The tea producer sector stakeholders recently discussed the current tea market situation at a meeting convened by the Ex-Co of the Tea Exporters’ Association (TEA).
TEA Chairman Rohan Fernando expressed that both producers and exporters are in the same situation due to the current tea market crisis and emphasised the need for all to come together. He stated that the tea industry has experienced similar difficulties in the past too but the current situation is different as it is confined to the main export markets.
The committee discussed a possible oversupply situation of orthodox tea in the global market due to the current low demand from Russia and Middle East. Sri Lanka tea exports in the first nine months of 2015 have dropped by 15 million kilogrammes compared to last year but the production shortage was only one million kilogrammes. The tea export revenue loss during the same period has been Rs.24 billion. On the other hand, the Kenyan tea production has dropped by 50 million kilogrammes and Indian tea production declined by 10 million kilogrammes during the first nine months of 2015, creating a shortage of CTC tea in the world market.
Members were in agreement of the need for improvement of tea quality as a measure for price improvement. It was stated that good quality teas attract relatively better. They also agreed that it is easy to sell tea when the prices are on upward movement but under the current situation foreign buyers are reluctant to place orders in anticipation of further price drops, as they maintain adequate stocks.
Strengthening the tea auction process for better price realization was discussed. Sri Lanka Private Tea Factory Owners’ Association (SLTFOA) Chairman Anil Perera stated that it is difficult to eliminate the packing of small lots as there are many small factories that cannot manufacture large volumes of tea. He further stated that factories do try to produce different types of tea grades at the request of exporters, another reason for increase in lot numbers. TEA Chairman stressed the point that factories should produce only according to CTTA tea grade nomenclature and deviating from this practice could affect them badly when the prices are on downward trend.
TEA Chairman explained the rigorous process exporters have to go through to put a brand on the shelf in a foreign country due to strict food safety regulations imposed by the importing countries.
It was observed that the availability of large number of tea manufacturing factories in the country more than the required level is a main factor for manufacture of low quality tea in Sri Lanka. With an annual tea production of around 340 million kilogrammes, the country has 714 factories. In Sri Lanka, the installed factory capacity far exceeds the available green leaf. The ad hoc policies of the government have also resulted in the large number of tea factories be far in excess of the requirement. Due to this the factories compete for the limited availability and absorb low quality green leaf resulting in poor quality in the final product. The three Associations urge the government not to issue any new permits for establishment of tea manufacturing factories at least for the next three years and also the SLTB to control the expansion of capacities of existing factories.
The government’s decision to withdraw the Rs.80 subsidy for green leaf suppliers was welcomed as they believed the scheme was politically motivated and led to some malpractices and discouraged the producers of good tea.
PA Chairman Roshan Rajadurai said that the government’s assistance is needed to strike a deal with trade unions on the wage issue based on productivity. Rajadurai also said that government has banned Glyphosate, an herbicide which is essential for the tea industry without introducing any alternate products, resulting having to use labour for weeding, further increasing the cost of production and other problems like soil erosion.
A TEA member pointed out that international blends can be done about US $ 2 per kilogramme cheaper than Sri Lanka tea. It was also stated since 95 percent of Sri Lankan tea is meant for exports, the producers should look at the cost of production from foreign buyers point view and not from local perspective. Sri Lankan producers should also look at COP of other tea producing countries as it has to compete with them. There is no short-term solution for cost reduction models and hence RPCs to convince the workers to agree to a model for improving productivity and sharing revenue it was stated.
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