Quo vadis tea?
27 January 2017Sri Lanka's tea exports marginally increased by Rs 2.65 billion (1.46%) to Rs 184.7 billion, year on year (YoY) last year, Forbes & Walker (F&W) on its latest weekly tea report, said.
But in US dollar terms export earnings have had retreated. Whereas, tea exports fetched US$ 1.26 billion in 2015, but, on a YoY basis it has had depreciated by $ 0.03 billion (2.38%) to $ 1.23 billion by last year end.
Tea export volumes in the review period declined by 18.2 million kilos (5.93%) to 288.7 million kg. The decline in volumes may at least in part be due to the prolonged drought that gripped the country for the greater part of last year.
Sri Lanka tea production totalled 292.36M/kg, showing a decrease of 35.81M/kg (10.91%) vi-a-vis 328.17M/kg in 2015, data showed.
'This records the lowest production since 2009 when the total production declined to 288.8M/kg,' F&W said. The decline in tea in 2009 was due to a strike by plantation workers.
Complementing these developments, 'Sri Lanka tea exports last year totalled 288.7M/kg vis-à-vis 306.9M/kg in 2015, showing a decrease of 18.2M/kg (5.93%). This records the lowest export volume since 2002 where total exports declined to 287.2M/kg,' F&W said.
It may therefore be seen that the increase in the rupee export value of tea is not due to a price increase in tea in the global market or due to increased volumes, but due to the depreciation of the rupee against the dollar.
Data showed that the market rate of the dollar in interbank trading fell steeply by Rs 6.03 (4.18%) on a YoY basis, last year.
Over 40% of Sri Lanka's tea exports comprise the low, value added, tea in bulk form as opposed to the higher, value added teas such as 'tea in packets.' YoY, bulk tea exports on a percentage basis, volume wise, as a total percentage of exports, increased from 43.25% (132.75 kg) to 43.36% (125.2 million kg) last year.
On the positive side, exports of 'tea in packets,' increased from 43.25% (132.75 million kg) of total exports to 46.52% (134.32 million kg) last year. The average price difference between tea in bulk and tea in packets, in favour of the latter is Rs 41.74 (7.58%), with 'bulk' fetching a price of Rs 550.75 a kg, as opposed to 'packets' (Rs 592.49 a kg) last year.
'Tea in bulk' and 'tea in packets' comprised between 85% and 90% of total tea exports in the reference years, with this number in 2015 being 86.40% and last year (89.88%), respectively.
The balance 10% to 15% of teas is exported in a much higher value added form. For instance, the average price of a kg. of 'tea in bags' last year was Rs 1,191.55, 'instant tea' (Rs 1,215.98) and 'green tea' (Rs 1,508.73) respectively.
These prices are higher by 116.35% vis-à-vis 'tea in bags' versus 'bulk', 120.79% ('instant tea' vs. 'bulk') and 173.94% ('green tea' vs. 'bulk') respectively.
And, in relation to 'tea in packets', those prices were higher by 101.11% over 'tea in bags', 105.23% over 'instant tea' and 154.65% over green tea, respectively.
Sri Lanka's main export markets last year were Russia, Iran, Iraq and Turkey, in that order, respectively. Among the other major buyers of 'Ceylon' tea were UAE, Libya and Syria, F&W said. These have been Sri Lanka's major markets for a number of years. All of these markets are black tea drinkers. Those are also oil export economies, though the UAE, assisted by Dubai is also a large export services market. Further, with the exception of the UAE, Iran and Russia, the other importers are riddled by internal conflicts. It was only last year that Iran got over its sanctions problems, though Russia continues to be dogged by western sanctions following its annexation of the Crimea from Ukraine.
These are not markets that 'Ceylon Tea' can be 'happy' with, say, compared to, garments, which major markets are the 'rich' west. Meanwhile, 'green tea', the premium tea product, is essentially led by the Far East. But such tea exports, volume wise, comprised a mere 1.46% of total tea exports last year.
These are among some of the matters that may need to be taken to consideration if 'tea export' is not to suffer the same fate as coffee.
Tea was Sri Lanka's number one foreign exchange (FX) earner at least till 1977. But, with the opening up of the economy and the diversification of the country's export basket, it has since been relegated to the fourth position.
Rupee conversions are based on the more popular, market determined FX instrument in interbank trading which was the 'spot', as at the last day of trading in 2015, whereas, as at end last year, it was the 'one week's forward price of the US dollar.
The 'spot' price closed in 2015 at Rs 144.22 to the dollar, while 'one week's forwards' closed last year at Rs 150.25 to the dollar, a Rs 6.03 (4.18%) YoY depreciation. 'Spot' trades are settled after two market days from the date of transaction. Normal markets, divorced of exchange controls, operate on 'spot.'
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