TEA MARKET SURVEILLANCE: Make no mistake, ‘its not boom time!’



Roshan Madawela

Sky high tea prices that have been observed this year are finally showing signs of easing back to normal. Whilst inflated prices have served to increase export earnings, the total crop production is well down from last year. Moreover, in an increasingly competitive international environment, the domestic sector that makes an invaluable contribution to national export earnings will need to navigate an appropriate strategy.

Healthy demand for ‘low growns’ keep prices up

Following five straight weeks on the incline, March witnessed a slight dip in prices for the ‘high gown’ teas whilst solid demand from the Middle East ensured a strong market for the ‘low grown’ crops. Overall, supply side constraints continued to worry buyers with particular reference to the quality teas and this helped to maintain the abnormal prices since the start of 2007. In particular, the Pekoes reached dizzy highs mid-month, topping Rs400 for the first time since records started. Turkey and Syria were active on the Pekoes whilst Iran was at the frontline of Tippy buying. Dubai and U.A.E were also busy on the invoices whilst Russia and C.I.S were up to normal form.

Whilst the ‘high growns’ ease toward normal

Whilst brand buying, particularly from those representing Europe did feature during the month, high growns started to ease back towards normal levels. For instance the Western High grown BOP bests were fetching around Rs540 per kg at the start of the month but faded to around Rs390 by the last sale. A similar pattern was observed for most of the high grown invoices. Airmail enquires on top quality teas form America and the Far East were also reported amidst a fast growing trend in the West for consumers to move away from the ‘fizzy stuff’ towards healthy beverages, many of which have tea as a main ingredient.

Crop figures show improvement whilst competition hot up

Exports for February indicated a six per cent improvement to 26.5Mkg from a lowly 21.4Mkg in January. Nevertheless, the cumulative total for the year of 47.9Mkg is still less than the 49.8Mkg achieved in January and February 2006. Topping the list, Russia and the CIS have invoiced for 12.3Mkg, Iran for 6.3Mkg, UAE for 5.4Mkg and Syria for 4.8Mkg in 2007.

Earnings from exports have improved from $134 million in 2006 to $139 million for the first two months of 2007. However, players have been swift to point out that high prices experienced should not be confused with ‘boom time’ in the industry. With crop levels down and the cost of production on the up as a consequence of in-economies of scale, some estates are in a state of temporary closure. Moreover, many observers consider the current state of the Sri Lankan tea industry to be perilous for the long-term security of the sector as competitors are looking to muscle-in on export markets.

A case in point, Vietnam is reported to have gained some ground in the Gulf region for the low grown type teas that are favored by the Arab tea drinkers as a direct consequence of Sri Lanka’s recent supply snags. Additionally, India has been investing into marketing its quality teas overseas and is in a better position to meet rising global demand. For example, Egypt announced in March that it will slash duty on tea imports from five to two per cent in order to encourage tea drinking prompting India to announce plans to increase exports to Egypt by ten-fold. India has announced an Indian rupee 48 billion program aimed at increasing production by 50 per cent over 15 years. Similarly, Kenya has reported an extraordinary 198 per cent month-on-month rise in crop production for February due to a good rain-fall spread whilst Uganda claimed a 23 per cent rise in export earnings for 2006. Even minnow Myanmar who produce only 90Mkg of tea per annum has announced plans to revamp its sector.

Minister calls for focus on quality and green tea

Meanwhile the Export Development Minister has asked the sector to focus on the niche market rather than attempt to compete with the mega-producers. He has also asked local producers to focus on green tea cultivation in order to meet a growing international demand. Numerous recent studies have pointed to the health benefits of green tea drinking with the latest study published in the nature journal Laboratory Investigation claiming that it can cure lung cancer, the most common cancer of all. Increasing lifespan, boosting alertness and reducing cholesterol are benefits that have already been supported by recent green tea research. With only twenty per cent of global tea drinking accounted for by green tea, the opportunity for growth in its cultivation and export are encouraging, given the steadily rising popularity.




