Revenue was flat, and tea production in 2019 returned to 2016 levels, and all but three of Sri Lanka’s 17 public tea estates reported losses. The situation prompted Sri Lanka to draft a 10-year “Road Map 2030” master plan to “refocus the entire tea value chain.”
Sri Lanka is currently reviewing the entire length of the country’s tea value chain seeking to restore profitability with environmental sustainability, according to Sri Lanka Tea Board Chairman Jayampathy Molligoda.
“We are to look at tea as a beverage in the global market, worth $38 billion as compared with our narrow perception of the tea industry as a perennial crop, generating only $1.45 billion per year,” Molligoda said.
Production declined to 2016 levels last year, and export revenues were flat at $1 billion. All but three of Sri Lanka’s 17 public tea estates reported a loss in the six months ending September 2019. The decline in volume to 301 million kilograms from 303 million kilograms in 2018 was weather-related as drought conditions lowered yields in all three of Sri Lanka’s tea-producing regions.
Lower yields are compounded by the fact that globally black tea production is up. CTC prices are soft as warehouses remain packed with tea. Yields will ebb and flow presenting seasonal setbacks, but modernizing the supply chain is a pressing issue, according to industry leaders.
In January, Sri Lanka’s Ministry of Plantation Industries and Export Agriculture initiated discussions on a 10-year master plan known as “Road Map 2030.” The public-private initiative intends to “rapidly modernize the island country’s tea sector through technological intervention,” according to the Daily Mirror.
Sri Lanka exports 97% of its tea, earning $1 billion in foreign exchange dollars annually, but production volumes are down and export revenue flat for the past four years. Last year’s revenue at 17 Regional Plantations Companies (RPC) fell 3.6% to SLRs28.47 billion ($156.5 million) for the six months ending September, costing the government SLRs400 million ($2.2 million) per month to pay wages, according to Economy Next. Private sector executives and government officials agree that change is necessary. Exporting larger and larger quantities of tea, even at relatively high commodity prices, is not generating enough return on Sri Lanka’s massive investment. The transition from commodity supplier to better quality and full-service value addition will take time.
Private stakeholders, including associations of tea planters, tea factory owners, tea traders, and tea smallholders, are working on a separate five-year development plan that takes into consideration various challenges such as global tea market trends and competitor capabilities when formulating the master plan.
In January, the tea board set an export goal of $1.3 billion for 2020 on a volume of 340 million kilograms. SLTB Chairman Molligoda acknowledged that adding 40 million kilograms is ambitious but added, “I am positive that the targets can be achieved with quality in mind.”
The onset of an El Nino event, expected in November, will reduce tea yields. The year is off to a slow start. In January, Sri Lanka harvested 21.9 million kilograms, down from 23.2 million kilograms in 2019. Prices at the Colombo auction, meanwhile, fell from SLRs637.75 ($4.16) per kilogram in January to SLRs588.8 ($3.17) per kilogram in January 2020.
Molligoda described the situation as an “integrated productivity and quality problem.”
Auction prices fall if the plucked leaves are of lower quality, he explained. “We have noticed a gradual decline in the quality of the green leaf. The good leaf count, which has come down, needs to increase subsequently.”
“If the quality of raw material continues to deteriorate, we are in trouble,” Molligoda said.
Shifting Export Partners
In an unusual turn, China, the world’s largest tea exporter, is now one of Sri Lanka’s most important tea markets, importing large quantities of Ceylon tea at prices rivaling industry-leading rates.
Sri Lanka shipped 11.8 million kilograms of tea to China last year. This amount is double the 5.3 million kilograms exported five years ago, according to Asia Siyaka Commodities, Sri Lanka’s leading tea broker.
“China has emerged as Sri Lanka’s fastest-growing “new market” with interest in traditional Orthodox black tea and high-end packaging common amongst the increasing number of Chinese tourists visiting Sri Lanka,” writes Asia Siyaka CEO Anil Cooke. Sri Lanka now supplies 29% of the 35 million kilograms that China imports, according to a report published by Xinhua News Service.
Due to U.S. sanctions that restrict trade in dollars, Iran turned to Sri Lanka and India to quench its thirst for tea. Iraq now ranks first among Sri Lanka’s tea trading partners, which include Turkey, Russia, China, the UAE, and Saudi Arabia.