Competitive element for Ceylon Tea must be enhanced

Monday, 9 September 2013 00:02 - - {{hitsCtrl.values.hits}}

Ceylon Brokers Plc Chairman Chrisantha Perera in his review in the company’s 2012/13 Annual Report has highlighted in broad outline a few macroeconomic features and the performance of Sri Lanka’s tea industry in 2012 vis-à-vis the previous years. Here are excerpts from the comments

made by Perera, who is also a former Chairman of the Tea Board: Amidst the prevailing global and domestic challenges, the Sri Lankan economy recorded a growth of 6.4% in 2012 compared with 8% in the preceding two years. Inflation however was maintained within single digit levels and the official unemployment rate was recorded at 4% in 2012 compared with 4.2% in 2011. Despite adverse weather conditions, the agricultural sector grew by 5.8% in 2012, which is indeed encouraging. The marginal increase in 2012 compared with 2011 is entirely due to the all time high of low grown production which amounted to 61.5% of the national crop for the year. Nevertheless, Sri Lanka’s tea production in 2012 could not match up to the all time record achieved in 2010 due to unsettled weather conditions that prevailed during the year, which mainly affected the high grown crop. Whilst the rupee averages are all time highs, the disappointing feature is that the corresponding US Dollar equivalents in 2012 are lower than the previous two years, which means that the full impact of the rupee depreciation against the major currencies have not been reflected in the auction prices. When viewed against the constantly escalating cost of production, the higher rupee prices quite often do not give sufficient margins or indeed could result in negative margins to producers. Quantity of tea exports in 2012, including re-exports with imported tea, were lower than 2011 and 2010. Total rupee earnings however were substantially better due to the higher average FOB value per kilo. Unfortunately, in Dollar terms, we could not match up to the corresponding figures of 2011 and 2010. Global comparison Sri Lanka remains the fourth largest producer behind China, India and Kenya. In the export league, we are third following Kenya and marginally lower than China. The encouraging feature however is that Sri Lanka’s tea export earnings in US Dollar terms is still the highest, reaffirming that exports from Sri Lanka have a greater degree of value addition compared to other exporting countries. We also have, in the Colombo Auctions, the highest auction averages. It should however be noted that the gap on both these counts between Mombasa and Colombo has narrowed over the past few years. A point of concern is that out of the five largest tea importing countries, i.e. Russian Federation, the United Kingdom, Pakistan, the USA and Egypt, Sri Lanka has a significant market share only in Russia. Therefore, whilst ‘Ceylon Tea’ through the Colombo Auctions still has the most dynamic marketing centre, we should try and improve our presence in the large importing countries in addition to our existing markets, to ensure that the competitive element for our teas will be further enhanced. The policy decisions we take in this regard and the promotional initiatives we adopt on a consistent and sustainable basis will play an important role in achieving this objective.