Tea Swap trading begins in Sri Lanka

Text and pix by Gitika Talukdar 

Sri Lanka became the world’s first tea-producing country to launch an official trial for Tea Swaps last week. 

A Tea Swap is a new type of financial product, capable of bringing stability to the tea price, opening new avenues for investment and growth in the sector.

Since 1890, there have been many attempts to use financial products to iron out the peaks and troughs in the famously volatile tea price. With a more stable tea price, growers and exporters can more accurately plan their finances, usually leading to an increase in investment and profitability.

In Sri Lanka, Lanka Tea Swap Ltd. will use the latest innovations in finance and technology to solve this 128-year-old problem. Lanka Tea Swap is a UK-based, newly -launched company in Sri Lanka headed by Lanka Tea Swap Director James W. Montlake. Montlake is an expert in business development, specialising in financial derivatives. Montlake has experience in the financial services sector, working for major international investment banks and exchange groups on various asset classes, including precious metals, interest rates (LIBOR) and equities. Montlake spearheaded a project to launch an electronic auction system for gold trading which is now the world’s largest gold auction, turning over $100m of Gold every day. For the past two years, Montlake has been working with the tea industry to develop a Tea Swap product to help protect firms against price volatility in tea.

Commercial Bank of Ceylon PLC ex-Chairman and Lanka Tea Swap Chairman Mahendra Amarasuriya said: “The Tea Swap is an innovative intervention which will assist both buyers and sellers to stabilise prices at which they will transact business to their mutual advantage.”

A Tea Swap differs from its predecessors because of its increased flexibility. A Swap can be easily customised to account for the many different grades, regions and qualities of tea.

The Colombo Tea Swap will begin trading as part of an initial trial with 2 major tea companies taking part, Sunshine Holdings PLC and Akbar Brothers.

From Left Malin Goonetileke (Consultant, Lanka TeaSwap),James Montlake,Director Lanka Tea Swap, Charles Montlake,Director Lanka Tea Swap, Binesh Pananwala (CEO, Hatton Plantations Ltd), Janek Jayasekara ,Group COO, Akbar Brothers,Mahendra Amarasuriya Chairman of Lanka Tea Swap, Mr. Mahendra Amarasuriya,Hussain Akbarally,Director, Akbar Brothers

Sri Lanka Tea Board Chairman Rohan Pethiyagoda,Director Lanka Tea Swap Charles,Chairman of Lanka Tea Swap, Mr. Mahendra Amarasuriya, Head of Investor Relations & Strategy, Sunshine Holdings Hiran Samarasinghe and Director of Lanka Tea Swap James W.Montlake posing for a photograph

Sri Lanka Tea Board Chairman Rohan Pethiyagoda said: “The Tea Board of Sri Lanka are delighted that this project is being launched in Sri Lanka before going on to India and Kenya. Ceylon tea can maintain the premium position in the world market by continuing to innovate, and Tea Swaps provide a mechanism whereby such innovation can be tested. I’m looking forward to seeing how this will work in practice, bearing in mind that our tea trade is new to the idea of instruments of this kind. Nevertheless, I think there is huge potential here, and I hope very much that this initiative will meet with success.”

Lanka Tea Swap Director Charles Montlake emphasised the tougher condition in real terms about the tea prices, and said that tea prices have been decreasing steadily ever since tea was first exported from Ceylon. Although in nominal terms the tea price is currently high, when adjusted for inflation, the tea price is less than half what it was in the early 1900s. This failure to keep pace with inflation causes difficulties for tea plantations, who see input costs rising faster than revenues. In this environment, some plantations view Tea Swaps as a means of improving financial management, which can lead to greater investments in efficiency and quality. Tea exporters and packers also benefit from price certainty, which makes it easier for them to offer fixed prices to their clients for longer periods.

He said Lanka Tea Swap’s objective is to protect clients from tea auction price volatility through the use of Tea Swaps. Lanka Tea Swap will perform the role of the matched principle broker. The Company will not take market risk.

Lanka Tea Swap Director James W. Montlake pointed out that there is a well-documented link between price uncertainty and reduced investment. Colombo currently ranks among the world’s most volatile tea auctions and is the sales venue for almost all tea produced in Sri Lanka. As with similar products for coffee and cocoa, a Tea Swap can eliminate this price uncertainty leading to an increase in investment, stability and profitability. 

Lanka Tea Swap is a Company incorporated in the Democratic Socialist Republic of Sri Lanka.