Value-added teas in trouble

By Uditha Jayasinghe

Brewed by external demand reductions and local policies, Sri Lanka’s value-added tea exports are declining while bulk shipments are increasing, resulting in a possible drop in earnings, industry experts warned yesterday. 

Terming the reduction in value-added tea as a “disturbing trend,” Asia Siyaka Commodities said in a review report that Sri Lanka’s export of tea bags had a healthy three per cent growth in the first half of the year.

However, this has taken the opposite direction since July due to the country’s biggest markets imposing high taxes on value-added imports. Russia and the Middle East are Sri Lanka’s largest export markets, but tea bag imports to them are declining because of taxes imposed on value-added tea.

The Forbes and Walker market report for last week also underlined this concern, pointing out that January-August statistics as well as August data showed a steady decrease in value-added tea exports.

“January-August cumulative exports for 2011 totalled 209.8 m/kgs showing a gain of 9 m/kgs vis-à-vis 200.8 m/kgs of 2010. Here again revenue of Rs. 107.1 b realised in 2011 show a gain of Rs. 8.3 b vis-à-vis Rs. 98.8 b of 2010.This in fact signifies a growth of 8.4% YoY. Tea in packets and tea in bulk have shown a growth whilst tea in bags and green tea have shown a decline YoY,” it said.

Tea Exporters Association (TEA) Chairman Niraj de Mel told Daily FT that this was a result of local policies that were introduced in 2008 during the global financial crisis and successive years. He pointed out that policy makers in the rush to create value addition to local tea failed to take into account external situations.

“The Government has consistently discouraged tea imports to Sri Lanka resulting in prominent large scale tea companies setting up their packaging plants abroad. This happened especially in the case of Russia, which imposed high tariffs on value-added teas. There is insufficient special tea produced in Sri Lanka to adequately supply the tea bag market,” he explained.

The fact that Ceylon Tea is one of the most expensive teas in the world has also prompted businesses to look at other markets. In addition the quality of Sri Lankan tea has also consistently decreased with only a handful of tea estates producing the original high standard product that won the country prominence.    

The Sri Lankan Government is attempting to increase value-added tea exports and industry bodies are lobbying with Russia and Syria to reduce import taxes. Syria recently banned value-added tea imports, which could have a significant impact of export earnings.

Industry sources said that Syria was by far the biggest market for Sri Lanka’s export of tea in packets. Exports to Syria are estimated at 28 million kilos, of which over 12 million kilos are shipped in value-added form.

In the first eight months of this year, tea exports to Syria amounted to 18.6 million kilos, of which 86% was in packeted form. A considerable share of exports to Syria is transported to Turkey and other countries, making Syria a captive market for Ceylon tea in addition to it commanding a 90% market share.

Analysts said that following the ban a larger quantity of tea might get shipped in bulk form, thereby reducing earnings. The Middle East as a whole accounts for 55% of exports and unrest in Iran has also been hitting companies.      

During the first quarter of 2011, a total of 77.4 million kilos were exported compared with 70.2 kilos in the same 2010 period. Bulk tea exports in the first quarter of 2011 had declined to 40 per cent of the total from 55 per cent a year ago while packet tea increased to 49 per cent from 28 per cent, according to the Asia Siyaka Commodities report.  

Since July, however, exports in bulk form as a percentage of totals shipped in each month have risen, resulting in tea packets and tea bag exports declining.

In August bulk tea comprised 43 per cent of exports, packets 47 per cent and tea bags eight per cent.