Sri Lankan Tea Market Regains Momentum

COLOMBO, Sri Lanka

Frequent rains this month promise relief from a drought that has significantly reduced Sri Lanka’s tea production throughout the harvest year.

Evening showers followed by sunny mornings are ideal for tea growers and volumes are expected to increase for the December auctions.

Lanka Commodity Brokers Ltd. (LCBL) Director/CEO Sarath Sirisena told the Sunday Observer newspaper that 2011 has been a bad year for tea producers. The dry weather from May to September had a drastic impact on the crop grown at high and medium elevations which account for a substantial quantity of tea production in the country, he says.

The price of Ceylon tea has fallen compared to record prices last year. The average price of CTC at auction was SLRs 360.9 ($3.27) per kg from January through October compared to $3.42 during the same period last year. A total of 261.8 million kilograms (mkgs) have been auctioned so far this year, down 480,000 kgs from 2010.

Production in September fell to 22.9 mkgs, a drop of 2.6 mkgs compared to September 2010. Declines were recorded in all three growing regions. Year-to-date production is 245.1 mkgs compared to 247.1 mkgs in 2010.

“Hot on the heels of the wage increase granted to the plantation workers the drought added to the woes causing a huge loss to the industry”, Sirisena told reporters. The cost of production which is already high in Sri Lanka compared to other producing countries, reached unprecedented heights resulting in huge negative variances between COP and the Gross Sales Average (GSA).

Exports are also impacted by events in Middle Eastern countries which buy large quantities of Ceylon tea. Turmoil in Libya, Egypt and Syria has curbed demand. Sanctions against Iran, a key market for Sri Lankan low-grown teas had a serious setback on the market, says Sirisena.

“Libya, a strong contender at our auctions has been conspicuous by its absence for the past few months”, brokers told the newspaper. The U.S. recession and certain parts of Europe is adding to our woes and these markets which paid for good Ceylon Tea earlier may be forced to look at cheaper alternative markets from other origins, says Sirisena.

Sri Lanka Tea Board expects production to stabilize this month with the improvement in the weather in the plantation regions. Sri Lanka is the fourth largest tea producer, together with China, India and Kenya the four countries account for 75 percent of global production.

Source: Sunday Observer