Tea industry ends 2011 on a mixed note

Tuesday, 27 December 2011 01:10 - - {{hitsCtrl.values.hits}}

By Cheranka Mendis

The tea industry anticipates mixed signals as the year closes on a high amidst Middle Eastern turmoil which spells evil in the coming year.

The industry which is likely to close the year with export revenue exceeding the previous year’s number and breaking the record production volume of 2010, is expected to face trying times in the New Year. Stakeholders told the Daily FT yesterday that the anticipation is a USD 1.4 billion turnaround in export and a production volume of approximately 328- 330 million kgs by the end of the year.

Asia Siyaka Commodities (Pvt) Ltd. CEO Anil Cooke stated that exports are on track to break ground in US$ earnings with the first 10 months of the year collecting US$ 1.2 billion. In 2010 the 12 month export earning was recorded to be US$ 1.3 billion. “Usually within the November-December months the earnings are recorded at about US$ 120 million. Since the January to October figure comes very close to the entire year’s revenue of 2010, we are confident that the number could come close to US$ 1.4 million,” Cooke asserted.

Agreeing with Cooke, Colombo Tea Trader’s Association Chairman Jayantha Keragala noted that industry has survived amidst upheavals such as the Middle Eastern crisis that started in February from Egypt and trickled down to the other parts of the region. He stated that the expectation is to close up on US$ 1.4 billion and to have a quantity that exceeds 328 million kg recorded the previous year.

“We have done fairly ok. There were some problems in the up country and mid country due to wage negotiations that took place. Most of the 22 companies are below cost of production. Plantation companies that have oil palm in the field as well have managed to square up the difference and bridge the gap. The majority though, are facing some serious issues.”

However, come 2012 the industry will have to follow the progress of Iran closely as it could break or make the market. “Iran is a very volatile market as at now due to US sanctions etc. Major devaluation is expected very soon. The low grown market will be affected because consumers will not be willing to pay high prices and its effects will filter down to Colombo. This will affect the prices at the Colombo auctions as well. We will have to be cautious especially during the January to March period.”

He further stated that Iran being one of the key markets for local tea, imports approximately 45-60 million kgs per year from Sri Lanka. “Tipi teas are bought only by Iran and therefore if the demand falters we will not have any other place to sell it to,” he said. “However all problems are not water-tight. Bad times will pass.”

Cooke added, “Given the global uncertainties, Sri Lanka tea trade will have to face unnecessary complexities. Syria and Iran are primary buyers who pay a premium for our tea. A lot of low country value added teas are sent to these countries and Syria is a main buyer of tea bags. We will have to watch the situation as it unfolds.” He noted that 2012 is not going to create an environment in which one could trade freely. “However we are not talking of a market collapse.” It is possible to expect long term and mid term swings.