Outlook for tea industry bright

The tea industry outlook for 2009 is bright and country can expect over 300 billion kg production and over $ 1 billion revenue this year, Chairman Sri Lanka Tea Board (SLTB) Lalith Hettiarachchi said.

A great part of the crisis is over and there is a price fluctuation due to some other reasons. Demand is high and at the last week auction low grown tea picked Rs. 330-450kg. If one were to take the global outlook all predictions are pointing towards lower production and higher prices. The major producing countries have all been experiencing bad weather conditions and resultant lower production figures. Consequently, tea being a commodity, which has a comparatively non-elastic demand, has been enjoying reasonably higher prices. It is expected to continue to enjoy better prices in the near future too, Hettiarachchi said.

He said that several factors affected the tea industry during the crisis. One is that the Sri Lanka Rupee was being kept at an artificially high level while all other currencies were depreciated. On top of it certain buying countries like Russia were quick enough to even restrict foreign exchange remittances abroad thereby limiting buying power. Other buyers especially in the Middle East, where the banking sector was quite strong and resilient, were adopting a “wait and see policy” expecting the prices to come down further.

The Sri Lanka Tea Board on the directions of President Mahinda Rajapaksa had to enter the Auction floor to purchase tea in order to build the confidence of the buyers. This intervention, as acclaimed by the stakeholders, did have a very salutary effect and from the 43rd auction onwards the prices started to get stabilised.

Since there is a healthy competition, although the SLTB participated at all auctions from that week onwards it did not have to purchase tea. It has also to be mentioned here that the SLTB walked into the auction room neither with any mandate to buy, nor the finances to do so, the only strength it had being the verbal directive of the President and the stakeholder backing.

He said that the results of the auctions show that generally the high grown tea and better quality tea, whether low grown or high grown, fetched considerably good prices. The demand was reasonably good and the prices were comparatively firm. But the withdrawals from auction were still higher and the prices fetched by poorer grades were lower which resulted in the National Sales Average (NSA) being pulled down.

Against this backdrop, while some of the cash strapped producers started to refuse to buy green leaf and refused settling their dues to the green leaf suppliers, some others even went to the extent of cashing in on the troubled situation by threatening to close down factories thereby forcing the leaf suppliers to either agree to sell at unreasonably low prices or agree to be paid for lower quantities than they actually delivered.

Among the factors that contributed to the recovery of the industry is the intervention of our foreign missions. Minister of Foreign Affairs, as a follow up action on a request made by the SLTB to all the Sri Lankan missions in the Russia/CIS and the Middle East regions, had a meeting with all the counterpart Ambassadors in Sri Lanka.

They explained them the situation we were faced with and requested their assistance too to get over the crisis. Some of the Sri Lankan Missions also showed positive responses by gathering the buyers in those countries and building their confidence that the Government of Sri Lanka is taking positive steps to help the industry. Countries like Iran, Egypt and Russia are some we can mention particularly, he said.

Explaining the present situation in the industry Hettiarachchi said that the first quarter of the year was affected by the non application of fertiliser and the drought.

Therefore leaf quality was beyond the control of the grower. But as from April onwards things are getting better.

Production itself was very low during the first quarter compared to the same period last year (41.6% lower) although value partly compensated for the poor volumes (the drop in Dollar value was 18.7% only).

However to what extent the effect of the non application of fertiliser and the drought have impacted on the quality of tea is yet to be seen as it will have a longer term effect than volume itself.

Although there were wild threats of small growers planning to uproot tea and switch on to banana instead, with tea becoming unprofitable, such threats did not seem to have materialised and proved to be more politically motivated slogans.

But the fact remains that lower production, whether on the estate or in the factory floor would result in higher cost of production.

This again would impact on the availability of capital for development whether in the garden or in the factory, he said.

(GW)