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GLOBAL ISSUES BOUND TO IMPACT SRI LANKA TEA INDUSTRY IN 2012

The year commenced with a global deficit of almost 100 million kilos in the Black Tea segment due to production declines in most of the African tea growing nations led by Kenya, Sri Lanka, Indonesia, and Turkey. India managed to emulate the production figure of 2010 by just over 20 million kilos to reach 988 million kilos but fell short of the magical One billion kilo mark. While the production in Sri Lanka declined marginally by three million kilos from 331.5 million kilos to 328.4 million kilos, the Indonesian crop went down from 129 million kilos in 2010 to 123 million kilos in 2011.  Vietnam was able to increase their crop level from 170 million kilos to 178 million kilos.  Kenya registered the biggest drop from 399 million kilos to 378 million kilos (a dip of 21 million kilos). In entirety, the total reduction of the manufacture in African countries is registered at 38 million kilos for the past year.  Bangladesh has maintained its manufacture at 59 million kilos in 2011 which is the same figure even in 2010. In the green tea segment, world production is increasing significantly with China leading the pack.  The crop figure of China has been registered at 1,550 million kilos in 2011 which is an increase of 75 million kilos year on year against 2010.  Ten years ago in 2002, the production of China was recorded at 745 million kilos.  This reveals that tea crop in China has more than doubled during the past decade.  Although it would not be a direct threat to black tea producing countries, in effect the global total tea crop will go up significantly due to the performance of China.  This would indirectly have an effect on global tea prices. During the current year, many other international factors are bound to impact on world tea prices. It would of course contribute in varying degrees of negativity for tea producing and exporting countries depending on their supplier destinations. 

 

In particular, the case study would be with regard to Sri Lanka.  The global economic meltdown which affected almost the entire world few years back is yet to regain normalcy.  It is true that USA and Japan appears to be slowly coming out of the recession while Australia was first to show a positive growth, most of the other developed countries are still struggling to cope with reality.  In particular, the economies of most of the European Union Member Countries are in deep trouble.  The Euro Zone crisis is certainly detrimental to market premium and specialty teas which are a target category for Sri Lanka.  The “Arab Spring” which toppled many rulers in countries such as Libya, Egypt and Tunisia did not augur well for smooth trading of tea.  Although Egypt is today not a major outlet for Ceylon Tea, Libya continues to be a very important destination for pre-packed teas from Sri Lanka.  Though the Libyan Transitional Council is now ruling the nation, the country is going through internal strife. This has resulted in Ceylon Tea shipments dipping sharply to that country. The Middle Eastern turmoil, particularly the civil riots in Syria which is the third largest destination for Ceylon Tea is bound to result in a negative scenario.  Iran which is rated as the second largest importing nation of Ceylon tea is facing global sanctions with USA and Europe putting more and more pressure on Iran.  This development is another serious hurdle for smooth marketing and trading of Ceylon tea.  Then Iraq which used to be one of the largest buyers of tea from Sri Lanka is still going through major violence and finding it difficult to import their requirements of Ceylon Tea directly.    All in all, the next six months would be crucial for the tea industry in Sri Lanka and the external factors will have a direct bearing. 

 

An evaluation of the first quarter 2012 performance of the Sri Lanka tea industry in respect to production and exports are tabulated below and it shows that crop has declined from 78.4 million kilos in 2011 to 71.6 million kilos in the current year due to unfavorable weather conditions.  In contrast, the exports during the first quarter have increased from 73.6 million kilos to 76.2 million kilos.  A breakdown of the exports to different categories reflects that tea bag volume has dipped from 6.2 million kilos to 5 million kilos while packeted teas have also taken a hit from 24.3 million kilos to 22.7 million kilos.

 

The Colombo Tea Auction prices have also dwindled from USD 3.60 per kilo during the first quarter of 2011 to US $ 2.95 during the first quarter of 2012. In fact the average auction price during the same period of 2010 at US $ 3.35 per kilo was still higher than the current year.  It does not augur well for the industry stakeholders.  The table below reflects a comparison of the auction prices in Colombo.

 

Hasitha De Alwis is the Director of Promotions at the Sri Lanka Tea Board and has been involved with Sri Lankan tea for over 25 years. Hasitha served as Sri Lanka Tea Commissioner for North Africa & West Asia based in Cairo from 1985 to 1991, for CIS countries based in Moscow from 1993 to 1996 and for the Far East, ASEAN & Oceania from 2004 to 2008. He can be contacted on promotion@pureceylontea.com

 

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