SURVEILLANCE HIGHLIGHTS

The Global Compact line: The UN initiative launched in 2000 brings together the UN agencies, labor movements, civil society and governments to advance ten principals relating to human rights, labor, environment and anti-corruption. Global Compact seeks to mainstream the principals in business activities around the world with over 3000 participating companies in over 100 countries. Sri Lanka’s participants Kelani Valley Plantations Ltd and Mabroc Teas (Pvt) Ltd, belonging to the Hayleys Group have launched plans to spread the word on Global Compact and to use the profits from a new line of tea to improve the living environment of plantation workers in Sri Lanka. Some 10,000 estate families are set to benefit from the initiative.

Hike in Kenya’s production: February recorded a crop of 34.8 million, a staggering rise of 198 per cent from the 11.6Mkg production of January 2007. The Tea Board of Kenya (TBK) has attributed the rise to favorable weather conditions that have resulted in ’well-distributed rainfall in the tea growing areas’. The TBK statement expects further volume rises for March. Pakistan was the number one export destination for Kenyan teas, accounting for 7.7 Mkg or 24 per cent of all exports. Egypt with 5.8Mkg and the UK with 5Mkg were followed by Afghanistan (3.2Mkg) and Sudan (2.4Mkg). Local consumption had also increased by 24 per cent to 1.4Mkg. Kenya contributes 10 per cent to global tea production and was fourth in the quantity rankings last year after India, China and Sri Lanka whilst it is second in the global market stakes.


Indian boom: Tea production is set for a sharp rise by up to 50 per cent over the next five years according to an Indian government source. The drive will be backed by some 48 billion Indian rupees that will be used to cover an estimated 200,000 hectares of land. The work will be conducted over a 15 year period and will involve either cutting or pruning the bushes or replanting fields that are more than 40 years old. A record 955Mkg was produced in 2006 with Assam accounting for around 55 per cent of the crop. Auctions in early March witnessed a good quality Assam tea fetching 73 Indian rupees, up from an average of Rs65 last year.

GL calls for export drive: Export Development and International Trade Minister Prof. G.L Peiris claimed that ‘there is no doubt that the economy of our country is inexplicably dependent on the robust performance of the exports….with a focus on practical modalities to increase competitiveness of the country’s exports important.’. He also noted that greater leverage could be gained from better exploiting the Free Trade Agreements with India and Pakistan. The remarks were made at the Federation of Chambers of Commerce and Industry Sri Lanka (FCCISL) Key Person’s Forum on the topic of “Maintaining Sri Lanka’s International Competitiveness – Policy of the Government”.

Road to quality: The Sri Lanka Tea Association’s Quality Certification Manager recently claimed that the island has a competitive advantage over rivals due to the low levels of agricultural pesticides in Sri Lanka compared with India and China. The kudos for gaining the edge was given to the Tea Research Institute who successfully employed effective biological pest and disease control methods that served to lift the industry and conform to standards stipulated by importing countries.

Fight cancer with green tea: Reducing lung cancer is the latest in a list of remedies that are offered from drinking green tea according to recent study in the nature journal Laboratory Investigation. Lung cancer is the most common form of cancer and it claims more than 300,000 lives in the UK each year. Increasing lifespan, boosting alertness and reducing cholesterol have already been supported by recent green tea research. Only twenty per cent of global tea drinking is accounted for by green tea, and in the UK it is estimated that three million of the 165 million ‘cuppas’ made each day are green tea.

National policy devised: Plantations Minister D.M Jayaratne has announced a national plantations policy that will benefit the tea sector by identifying needs of producers and investors in addition to international dynamics. Guidelines on protecting the environment, adequately rewarding the cultivators and scientific research are also included. In this connection, he claimed that measures will be introduced to improve research activities at the Tea Research Institute with upgraded laboratory facilities and the importing of proper equipment for quality testing. He also promised to take action on the delays faced by tea small holders on getting their payments.


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