Tea Industry and Role of Broker

Ceylon Tea Brokers Plc 2011 Annual Report’s Chairman’s Review has some useful insights on the tea industry and the role of tea broker. Here are some excerpts.

A significant aspect of the Tea Industry’s performance in 2010 is that all time records were established in terms of:

i. Tea Production

ii. Auction Averages

iii. Tea Exports

Sri Lanka’s tea production in 2010 amounted to 331.4 million kilos surpassing the previous best of 318.6 million kilos in 2008. All three elevation categories, i.e. High Grown, Mid Grown & Low Grown recorded increased production compared with 2009, with the Low Grown production of 196.2 million kilos being the highest on record during a calendar year.

Notwithstanding the increased production, the total Colombo Auction Average for 2010 at Rs.370/61 per kilo is the highest ever recorded surpassing the Rs.360/45 obtained in 2009. It is worthy of note that the increased rupee average was realised in spite of the appreciation of the Sri Lanka Rupee against the US Dollar by approximately 3% in 2010 compared with 2009. All three elevations contributed to this increase.

Following the record tea production and higher Colombo Auction Averages, it was logical that Sri Lanka’s tea exports must reflect higher values. Consequently, total exports excluding imported tea re-exported amounted to 311 million kilos generating Rs.153.8 billion in export earnings compared with 279.8 million kilos realising Rs.131.6 billion in 2009. The comparative figures including imported tea re exported amounts to 314.3 million kilos with export earnings of Rs.155.4 billion in 2010 as against 289.6 million kilos with Rs.136.2 billion in 2009. In US Dollar terms, this represents approximately US$.1.4 billion, the highest Dollar earnings on record.

It is heartening to record that although Sri Lanka is not the largest global exporter in terms of quantity, we are by far the highest in respect of export revenue earnings. This arises from the Colombo auction averages reflecting higher values than any other auction centre and with Sri Lanka generating the greatest component of value added exports compared to the other tea exporting countries.

All in all, an exceptional and record breaking performance by this great industry, which continues to be an important pillar of Sri Lanka’s economy.

  Role of the tea broker

Tea broking in Sri Lanka has developed over its long history from a pure marketing role to a multi faceted range of services covering marketing, warehousing, finance, technical advisory service and macro aspects of the global tea industry. Consequently, a number of integrated businesses and professional expertise for these different areas of operation are required in a tea broking company.

Our company intends to develop on these core competencies rather than diversifying into any other business at the present stage.

Finance is one critical area that a tea broking company must increasingly get involved with. This has become even more important with the development of individual proprietary factory owners who may not always find it convenient or possible to obtain their working capital requirements and on occasions even the medium term funding needed for development of their factories.

The brokers’ role has provided an important line of support to bridge this gap, and the banks themselves at times find it more stable to deal with the broking company, who are all corporate entities regulated under the licensing of Tea Brokers Act of the Sri Lanka Tea Board. It is therefore necessary that all concerned appreciate the importance of this service and ensure that the procedures adopted in the marketing of teas and settlement of sale proceeds permit the broker to provide this funding in a suitable manner safeguarding the interest of all the parties involved.

Our company, appreciating the important nature of this service, has set up a Risk Management Committee comprising of the Managing Director, the two Executive Directors, and two of the Non Executive Directors. This committee meets regularly together with the Financial Controller to monitor the lending portfolio of the company.