Rupee appreciation a concern for tea industry

The appreciation of the rupee as against the US Dollar vis-à-vis currencies of other auction centres has caused concern within the tea industry.

Ceylon Tea Brokers said current values of the Sri Lanka Rupee record a drop against the major international currencies this year compared with last year.

“This variance is greater in the Sri Lankan Rupee compared with the currencies of the other auction centres barring India and Indonesia. In fact, the currencies in the other auction centres have depreciated against the US Dollar and even against the Euro and UK Pound, the Sri Lankan Rupee has appreciated to a greater extent than the other currencies of the major tea auction centres with the exception of India and Indonesia,” the broker said.

“What this means is that for the same value against the international currencies we get less Sri Lankan Rupees this year compared to last year, whilst the other auction centres barring India abd Indonesia would be at an advantage against their local currency compared with the Sri Lankan Rupee,” it added.

Ceylon Tea Brokers said the cost of production of tea is essentially a rupee-based cost, predominantly labour and the import content is comparatively small against the total cost of production.

“Therefore, an appreciation of the Sri Lankan Rupee against the major currencies, given the same market conditions, would give us lower rupee values compared to the previous year. The Colombo Tea Auction prices are still higher than other auction centres, particularly if expressed in terms of the major currencies. However, with the Sri Lankan Rupee appreciating this year against the corresponding values last year, our ultimate rupee prices would be lower unless compensated for by a much higher international price for tea, which is not the case at the moment,” Ceylon Tea Brokers said.

“Tea producers therefore should be somewhat concerned about a continuing appreciation of the Sri Lankan Rupee against the major trading currencies, as this would have an impact on the prices prevailing at the auctions unless, as mentioned earlier, international demand for tea picks up, which would give the producers higher rupee prices in spite of an appreciating currency,” it added.

In its Weekly Tea Market Report, Ceylon Tea Brokers gave credit to economist Amal Sanderatne who highlighted the importance of comparing currency values of the other tea auction centres against the major currencies at a presentation he made as a guest speaker at the recently-held Annual General Meeting of the Tea Exporters Association.