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Plantation In Limbo

Jan 14, 2017 2:10:08 PM - thesundayleader.lk
  • Sri Lanka’s Tea Production Outlook Negative For 2017

by Dinesh Isuru

Tea-cup

Adverse weather patterns, delayed agricultural best practices and weedicide ban could adversely affect Sri Lanka’s plantation industry in general and tea sector in particular, warn industry experts.

“Specialists suggest that La Nina conditions could continue through Q1 2017 and have projected uncertainty over rain fall patterns. Failure of the North East Monsoon in Q4 2016 adds further pressure to the already fragile supply situation. Delayed agricultural practices and low application of fertilizer could have an impact on crop intakes in Q2 2017 as well,” cautioned  Asia Siyaka Commodities PLC in its ‘Sri Lanka Tea Market Review 2016 and Outlook 2017’.

Withdrawal of fertilizer subsidies to RPCs could compel those companies in financial difficulty to restrict application. Higher cost of fertilizer and restricted subsidy to Small Holders will to a greater extent determine production of Ceylon tea in 2017. On the other hand, if tea prices remain buoyant in 2017 we expect small holder farmers and Regional Plantation Companies to be able to afford application of fertilizer.

The full impact of ban on weedicide use is yet to be felt. Implications in the short term are likely to be negative. There is however a sliver of hope that the special committee appointed to consider a more gradual phasing out, might submit a positive report.

Industrial relations remain settled between RPCs and Unions following agreement reached on wages in 2016. Core issues however remain unresolved and could resurface later in 2017when local government elections are held.

Looking at long term production outlook for Sri Lanka crop, the government has taken some meaningful steps. The IFAD/Government co funded project that has been launched to help farmers replant, is aimed at doubling the TSHADA subsidized replanting area over a 5 year period. The Small Holder sector will need much more investment however, if an accelerated replanting program is to be implemented effectively. A similar ADB initiative funded through the banking system is proving to have limited penetration; with the smallest segment of farming community comprising 75% with holdings below 1 acre of land; finding bankers procedures too complicated and restrictive.

Sri Lankan crop losses effectively commenced in H2 2015 and since then production deteriorated continually throughout 2016. Available data for the period Jan/Nov 2016 indicates that the country lost 40 mn kg by November against the relatively low 2015 figure; and will likely not improve significantly by December. This YoY crop short fall is the greatest in recent history.

 

Sri Lanka’s supply of Orthodox black tea to the world has declined since 2013, when annual production peaked at 340 Mnkg. When considering Q4 2015 against 2014, the country lost 9 Mnkg of tea, and this loss has been carried forward in to 2016.The cumulative shortfall since Q4 2015 is likely to be in the region of 50 Mnkg by December 2016. The greater proportion of production loss has come from the low country; while other elevations too had recorded declining tea production.

Inventory loss due to flooding of buyer warehouses in May 2016, is estimated to a total around 1.7 Mnkg and artificially restricted supply of selected grade categories, to those buyers and their international clients.

“The Sri Lankan tea industry faces several problems and the major challenges that the tea industry faces are, raising productivity and remaining competitive. The area under tea cultivation is stagnant or shrinking, productivity is low, the replanting rate is low, production costs are high and there is a shortage of labour willing to work in the industry. Sri Lanka’s share of world production and share of world export are also gradually decreasing. These are the signs of losing competitiveness in the global tea market,” opined another  expert in plantation management –  M.S.E Perera.

 

(See Page 28 for the full article)

Global Supply Review 2016

Over the past 3 years world production of tea grew 6% from 4,990 in 2013 to 5,304 Billion Kilo Grams in 2015. A review of ITC data shows Asian tea producers dominated by China and India accounting for around 85% of all teas produced. Over the period Indian production stayed at 1.2 billion but China continued its remarkable growth and increased a substantial 18% from 1.924 to 2.278 billion in 2015. The increase of 354 Mnkg over the period exceeded Sri Lanka’s highest ever annual production of 340 Mnkg achieved in 2013. Africa led by Kenya produced 642 Mnkg in 2013 but slumped to 607 in 2015 as a result of bad weather in that year.

Available production data from major producer exporters in 2016 has Kenya bouncing back and heading for a record production figure of 450+ Mnkg. India despite losses in the south will achieve a record 1.22+ BlnKg. China production, based on interpretation of available export data seems likely to exceed the 2015 record of 2.2 blnKg. Indonesia is projected to record lower harvest in 2016. Sri Lanka will have one of its worst tea crops in recent years with a YoY shortall in excess of 40 Mnkg.

A review of globally traded tea reveals that Asia’s’ two producer giants are also the largest consumers and are overshadowed by African producers who supply the greater volume of tea exported. In 2013 World tea exports totaled 1.864 billion kgs and declined to 1.801 Billion in 2015. China’s exports declined from 338 to 321 Mn kg during the period; even though the countries’ production was up 354 Mn Kg. Africa’s contribution was 672 in 2013 but declined with lower production to 626 in 2015. Kenya as the largest African producer declined from 432 in 2013 and 445 in 2014 to 390Mn Kg in 2015. Other significant producers from the continent also lost about 10% on average YoY 2014. Sri Lanka declined from 338 to 328 Mnkg. These losses kept world supply of Black Tea tight, but not enough to counter lower buying strength and slackening demand, resulting from negative economic and social conditions in key tea consuming countries. In 2015 the price of tea generally declined worldwide.

The greater volume of tea traded globally is Black Tea with around 21% (372Mn Kg) of the total of 1.8 Bn traded in 2015 being Green Tea. China exported 324 Mnkg of which 272 Mnkg (84%) was Green Tea and enjoys a 73% share of the Green Tea traded globally; and is relatively a small player in the Black Tea market. Sri Lanka with shipments of 301 mn kg (2.8 green) in 2015, is the major player in the market for Orthodox Black Tea; with Kenyan combined origin Exports of 443 mn kg dominating the overall CTC Black Tea segment.

In 2016 Kenya’s all origin exports are heading for a record 450+ Mnkg. Indian exports could dip marginally below the 2015 high of 228 Mnkg. China (83% Green Tea) is projected to improve on its 2015 quantity of 325 Mnkg. Sri Lankan tea exports projected at around 290 Mnkg  will be lower than 300 Mnkg for the first time since 2009. Overall world exports of tea would be around 1.81 BlnKg.