US$ 10 b promo fund a big win, but cess funds vital

Friday, 1 October 2010 22:09 -     - {{hitsCtrl.values.hits}}

The Rs. 3.50 contribution by exporters on every kilogramme of tea exported to form a common promotional fund will net in approximately US$ 10 million for the promotion of Ceylon tea and brand promotion for Sri Lanka, asserted Chairman of the Value Added Tea Advisory

Committee of the Ministry of Industries and Commerce Rohantha Athukorala.

Addressing the third Symposium on Plantations Crop Management held at the Cinnamon Grand, Athukorala in his address on stakeholder needs of the tea industry said that this was a big win for the country given that marketing and promotion had not received due attention in the last couple of years due to funding issues.

Pointing out that all credit must be given the Ministry of Plantations for this initiative which will put the Ceylon Tea brand in good stead for the future, the speaker said that these funds must be used meaningfully so that private sector confidence can be maintained for such private-public partnerships in the future.

Athukorala however commented that to do real justice to the tea industry, supply chain development must take place, as one of the key issues in this industry is the ageing stock of tea bushes. This is not only a corporate sector issue but is also relevant to the small holding sector category. This challenge must be addressed purposefully, he asserted.

The speaker, who was part of the 10 man committee appointed by President to evaluate the effectiveness of the privatised tea plantations, highlighted that production declines happen when proper agricultural practices like replanting and fertiliser application do not happen, assuming that external conditions like weather patterns do not drastically change.

A report by TRI report states that of the total extent of Old Seedling Tea (OST) in Sri Lanka, 75 per cent belongs to the RPCs and 91% of them are above 60 years of age, which is the main reason for the declining yield and correspondingly lower yields.

If replanting does not happen, the current volumes of around 126 million kilograms output from the corporate sector will decline to 98 million kilograms of tea within the next five years. The loss to the country in volume terms will be 28 million kg of tea per annum and in value it will be US$ 92 million while in rupees it will be a colossal Rs. 9.9 billion.

The State and the private sector need to get together and address this issue. In-filling is one such strategy that can be used in the short term but a longer term sustainable strategy is re-planting.

Athukorala strongly recommended that the CESS funds being levied by the State should be directed to address this key issue. According to past records, in 1983 the collection by the State was only Rs. 1 per kilogramme for development purposes of the industry but today it is Rs. 4 per kilogramme and the total monies collected exceeds Rs. 1.1 billion annually.

“Given that the war is over and Sri Lanka is on an economic development agenda, we have to drive towards a new policy of developing our key income generating sectors,” said the speaker. “At least these funds must be made available for interest payment on the loans that can be taken by the private sector for replanting purposes.”

In India the State provides 50% of the funds for replanting and the rest needs to be self-financed, which is another model to be considered.

The speaker cautioned the industry not to rely on the current high prices given that world trends are changing continuously with multi origin teas being used for blending of top global brands and already Sri Lanka teas are priced highest in the global auction world, which is not very healthy. This means that there will be strong pressure on the profitability of a typical plantation company.

Tea auction offerings drop marginally

The week’s auction offerings totalled 5.9 m kgs, marginally lower to last week’s offerings, according to the Tea Report issued by Ceylon Tea Brokers.

Ex estate offerings totalling 0.8 m kgs met with good demand, which was also witnessed in the BOP category where westerns BOPs gained Rs.20-40 per kg on average. Nuwara Eliyas/Uva/Udapussellawas met with similar demand appreciating Rs.5-10 per kg.

However, the BOPFs witnessed a decline overall where the better westerns declined sharply at times Rs.20 per kg. Nuwara Eliyas decreased to a lesser extent losing Rs. 5-10 per kg from last week levels. However, Udapussellawas better invoices appreciated sharply whilst the Uvas sold around last week’s levels.

In the CTC category High & Mid & Low grown BP1s appreciated Rs.10 – 20 per kg on average. In the PF1s category except for medium PF1s which sold around last week’s levels, the High & Low grown PF1s were barely steady and declined Rs.10-20 per kg.

In the High & Medium leafy category the best PEK/PEK1s/FBOP/FBOPF1s declined Rs. 5-10 per kg on average. The OPAs met with irregular demand. Low Growns comprising approximately 3 m kgs witnessed a decline from last week’s levels.

The select best BOP1s/OP1s declined Rs. 10-20 per kg on average. The clean below best in both categories sold around last week’s levels. The best OP/OPAs barely maintained last week’s levels whilst the clean improved below best maintained last week’s levels, balance were barely steady. The better PEK/PEK1s were firm to selectively dearer however the below best varieties sold irregularly dearer.

In the small leaf Tippy catalogue select best FBOPs eased Rs.15 – 20 per kg whilst the below best declined by a similar margin. The very tippy teas sold firm however below best declined Rs.20 per kg on average. The best FFs/FF1s declined Rs.15-20 per kg whilst the below best eased Rs.10 per kg. Teas at the bottom sold irregularly lower.

Producing countries around the world are now experiencing a return of normal weather patterns. As a result, Ceylon Tea Brokers said it expects the world tea market, after being nearly in balance in 2009, to post a fairly large surplus in 2010 which will only be marginally offset by heavy restocking at the start of the year. This surplus should further depress prices from their record high levels in September 2009.

“We expect a downturn in prices to begin in the second half of 2010 and to continue in 2011 and 2012 as the oversupply accumulates, increasing competition between exporting countries for markets,” the Tea Report added.

“The emergence of Vietnam as an important supplier, and China’s efforts to boost output of black tea for export, will have a major negative impact on prices. We expect our indicator price to remain stable at an average of US$2.71/kg in 2010, before falling by 16.1% to US$2.28/kg in 2011.”