Tea industry looking at bleak Q4

By Cheranka Mendis

Sri Lanka’s tea industry has been battered and beaten by the weather gods this year and is now looking at lower production volumes and low auction prices despite early expectations of the year continuing the trend of 2010, which ended off as a record year for the industry.

Colombo Tea Brokers’ Association Chairman Sudath Munasinghe told the Daily FT that thanks to the weather patterns, production would amount to 225 to 227 million kilos this year. Total tea production at the end of 2010 was recorded as 333 million kilos. “It is purely a weather-related issue,” Munasinghe said. “The south west monsoon was a bit of a flop this year and the north east monsoon is to start in November – a delayed start from the usual – which would not help the industry.”

Comparing fourth quarter expectations to last year figures, Munasinghe stated that total crops in October, November and December last year were 26.6 million, 26.7 million and 25.7 million respectively. He anticipates 23-24.5 million, 25.5 million and 25 million for the same months this year. The latest statistics which list August 2011 figures show the production level to have been 23.9 million in the said month.

“During the first eight months of the year (January to August) in 2010, production was recorded as 222.7 million. This year production during the same period was 220.9 million.”

Commenting on production in different elevations, Munasinghe stated that the high growns had increased in production by 1.7% while mediums had fallen by 7.8% compared to the previous year. The lower grade teas have also declined by 0.8%. Tea prices at auctions too have maintained lower numbers than the previous year and the negative trend is expected to continue in the fourth quarter as well. “Up to now we are below last year’s Colombo auction prices.”

He stated that the end September sales were at Rs. 361.49, while in 2010 the auction price was Rs. 369.39 at the end of the period.

“The prices will not be the same as last year. However, the reasons for this purely lie in the unrest in the Middle East and the devaluation of currency in certain countries such as Russia, which devalued its currency twice within the last month itself.”

He noted that even though Russia was buying tea in large volumes, the drop in purchasing power had affected pricing.

“At the beginning of 2011, we expected the year to continue the extremely positive trend of 2010. In that year the industry marked records in production and average auction prices as well as US$ earnings.”

The tea exports sector however is the only silver lining for the industry. In August export volumes were better than in 2010, he said. Exports within the first eight months of the year have been valued at 209.8 million kilos, while in 2010 the volume was 200.8 million kilos during the period.

“Earnings have increased 4% more than last year,” he asserted. Total earnings as at now stand at Rs. 107 billion, a 26% increase from Rs. 98.8 billion in 2010. “In US$, we have earned US$ 968 million, an 11% increase from 2010, at Rs. 869 million.”

On FOB values, Munasinghe acknowledged that this year the value was 4.6 per kilo while in 2010 the value was 4.3 per kilo.

Touching on concerns for the industry, the Chairman stated that the regional plantation companies were struggling for survival due to the bad production. “With low production and the 27% wage increase, the regional plantation companies have had a tough year so far, which is likely to continue unchanged within the next three months.”

Causing additional hindrance to the local trade is the unrest in Syria and Libya as well as the US sanctions on Iran.