where we have scale and expertise and disinvesting those businesses where we have fewer long-term strategic advantages are key priorities, and we are taking significant steps to accelerate its implementation”.
In nuts and fruits, Camellia grew profits fourfold for the January-to-June period, to £1.3m, backed by a strong macadamia harvest.
Camellia reported a tripling to £19.1m in group after-tax losses for the half year, on revenues up 19.2% at £125.8m.