Distorted market forces hamper tea industry growth

The illusion of euphoria generated in non-industry quarters regarding the extraordinary prices being realized at the Colombo Tea auction is, sadly, misplaced. The populace cannot be blamed for forming this misconception, since all one reads in market reports and business commentaries on tea these days is that record prices are being achieved in successive weeks, lending itself to the conclusion that plantations must be reaping windfall rewards. The Colombo Tea Traders' Association [CTTA], the apex body of the Industry, is constrained to caution against subscribing to such speculation, as that certainly does not reflect the true picture.

The situation now affecting the internationally renowned Colombo Tea Auctions is that distorted market forces are driving it. Volumes available for sale, channelled through the auction, are far below normal levels. The current supply shortages and the expectancy of continued short supplies have contributed to unhealthy and unrealistic market conditions, which are unsustainable. Exporters, who are compelled to meet their contractual commitments, concluded prior to the price explosion, notwithstanding the exaggerated price levels, are incurring substantial losses on shipments.

Producers are being progressively burdened with escalating deficits, on account of the prohibitively high cost of production caused by the abysmally low productivity. International packers/buyers are being impelled to seek substitution of the Ceylon Tea component in consumer packs with teas of other origins, as prices in Colombo are not viable any more.

The dilemma the Tea Industry presently faces finds its origins in the Plantation Workers' Trade Union agitations, which commenced in November last year with a "go slow", to coerce acceptance of their demands for an unreasonable increase in wages. Three weeks later, on rejecting any form of compromise, this developed into a full-blown strike, which continued for over a month.