Mixed aroma over 2013 tea crop

By Shabiya Ali Ahlam

Upturn in Sri Lanka’s, as well as global, tea crop has evoked mixed sentiments over the industry’s fortunes with some taking heart from a likely record output whilst others expressed that it could hurt prices.

With positive growth in tea crop witnessed in the first four months this year, top tea industry analysts predict that Sri Lanka would see a record year in tea production for 2013.

While the tea production for April 2013 exceeded the previous best of 32.2 million kilograms achieved in 2005, analysts hinted that 2013 will end with the highest ever tea yield of 335 million kilograms. Attributing the increase in tea production to the favourable weather conditions that was witnessed so far this year, Forbes and Walkers Tea Brokers Managing Director Yshan Fernando told the Daily FT that since cumulative production for January to April in 2013 was 9.5% higher than the corresponding period of last year, the chances of having a record high is possible.

“Witwwwh a production of 115 million kilograms for the first four months this year, we have noted that this is approximately 10 million kilograms higher than the production of 2011. Based on this, we predict the annual production for 2013 to be around 335 million kilograms,” Fernando said.

While the highest ever tea production to date was recorded in 2010, which had a crop of 331 million kilograms, Asia Siyaka Commodities President/CEO Anil Cooke expressed that on paper, based on the calculations and if the gain is maintained, 2013 being a record year is achievable, but cautioned that one should not be optimistic about it.

“We have seven months more to go and a lot can change. The conditions are drying up earlier than expected so a lot depends on the second half of the year,” said Cooke.

Cooke pointed out that plantation companies are stressed due to the limited access to fertilisers and this coupled with uncertain weather conditions for the year poses as a challenge for 2013 to be the highest ever tea production year.

Producer broker John Keells Ltd. said most major black tea producing countries have recorded substantial production gains up to end April compared to last year. Kenya has recorded the biggest gain with an unprecedented surplus of 44.3 million kilograms in just three months compared to the corresponding period of last year, followed by Sri Lanka with 10 million kilograms up to end April.

“These two countries are on track to come close to their highest production years, with reports from Kenya suggesting that the yearend crop could exceed the 410 million kilogram barrier, which would be an unprecedented gain compared to their highest ever crop of 398 million kilograms achieved in 2010,” John Keells said.

It has been predicted that with favourable weather reported in the two major plantation regions of India (North/South), India’s crop too is expected to record gains by the year end. Already, until end March, India’s crop has recorded a surplus of approximately four million kilograms. The few black tea producing countries that have recorded marginal loses in the first quarter of the year are Uganda, Malawi and Indonesia.

John Keells also said that global black tea production in 2013 has increased substantially which could result in surpass demand pushing prices downwards.

“We are already witnessing a dramatic drop in prices in Mombasa and Sri Lanka with each passing sale and latter current price levels are rapidly dropping below cost of production, incurring heavy financial loses to the plantations in the high and medium grown sectors which could erode all the gains that were made in the first four months of the year,” John Keells added.

John Keells recalled that the Mombasa Sale No. 21 concluded recently saw an average of $ 2.30 which was the lowest on record since sales in 2009/2010. Similarly, the Kenyan average of $ 2.41 at auctions a fortnight ago too was the lowest.

“The drop in prices is not entirely due to over production, as much of the woes appear to be self-inflicted due to a surplus of teas on offer being of a poor product quality,” John Keells said, adding that Sri Lankan prices at all elevations enjoyed a boom commencing in the second half of 2012 and into the first four months of 2013 with monthly sale averages regularly exceeding the Rs. 400 mark which should be hard to match in the immediate future with the exception of low grown averages.

Tea exporter Imperial Tea Group Managing Director Jayantha Karunaratne opined similar thoughts to the two tea brokering firms. “We in the private sector also feel that 2013 will be a record year for the tea industry. If the current conditions continue, Sri Lanka will easily reach, or even exceed, a production volume of 335 million kilograms,” predicted Karunaratne.