Dip in tea prices, a short term gain for exporters

by Lalin Fernandopulle

The drop in global tea prices will only be a short term benefit for Sri Lankan tea exporters who need to focus on enhancing quality, value addition and branding to be competitive and increase its global market share, industry experts said.

Marketing Director, Dilmah Tea, Dilhan Fernando said Sri Lankan exporters will benefit from the dip in world tea prices in the short term but not the plantation sector which is facing a turbulent time due to the drop in quality and quantity of production.

“The tea export sector should focus on value addition, improving quality and branding to be competitive and increase global market share,” he said.

Tea exports have been adversely affected due to the devaluation of currencies in many tea importing countries such as Russia and the Middle East. The value of the Russian Rouble and the Euro has declined sharply in the recent past impacting the volume of imports to the country. The Rouble has been devalued by around 110 percent following the imposition of the US and US allied sanctions.

The buying power of a Russian has dropped from around US$ 3,000 to US$ 800 due to the devaluation of the currency. As a result tea is no longer an essential commodity for many Russians.

The marginal stability in the currencies of certain countries during the past week brought a sigh of relief to exporters.

Turkey, a large buyer of Ceylon tea is affected by the crisis with Syria and its ally Russia. Around 2,000 containers are stuck in ports in Turkey since last month, according to export data.

Iran is the only silver lining for tea exporters with an improvement in the buying pattern in the country.

“Sri Lankan companies are not doing much value addition to boost exports,” Fernando said.

Director, Lanka Commodity Brokers Limited, Jehan Algama said the fall in global tea prices will have more demand at the Colombo tea auctions which over a period of time will have stronger demand and prices.

However the future of the Sri Lankan tea industry looks bleak with the escalation of violence and tension in tea importing countries which have compounded issues faced by the tea industry already saddled with the wage hike demand which adds on to the huge cost of production resulting in manufacturers being unable to sustain operations.

Around 52 factories have already shut down operations and many face imminent closure due to the drastic drop in global tea prices making the business unsustainable. The absence of the fertiliser subsidy is another blow to the producers.

Tea brokers said at the auctions held up to March 23 this year 70.5 mkgs were sold at Rs. 406.37 a kg as opposed to 72.4 mkgs sold at Rs. 418.01 per kg during the corresponding period last year.

The producers’ cost has risen due to the fall in crop volume, heavy indebtedness due to the low performance in the previous year which was considered a crisis year, Algama said.

Experts said this year will be worse than last year with a 10-15 percent drop in production which was around 328 mkgs last year. The lack of fertiliser, the drought and global warming adversely affects crop growth.

The soil temperature has risen according to the Tea Research Institute which is not conducive for growth. The industry anticipates around 315-320 mkgs this year.

The production in March and April will be dismal due to the drought in all elevations and also the holiday season.

The volume of tea exports during the first two months this year was 47.7 mkgs, a marginal decrease compared to 48mkgs in the corresponding period last year.