Industry wants promotions in Russia and Far East to fill vacuum from recession-hit West
Demand from Middle Eastern markets, which accounts for 55% of tea exports, is still low, according to a report released by a broker recently.
The Lanka Commodity Brokers tea market report noted that demand from Middle Eastern countries for Colombo Tea Auction offerings has eroded, particularly from strife-torn markets like Libya and Syria, which are both large markets for Low Grown teas, and there have been hardly any purchases from the former at recent auctions.
“Buyers operating for Iran continue to face acute problems with regard to the receipt of proceeds in the wake of sanctions imposed by the United States, which has already resulted in several overseas banks being blacklisted by the US for having negotiated documents for imports by Iran,” the statement said.
This in turn has a domino effect on the market where expensive Tippy teas as well as FBOPs and FBOPF1s that are typically sought after by Iran suffering a declining trend of prices week after week.
The report went on to say that the situation is reaching crisis proportions as buyers at the Colombo auctions have not received large sums of money for teas that have already been shipped to this market. Liquidity is therefore severely strained, which affects buyers’ ability to bid for other markets as well, thus causing continuing losses to the producers.
“It would be recalled that tea was identified as a food item during the time of the Iraq-Iran war and all food commodities were granted exemption from the sanctions prevalent at that time, which helped to sustain prices in Colombo during a very difficult period. It is time that the authorities responsible for trade be proactive at this stage and pursue a similar course of action in order to ensure the continued participation of these markets at our weekly auctions.”
The report added that the only positive indicator for the Low Grown sector is the sustained demand that Sri Lanka has seen from Russia, the CIS and Turkey. These are markets that have cultivated a taste for Ceylon Leafy grades pursuant to much promotional work done by both by the Sri Lanka Tea Board and the export firms, and the dominance of these markets is indeed a source of strength to the Colombo auctions.
Producers may well look towards making prudent adjustments to manufacture without compromising quality so as to increase the output of the grades in demand.
“The market for High Grown teas too has been highly irregular in recent weeks, although the best Westerns on offer this week received wider air mail interest, resulting in dearer prices for teas falling in to this category. It was once again a disappointing sale for Nuwara Eliyas, which have been a weak feature for the last few months.”
All BOPs remained unsold due to the total lack of demand.
High Grown estates are going through a very bad patch with soaring costs of production, which include the recent wage hike, whilst green leaf harvests have been extremely poor following the recent weather pattern, which has not been conducive for growth.
Almost all estates are running at a loss as the prices at the auctions are by no means even remotely close to the cost of production, it further stated.
The traditional Western markets that usually support Ceylon High Growns are now becoming more and more price conscious.
In the backdrop of a looming recession faced by the United States and many countries in Europe, plus the slow recovery being made by Japan after the Fukushima crisis, the immediate prospects for High Growns to sell at profitable levels does not hold out much promise, particularly as these markets will be forced to look for cheaper substitutes from other origins, given the present circumstances.
The promotion and marketing of High Growns must therefore be intensified with Russia and the Far East which are capable of filling the void that will be created by restricted demand from the West, the report stressed.