US financial crisis hits tea industry

by Lalin FERNANDOPULLE

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The tea industry has been severely hit by the United States financial crisis and the slump in oil prices which has led to a drastic drop in the sales volumes, said Chairman, Sri Lanka Tea Board (SLTB), Lalith Hettiarachchi.

He said Russia and the Middle East which are the two main buyers of Sri Lankan tea have been affected by the US crisis. While Russia's Rubel depreciated by 12 per cent, the Middle East buying power dropped due to the slide in oil prices.

The United Arab Emirates (UAE) tea market which expanded during the first half of the year due to the surge in oil prices has narrowed down with the decline in crude oil prices.

"Around 60 per cent of the tea offered at last week's auctions were withdrawn due to the low demand. The drop in prices had been between Rs. 60-100 per kilogram. On average 10-12 per cent of the quantity of tea offered is withdrawn at the weekly auctions", Hettiarachchi said.

Sri Lanka sells around 6-7 million kilograms of tea a week which amounts to around 300 million kilograms per year. A 20 per cent drop in purchasing power was reported last month.

"There is a cash shortage in the industry affecting the entire production process up to the grower.

The Tea Board has advised manufacturers to settle the amount due to the green leaf suppliers before the 20th of the following month.The broker has to settle the full payment within five days", the chairman said.

The SLTB through the Ministry of Plantation has called upon banks to relax credit limits to enable those who are cash strapped to borrow. Meanwhile, the Tea Board in its proposals for the Budget has called for concessionary Duty or Duty free import of vending machines to dispense fresh brewed tea.

The Board has also called for a similar concession to small and medium exporters to import tea blending and packing machinery.

Duty-free concessions to import machinery to modernise factories, expand railway stations to transport tea, scheme to grant foreign currency loans for the industry, interest free loan scheme for organic fertiliser manufacturers for tea cultivation based on refuse tea and other organic components approved by the Tea Research Institute are some of the budget proposals of the Board.

Hettiarachchi said the tea cess money not ploughed back for promotional and development activities is a major issue that the government needs to address.

Exporters pay Rs. 4 per kilogram of tea as cess to the government which earns around Rs.1.2 billion a year.

Politics in the plantation sector is a major hindrance to increase production. Tea production in Sri Lanka is low compared to Kenya and many other countries in the region.