Lanka's tea prices to gain from galloping oil prices

by Elmo Leonard

Sri Lanka's tea exports could gain from the now trend of galloping oil prices, because the Middle Eastern and Commonwealth of Independent States (CIS) who purchase around 70 percent of the island nation's tea shipments, are oil producers with benefiting economies. The success the country continues to make in securing multilateral regional and bilateral trading arrangements, will also boost tea prices, the Sri Lanka Tea Review, 2005, by Forbes and Walker Tea Brokers (Pvt) Ltd says.

The Sri Lanka tea industry would have to face many challenges during the year, the report says. Among them being the country's emphasis to produce teas of high quality, while managing its production levels. Another challenge is the European Union requirement for all suppliers of tea to be HACCP compliant. Also, to be a party to the Ethical Tea Partnership (ETP), becoming a requirement, so that producers could keep abreast of international competition.

Another important factor that might influence tea prices is the likely variation in the exchange rates. The Sri Lankan rupee was relatively stable against the US dollar during 2005 in the aftermath of the tsunami, but is now likely to divert to the patterns of depreciation, of the past. This would in turn strengthen the Colombo auction tea prices in rupee terms.

Kenya, Sri Lanka's arch rival in tea exports, volumewise, has reported a crop shortfall of 25 percent for the first quarter, against the corresponding months of 2004. This factor, combined with the low crop intake during the first quarter, made way for liquoring small leaf teas to account for record price levels of $3 to $4 per kilogram, during that quarter.

However, with the high tea output expected during the second quarter, tea prices of all categories are likely to fall considerably, particularly, for the mediocre and poor flavoured teas. The high carry over of stocks, YoY building up to over 50 million kilos, in 2006, may also weigh the production factor against price.

With the Mombasa auction in Africa, having limited availability, UK, Egypt and Pakistan were compelled to look towards other origins and India and Sri Lanka were the beneficiaries.

Meanwhile, during 2005, Colombo continued to fetch the highest average cumulative prices, averaging $1.85 per kilo, followed by Kolkota - $1.57, Mombasa - $1.47, Guwahati - $1.36, Chittagong - $1.20, Cochin - $1.19, Jakarta - $1.02 and Lime - $0.92.