TEA INDUSTRY SURVEILLANCE BRIEF

Roshan Madawela


The Colombo Auction

With a volume of 6.45Mkg arriving at the Colombo Auction this week, a continuous pattern of quantities of between six and seven million kilos has been evident since the latter part of May. This weeks Ex-estate quantities totaled 1.07Mkg’s.

Due to the Libyan buyers being inactive during the sale, prices of OP and OPA grades fell from last week’s levels with many of these teas remaining unsold. However, on the whole Pekoe’s did move up further, irrespective of category. Wirey teas maintained last levels.

Well-made best FBOP’s and FF1’s were a little lower at the start before moving up towards the latter part of the sale. Iran was active this week while buyers from Dubai were moderate and the CIS buying very selective according to sources at Bartleet Produce Marketing.

News has also emerged that the Iranians are asking the local exporters to register for a food hygiene certificate similar to the HACCP and ISO certificates. Stores where tea blending is currently taking place will need to part with a fee of $6000 in order to register for the new certificate upon which an Iranian official will visit their site and conduct tests and video the premises. If these evaluations are found to be satisfactory, the certificate will then be issued according to sources inside the industry.

Market Overview

The leading news story during the past week has been the scrapping of government plans to further raise taxation on the islands’ tea exports. Sustained opposition from the producers and exporters was the key factor of the proposals failure. An increase of Rs.2 per kilo was attempted on the rationale that it would fund the fertilizer subsidies for the tea small holders who presently account for some 60 per cent of total crop production. However, despite a recent hike in the cost of fertilizer, the proposals met with fierce opposition form most stakeholders in the industry like the Planters Association and the Ceylon Tea Traders Association.

Meanwhile, it can be noted that the Tea Board has stepped-up on its surveillance with the suspension of a consignment of tea that was declared as ‘rubbish’ or sub-standard. The shipment that was bound for Pakistan was said to be originating from a leading shipper. Sources indicate that the tea industry invests heavily in the business of quality inspection and checking the numerous grades of tea. The accepted sources of tea purchase are from the Colombo Auction, a broker private sale or direct sale sans brokers.

The RIU reported last month that the Pakistan High Commissioner called on the island’s tea industry players to focus on Pakistan more intensively as the country is the world’s third largest importer and its tea trade is worth at least $220 million with the Pakistanis consuming some 150 Mkg of tea per annum. Whilst Sri Lanka used to command around 60 per cent of this market, deterioration in tea quality and consequent competition from Kenya has led to a slide in market share.
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On a positive note, this week witnessed the Ministry of Plantations announcing plans to launch a program of reforestation that include small and large tea cultivation. Whilst this drive will meet the crop cultivation needs of the industry it is also aimed at addressing the peripheral areas like the firewood requirements for tea factories. Official data indicates that most of the plantation owned tea crop lands are over a hundred years old whilst the majority of small holder lands are over thirty years old.

Investor Sentiments

A comparatively healthy rise in the Plantation stocks index could be noted during June as the sector gained from around 380 points to 438 points at a steady rate. In week two, Plantation stocks outperformed all sectors, posting a gain of 9.14 per cent, well ahead of Footwear and Land and Property.

As the rise in tea prices was checked by a fall in quantities, the plantation companies that have a diversified rage of crops tended to produce better profits. With the price of rubber also rising, companies like Kottagla Plantations who have a mix of both rubber and tea showed good profits that led to a rise in their share prices. With the overall market described as sluggish since March 07, plantation stocks remain a sound long-term investment according to BMS Research analysts.

South Asian Scene

Across the Palk Straight, it was reported that the price of South Indian tea fell marginally due to increased quantities arriving at the Tamil Nadu and Kerala auctions. Whilst a drought in February and March stifled supplied in the first quarter, consequent fair-weather has led to a hike in auction arrivals, resulting in a price fall. Additionally, export demand is reported to be sluggish as compared to last year. However, strong demand from Russia has spurred the price for the high-grown orthodox varieties.

Whilst Indian exporters have also the additional worry of a strengthening rupee, the tea traders are said to be pinning their hopes on increased exports to Pakistan in the coming days. As the Indian government has taken steps to market Indian tea to its big-time tea consuming neighbor, its 3.7Mkg share of the 150Mkg Pakistan market is expected to rise sharply.

Copyrights Reserved (RIU 2007)