Tea Report

Buyers maintain wait and see policy

Bartleetproducemarketing Tea Surveillance Report upto October 22:

The quantity of tea arriving at the Colombo auction this week increased to 7.138mkg from 7.048mkg traded in the previous week’s sale. Meanwhile, Ex-estate crops showed an increase from 0.863mkg to 0.935mkg.

Market segments: In the Ex-estate segment the market displayed a distinct downturn, giving the impression that the trend would last for sometime to come.

The BOP Fannings grades were the most severely affected this week.

It is of no coincidence that the global oil prices are also falling sharply, which in turn is affecting the Middle Eastern buyer sentiments and slowing down their activities. The Middle East is a critical market for the island’s teas and the Arab financial sectors have been hit hard by the recent global finance crisis that was triggered in the US. Iran’s economy too has undergone a devaluation.

Consequently, inquiries are being affected on a day-to-day basis in Colombo with auction prices falling to unpredicted levels.

Regular buyers from Europe and Japan are also showing very selective buying patterns.

With higher crop levels coming in, industry sources are anticipating that anything plainer entering the market will be met with significantly reduced enthusiasm. Sources are anticipating a definite correction in prices.

Industry insiders are strongly urging the producers to stick to the true-to-grade high quality teas with good cup characters in order to survive the current situation and build up for when a strong market returns.

The Leafy grade segment’s OPA grades also came down this week. Almost all the grades depreciated substantially except better BOP1’s.

Most of the brokers sold the majority of teas at the best bid realised.

Consequently, the out-lot percentage was less this week.

In the Tippy market segment, lower demand was witnessed whilst all the regular buyers showed very selective buying pattern.

Market correction: According to industry sources the tea market is being affected strongly by the currency volatility with buyers maintaining a wait and see policy due to the costs of imports skyrocketing.

Russia, a large buyer of the country’s tea is getting affected as earlier tea container valued at US$ 40,000 is currently more expensive. Meanwhile due to the pressure created by the retailers, the buyers are adding pressure to the local exporters who in-turn are forcing the brokers to bid low on the market in order to get their teas in.

Meanwhile, the current oversupply is anticipated to continue and make further correction and downturn in the prices of tea. Industry predictions are that as this is the middle of the commodity storm, no forward selling will be done due to the unpredicted situation in the global market. But it will ease off. Early next year is anticipated to have a crop surplus so only the quality teas will be of any attraction.

Smallholder squeeze: Small scale tea holders in the country face a grave crisis as global markets slumps and drastic steps need to be taken to ensure the survival of the industry, according to a media briefing which was held by the joint Federation of Tea Small Holders. Chairman of the federation claimed that Sri Lankan tea has decreased in the world market.

Some 95 per cent of the tea produced in the island is for the international market and 50 per cent of the quantity sent to the Colombo auction remains unsold.

Meanwhile, the tea smallholders have invested close to Rs. 217 billion in the tea industry and currently cultivate close to 135,000 hectares of land which is spread across 500,000 tea smallholders.

The sector is supporting approximately two million others for their livelihood in this country.

Currently the effect is much felt as the factories are not willing to accommodate any tea leaves whilst maintaining a ‘leave it and we’ll see’ attitude.’

The drop in prices of the tea leaves is said to have resulted in the producers scarcely being able to cover their costs.

One of the other reasons pointed out was the low quality teas where 2,690mkg of low quality tea entered the country last year for the blending purposes.

Sound Advice: The Director of Economic Affairs of the Government Peace Secretariat urged the tea industry to face the truth of the commodity market slump due to the world-wide crisis.

Sri Lankan tea which was out priced in the market in the recent past is said to be heading towards a correction.

He advised the industry to dispose of current stocks even making a slight profit or a loss in order to lessen the burden of holding the supplies.

Meanwhile, it was suggested that the producers should focus on re-analysing the business model with a view to reducing the cost of manufacture without compromising on quality.

Claiming its all about balance right now, he went on to say that the industry must make use of the opportunity and inform the unions on the new reality so that they cannot push for unreasonable wage increases at this point in time.

Plantation stocks: With reference to the weekly surveillance of the 18 plantation stocks, all 18 were lower in value compared to last week.