Tea market update: Replanting must be given top priority

The year began on a restrained note with tea prices showing a decline after rapidly rising prices in the second half of 2004. In the aftermath of the tsunami disaster which struck on the December 26, 2004, the Sri Lankan rupee strengthened against foreign currencies.

This was as a sequel to most donor countries either writing off or differing repayment of loans, particularly the Indian and Iranian credit lines, the reduced imports of motor vehicles and gold resulting in increased dollar reserves and of course the large amount of financial aid pledged for tsunami reconstruction work.

A little over 6% strengthening of the Rupee against the US dollar (Rs 104 to 97) saw tea prices easing rather steeply in the first two auctions of the year. However, it was arrested with the rupee weakening to Rs. 100 by the end of January. It must be noted that in spite of this temporary phenomena, the US dollar-rupee rate remained above that which prevailed in the same period in 2004.

Bright weather during day time with cold nights prevailed until mid March in almost all planting districts with Westerns enjoying somewhat of a good quality season. Dull overcast mornings with occasional showers were reported from most high grown planting districts in the latter part of March. Low grown areas in general experienced fair weather throughout the quarter under review.

Black tea production of 72.7 Mkg, during the first quarter 2005, showed a marginal increase of 0.5 Mkg or 0.6% over the production of 72.2 Mkg in the corresponding period last year.

Over 390 metric tons of Instant teas and 233.7 metric tons of Bio teas were produced during the period under review. In addition, a quantity of 457.1 M/T of Green tea was also produced during the first three months of the year.

Out of the total black tea production, around 62% or 45.5 Mkg were produced by the smallholdings whilst the remainder was produced from leaves obtained from corporate sector tea estates.

Tea marketing

During the first quarter 2005, a total of 78.7 M/kg of teas were marketed at an average price of Rs. 195.39 per kg, as compared to 81.5 M/kg of teas sold in the previous year at an average price of Rs. 164.94 per kg.

It was evident that although the total tea sales dropped by almost 3 million kilograms or by 3.4%, compared to sales in 2004 the unit overall sales price during the period increased by Rs. 3044 or by 18.4%. When analysing the channels of sales, Colombo tea auction sales have declined by 4.5 M/kg whereas Private sales improved by 1.7 million kilograms when compared to the previous year. Direct sales remained at the same levels during the period, but the average prices fetched in all three types have improved significantly.

In 2005, public auctions handled 86.8% of total tea sold, whilst 12.7% were sold under private sales. Only 0.5% of teas sold directly.

Tea prices that prevailed at the Colombo Auctions, (i.e. Public Auctions and Private Sales) in all three elevations during the first quarter, 2005 were well above the corresponding prices in the previous year.

The difference in price between the two years sometimes exceeded Rs. 30 per kilogram.

Colombo auction continued to be fetching much higher prices than other centers during the first quarter 2005.

With the onset of first and second flush North Indians, the Kolkata prices may go ahead in the next quarter where Colombo is already showing a rapid decline in view of larger auction quantities of poor quality Tea exports during the first quarter 2005 shows a 5.8% drop against the exports during the same period last year.

Average prices of all categories of exports during the quarter under review increased when compared with the prices of those during the same period last year. The overall tea export price also recorded an increase of 16.6% in SL Rupee terms and 16.3% in US$ terms, as shown below.

Russia maintained its position as the largest importer of Ceylon tea in first quarter 2005 but it records a drop of 2.1 M/kg on the total imports. It had absorbed only 13.3 M/kg or around 19% of total exports from Sri Lanka as at end of March. UAE and Iran continued to occupy the second and the third positions; each accounting for over 10%.

The increase in tea production during 2004 over 2003 was mainly due to the increased production in the low grown areas. An analysis done of the tea production pattern for the first quarter during the last five years reveals that approx. 24% of the total production is harvested during this period.

On this basis and assuming that normal weather conditions conducive for growth would prevail throughout the year, Sri Lanka Tea Board forecasts an annual tea production of approx 310 M/kgs. An export performance of approx 295 M/kgs could also be forecast on the basis that 95% of the production is exported as was seen in 2004.

Assuming around 95% of tea production is exported annually, we may expect 295 million kilograms would be exported during the year 2005. As the prices usually move up in the last quarter, we may expect the tea prices at the Colombo auctions to reach US$ 2.15 during September/October period.

Global over supply situation would continue to depress tea prices, particularly mediocre teas which are produced in abundance by most producing countries. Recent ITC producer conference unanimously agreed to address this supply/demand imbalance as early as possible.

Numerous certifications such as EU requirement that all suppliers of tea are HACCP certified as well as British importers calling for estates desiring to supply them must satisfy Ethical Tea Partnership (ETP) criteria within such short timelines are becoming beyond the reach of producers in most countries due to low or negative margins.

Replanting must be given top priority if Sri Lanka is to remain a foremost supplier of tea to the world.

Courtesy - Sri Lanka Tea Board