Industry hopes for better second half as tea dips $ 23.1 m in 1Q

Iraq emerged as the unlikely top buyer of Ceylon Tea as Sri Lanka’s first quarter tea exports dropped to $311.8 million in 2016 from $334.9 million in 2015 as producers battled with bad weather and volatile markets. 

Sri Lanka tea exports for the 1Q of 2016 amounted to 74.45 m kg vis-à-vis 73.21 m kg recorded for the same period last year (+1.24 m kg), said Ceylon Tea Brokers in its latest Tea Industry Overview. The FOB average price per kilo for this period stood at Rs.605.37 marginally lower than Rs.606.37 (-Rs 1.0) YOY for the same period. 

“The total revenue realised for 1Q 2016 from tea exports was Rs.45.07 billion ($311.8m) compared with Rs.44.39 billion ($334.9m). The increase of Rs. 0.68 billion is due to currency depreciation, the report observed.

The total Sri Lanka tea production for 1Q 2016 recorded 70.26m kg in comparison to 79.35m kg (-9.09m kg) for the same period last year. Though production has declined by 9.09m kg, exports have increased by 1.24 m kg compared to the same period in 2015.

However, the industry could recover some of its lost momentum in the second half of this year due to shifts in global politics and in oil prices, the prized commodity on which the majority of Sri Lanka’s tea importing countries depend for their economic wellbeing. Oil prices have seen a steady upward momentum in 1Q quarter of this year.

“Iraq has emerged as the largest buyer of Sri Lankan tea, outplacing Russia in the first quarter. Iran has shown a considerable increase in its purchase volume from Sri Lanka. Turkey, the second largest importer of Sri Lanka tea in 2015, has shown a significant decline in its purchases in the first quarter, moving down to the fifth position,” it said. 

Russia has marginally increased its imports in the 1Q but is still saddled with sanctions which are dragging its economy on a downward spiral, the report observed. Iraq in spite of political unrest has emerged as the leading tea importer from Sri Lanka. 

Whilst countries with dependency on oil exports and internal strife continue to rotate their positions on the top segment of the importer list, countries with economic and political stability remained untapped.

“India is seen forging ahead in its appetite to grab market share and even outplacing Sri Lanka as the market leader in Russia. Unfortunately we seem to struggle to draw up a strategy as a solution to the constantly-changing market dynamics,” the report noted. 

The rapid globalisation continues to diminish traditional strengths and create new opportunities; tea trading hubs are being consolidated in Europe and in Dubai.

Sri Lanka’s inability to penetrate into new markets remains a major drawback whilst China, Kenya and India has seen an upturn in their export earning YOY Sri Lanka’s earnings  seems to have reversed. Further continuous dependence on oil exporting countries has led to a reduction in export earnings, the Ceylon Tea Brokers report went on to say. 

“It is important that the industry needs to action decisions as well as look at pragmatic solutions to make our presence felt in the constantly and ever expanding global tea industry. Solutions and opportunities are out there but our ability to step out of our comfort zone and create constructive change by facilitating tangible expansion in export markets as well as generating innovative solutions for problems facing the local tea industry are yet to be seen,” it added.