Report

Bartleets Produce marketing weekly Tea Surveillance Report upto November 19:

Tea market picking up gradually

The quantity of tea arriving at the Colombo Auction this week increased to 6.408 mkgs from 5.944 mkgs traded in the previous week's sale.

Meanwhile Ex-estate crops showed a decrease from 1.017 mkgs to 0.835 mkgs.

Market Segments: In the Ex estate segment: Easier demand prevailed at this week's auctions which included 6.4 mkgs came under the hammer. Most teas were well absorbed although the other auction centers had a drop of usc.30 on average per kg. UK, Egyptian trader's kept at low level interest. CIS lent selective buying patterns, whilst Japan continued its support at lower levels. Leafy grade segment: PEK Grade continued its trend of obtaining attractive prices.

But OP & OPA grades continued it is down words trend. Due to the absence of major shippers to CIS countries, varieties that are exported to this destination had less demand. Tippy market segment: lower demand was witnessed, where buyers from CIS were active, whilst the buyers from Iran and Dubai were very selective in their buying pattern.

Crisis not over: Industry Experts warn that the tea market crisis, due to the sudden collapse in prices and demand, is not over just yet and may even intensify. The Industry must brace and prepare itself for more trouble in the coming weeks and months.

Cash flow issues remain throughout the supply chain. Buyers are saddled with stocks purchased at prices well above the current rates. Producers have to deal with heavily depleted working capital which is seriously hindering their operations.

Smallholders and Private Tea Factories are worst affected, especially in the Low Grown sector, which caters to large markets in Russia and the Middle East, which in turn have been affected by the falling price of Crude Oil.

The tea market crisis unfortunately coincided with the Global Economic Crisis, which resulted in the free fall of prices of not only tea but all other commodities as well.

The free falling prices resulted in massive quantities of tea remaining unsold at the Colombo Tea Auction. The swiftness with which the prices fell is one of the main causes of the huge cash flow problem that is now plaguing the Industry.

BOI complicating matters: Due to a certain company being floated in order to obtain BOI status on the pretext of planting tea and then using that status to obtain a huge bank loan and then not doing anything in or for the tea industry, the BOI has been instructed to obtain prior approval before granting BOI status for ventures in the tea industry, in order to ensure that this type of incident does not recur.

It has thus become even more difficult for companies who want to engage in business in the Industry to obtain BOI status.

The BOI has also licensed the operation of a timber processing plant. Nearly all the firewood in the area is now being diverted to this plant and there is now a major scarcity of firewood for tea factories in the area.

Firewood is used extensively in the manufacture process, as an energy source, for the drying of tea. As a result firewood prices in the area have sky rocketed and factories are finding it difficult to obtain firewood.

Further this timber processing plant is consuming enormous quantities of wood without re-planting trees to ensure sustainability of the firewood.

This is not only a threat to the industry but also to the environment.

Countermeasures: Tea is no longer categorised as a beverage but rather as a food product. Therefore there is a strong need to ensure that processing facilities conform to quality standards. Since 95% of the market for Ceylon tea lies outside Sri Lanka, it is important to strive to meet international standards in quality.

Sri Lanka produces the cleanest tea globally. This is an advantage to the Tea Industry and must be nurtured, developed and exploited to the maximum. It is a competitive advantage. Ensuring the quality of the product in this case will require a team effort, with measures being taken by planters, producers, brokers and exporters all together at their various stages of the process.

Foreign Minister Rohitha Bogollagama, seeking to assist the tea industry, held meetings with ambassadors and representatives of countries that import Ceylon Tea.

He requested them to explore the possibility of expanding trade volumes.

The Minister also emphasised the importance of the Tea Industry to Sri Lanka both socially and economically, pointing out that the Sri Lankan Tea Industry accounts for more than 2/3 of the country's agricultural earnings, while contributing over 4% to GDP.

Ambassadors and representatives from countries such as Egypt, Iran, Palestine, Russia, Saudi Arabia, Iran, Kuwait, and Qatar were present at the meetings.

Optimism in spite of adversity: Media reports and claims that predicted that the industry would collapse and would be finished are false and over blown as are the claims from many quarters that the market crisis is over and all is well.

The industry will need to face more difficulty and obstacles in the following weeks and months, before it can and will return to normal.

In the meantime, the industry's main goal and aim should not be to meet revenue or quantity targets but rather to sustain itself and use all strength necessary to come through this crisis and weather out the current 'storm'.

The industry must be conscious of all the problems it is currently facing and brace itself with a healthy dose of confidence and optimism, to meet challenges it will have to face in the coming weeks and months before things can return to normal.