TEA TIME: Market Report for January




Market movements

Following the deviant price variation that surfaced towards the end of December 06, the market witnessed a gradual return to normality during the successive sales during January 07. Supply side concerns that arose last year due to trade union action did however, continue to impact price parity between the best and below best teas during the first sale of 2007 as exporters sought to balance out their purchases. The early sales also witnessed some level of panic buying of quality teas which were by-and-large in short supply during much of the month and only returned to normal levels by the months end.

The popular ‘Pekoe’ teas stood out as having the strongest demand throughout the month, particularly from buyers representing Syria and Turkey. The surge in international interest led to a price gain of $0.25 per kg, the highest jump in nine months. Iran, who purchased 28 million kilos of Sri Lankan tea in 2006, making it the fourth largest buyer after Russia and CIS, UAE and Syria, was also active in buying up the bottom-end of the low grown Tippy teas. Consequently ‘Tippy’ tea prices were also up by mid-month.

The total quantity of tea sold at the Colombo Auction during January was 28.1 Mkg’s.

Economic environment

In addition to the Central Bank estimates of 310.8 million kilo grams (Mkg) of tea production during 2006, some 109.2 Mkg of rubber was also entered into the agricultural production data as well as 2.4 billion coconuts. Whilst tea production was down two per cent, year –on-year, rubber output was up 4.6 per cent and coconuts production up by 7.5 per cent. Earnings from tea exports did however reach an all time high.

The latest inflation data (CCPI) for January showed a 14.8 per cent annual average change and a point-to-point change of 20.5 per cent. Average wages of Central Government employees were up 32.4 per cent, year on year, whilst agricultural wages were up two per cent for the same period according to the Central Bank. The commercial banks average weighted lending rate up to end of January stood at 15.73, up from 12.12 per cent, year-on-year.

The Sri Lankan rupee started 2007 trading at Rs.107.55 against the dollar, marginally stronger that at the end of December due to the higher inflow of remittances during the festive season. However, by week two, the sliding trend re-emerged and the currency was trading at Rs109.31. Subsequent weeks saw a slight strengthening due to internal money market factors that resulted in the selling of more dollars in the money market. By end of January the rupee was worth Rs.108.69. Analysts at Bartleet Maclai Roy expect the Central Bank to continue intervening in the foreign exchange markets in order to keep the rupee trading below Rs.110 during February 07.

The Stock market as a whole was up 7.42 per cent (ASPI) with the MPI reaching a record breaking 4000 points and beyond during January. Of the 18 listed plantation companies that are monitored by BMS Research, the first week of January witnessed a nine per cent fall of value before picking up 8.3, 3.5 and 4.4 per cent in the subsequent weeks. Month-on-month, the plantation stocks were up by 6.5 per cent, reflecting a buoyant sentiment on tea and rubber supply and demand, dismissing earlier fears on the consequence of industrial action.

News highlights

ADB Subsidy Program: An US$1.5 million grant has been approved to the Ministry of Plantation Industries from the ADB to launch a food safety certification program based on HACCP. Six hundred factories are set to benefit with up to 60 per cent of their certification costs up for reimbursement. The grant per factory is expected to be around Rs.150,000.

The initiative is aimed at improving Sri Lankan tea’s acceptance around the globe as well as raise local awareness of International Standards and new EU regulations that will affect local producers. Current food safety certification is primarily based on ISO but many other association, company and national standards also remain.

Russia to cut import duty: Some good news emerged this week for Sri Lanka’s tea sector with Russia promising to cut five per cent import duty on loose tea within a year of joining the WTO. Packed teas will also benefit from a slash in import duty from 20 to 12.5 per cent. The concessions are part of a deal whereby Sri Lanka supports Russia’s 13 year long bid to join the WTO. With entry into the WTO expected later this year Sri Lankan tea stands to gain as it amounts to 96 per cent of all exports to Russia. Over 57 Mkg’s were exported to Russia during January to September 2006 of which 33Mkg was Bulk, 11.4Mkg Packeted and 3.2Mkg as Bags.

South India, prices up, crop down: Across the Palk Straights the latest crop figures for South India were out indicating that the South teas had registered a price rise of 19.5 per cent during the 51 auctions held at Kochi, Coonoor and Coimbatore during 2006. The average price hike from all these centers was Indian rupees 50.31 per kg compared with Rs42.11 in 2005. However, production in 2006 was down in the South to 225,000 tones compared with 227,000 tones in 2005.

Better than Water: Latest research from the European Journal of Clinical Nutrition has found that drinking three of more cups of tea a day is as good for the health as drinking plenty of water and d may also have additional benefits due to the presence of antioxidants. Refuting earlier ideas that tea dehydrates, the new research says that tea not only re-hydrates but also can also protect against heart disease and some cancers due to the flavonoids that are found in tea. Additional benefits are for bone strengthening and protection against tooth decay and plaque.

Studies on caffeine have found that very high doses dehydrate, but even if you have a rally strong cup of tea, you would still have a net gain of fluid. A fluid intake of 1.5-2 liters per day is recommended and this can include tea. It is hoped that the research findings will turn people back to healthy tea drinking and away from soft drinks.

Snapping-up US market: Snapple, maker of the ‘Best Stuff on Earth’ is planning to expand its use of innovative tea based range that includes red, white, green and black tea drinks in the coming months. The advertising campaign will use the metabolism boosting capacity of drinking tea to meet the current consumer desires for natural beverages that are good for health. In addition to its market share of the soft-drinks sector, Snapple is the leader in ready-to-drink tea and has a full range of flavors.

Global warming hits Kangra teas: Planters in Himachai Pradesh are desperately waiting for rain after a long period of dry weather that is currently threatening the crop of Kangri tea, a relished herbal beverage. Residents are reported to be blaming global warming for the absence of seasonal showers. As it takes some 20 years for a normal yield to be achieved, the tea could become a non-entity in the international markets unless rains fall without further delay. Introduced in 1849, the Kangra tea gardens cover 2,300 hectares of land and employ 12,000 workers and the teas are exported to Europe, Middle East and the Far East from the Calcutta Tea Auction.

International crop standings

Sri Lanka, the number one exporter of tea in the world, stood as the third largest producer in 2006. India accounts for over half of all production but also tends to supply most of it to the domestic market. Kenya is the main competitor in the export market for Sri Lanka but will need to improve on quality.



Main sources: Bartleet Produce Marketing, Bartleet Maclai and Roy, BMS Research, Central Bank of Sri Lanka.

Copyrights (RIU 2007)