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| Sunday, 17 August 2003 |
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Sri Lanka's tea industry in the doldrums? by Elmo Leonard Sri Lanka's hill-country tea plantations are battling for survival due to the high cost of production they have to bear, which far exceeds the prices these teas fetch at the weekly Colombo Tea Auctions. Directors of plantation companies have been tight-lipped since the problem began, with the threat of war in Iraq late last year. Some estates in both the Western and Eastern highlands of the plantations, lose as much as Rs. 20 to Rs. 40 per kilogram, reliable sources who did not wish to be named, said. Agrapatana and Kotagala Plantation Companies' marketing director, GDV Perera, admitted that most up-country plantations companies are running on huge bank borrowings. Other company directors who declined to be identified said that they did not have money to pay salaries to their staff. Politically motivated wage hikes, with threats of strikes through the years are also taking its toll. The last increase, effective July 2002 results in larger plantation companies bearing added expenses of over Rs. 65 million per year. Adding to the misery, the Eastern or Uva quality tea season which was due in July, has yet to begin. In July, high and mid-grown teas fetched Rs. 114 and Rs. 119 per kilogram, respectively, while low-grown teas averaged Rs. 172 per kilogram at the Colombo Tea Auctions, according to Sri Lanka Tea Board statistics. But, even the low-grown sector is beset with problems of imminent high electricity prices and dwindling fuelwood stocks often brought about by a lack of interest in growing wood fuel required for tea factories. The dearth of fuelwood and consequent high prices is also taking its toll on up-country tea plantations. All other tea-producing countries have maintained extensive firewood plantations which would sustain low-cost power for their tea industries in coming decades. Sri Lankan short-sightedness in many other areas of plantations management is expected to provide a depressing domino effect on the island's tea industry in ensuing years, beginning mid-2004, veterans in the tea trade said. Ironically, the Colombo tea auctions which is by far the largest auction centre in the world, commands higher prices than all other global auction centres which are also hit by low prices. Sri Lanka with exports of around 190 million kilograms is the highest exporter of tea in the world. In recent weeks, Broken Orange Pekoes (BOP) teas from up-country estates often commanded a mere Rs. 85 to Rs. 95 per kilogram at the Colombo Auctions and, when prices are low, these teas are withheld, adding to further depressed prices in ensuing weeks. Watawala Plantations' Director, Marketing, Kumar Abeygoonewardena, said that BOPF (Fannings) teas from his estates in Vellioya and Lindula Estates, reached the highest Colombo Auction prices last week, of Rs. 210 per kilogram. No teas produced by Watawala Plantations are unsold. Identifying global oversupply, Abeygoonewardena, a planter who took to marketing and headed the marketing arm of Sri Lanka State Plantations Corporation (SLSPC), changed the strategy of his company in June to that of producing good leaf teas. The current global oversupply results from there having been a surplus of teas in 2001 and 2002. In Sri Lanka the months of June to August are traditionally wet and crops becomes uncontrollable, resulting in lower quality teas reaching the auctions. Abeygoonewardena said that the local tea industry had erred in attempting to put out a larger crop during the past few months. "There are too many plain teas in the world market and in such a scenario buyers could purchase their requirements from any world auction centre," he said. According to the Chairman, Ceylon Brokers Association, Anil Cooke, the market for high grown teas is weak because Sri Lanka's tea exports to Iraq is nil, following the war. Earlier, under the U N Oil for Food programme, Sri Lanka shipped 10 to 14 million kilograms of tea to Iraq. Following the island's successful Western quality tea season in the year's first quarter, the quality of tea weakened in April. The Iraqi order would have absorbed the larger weight of plainer teas, Cooke said. The market for larger leaf teas was also affected by the problems in the Gulf region and the market declined further, aggravating pressure on up-country producers who made long-leaf teas. Russia, Sri Lanka's largest buyer of tea is absent from the Colombo auctions, having had the option of purchasing low-quality and cheaper teas from other global buying centres. Cooke said that BOPF's which are used extensively in tea bags, fetch a comparatively higher price, but not enough to keep the estates viable. Colombo's monthly auction averages for high-grown teas, published, are in fact lower, as poor price unsold teas, consequently get even poorer prices, making the situation worse, Cooke said. The current heatwave in the Western world has the consumer reaching out for a wide range of cold beverages which depresses demand for tea. Warm summers are followed by cold winters and during the coming cold winter months, a better demand for teas from the developed world is anticipated, Cooke said. |
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