Tea Prices Up And Demand High At The Auctions
- Industry Has a Bright Future-Analyst
By Dinouk Colombage
Tea prices at the Colombo auctions have increased after the weakening of the rupee and demand high.
“Tea prices have seen an increase due to the rupee devaluation, however, there has been no change to the level of demand,” Oshan de Silva, marketing executive of Forbes and Walker Tea Brokers said.
Last month’s average price of a kilo of tea stood at LKR 375.55. At last week’s auction the price had increased to LKR 412.13. Regardless of the price increase the recent auction saw over 6.9 million kilograms of tea sold, out of the total 7.1 million kilograms that had been on offer.
De Silva explained that overall the auction saw “no significant changes with demand remaining impressively high”. He admitted that the rupee devaluation had seen an increase in prices, but expected the demand to remain the same. “April and May are the peak months for the tea industry, while prices have gone up we (tea brokers) expect the demand to remain high for the coming weeks,” he said.
Niranjan Cooray, a small plantation owner in Makaldeniya situated in the Uva province, explained that the increased tea prices have caused concern amongst the smaller plantation owners. “An increase in tea prices will see a fall in demand, add on the issues in the Middle East and Sri Lanka will be faced with a serious situation”, he said.
When provided with the figures of the recent Colombo Tea auction, Cooray responded, “this is a short term lift; there is no way to predict how the demand will react to the increased tea prices in the long run”.
Recent devaluation of the rupee has seen an increase in the production costs for the plantation owners. Coorary said that he has incurred an increase of 6 per cent to his total production costs. “The fuel, spare parts for the machines and wages have all seen an increase”, he said. Asked if the increased price of tea has balanced the rising costs, Cooray replied in the affirmative.
However, he argued that by the end of May demand usually drops, “when the demand falls government incentives will be required by smaller plantation owners if they are to keep up with rising cost of production,” he said.
Cooray went on to explain that with such incentives the smaller plantation owners could reinvest in machinery which would see a drop in the cost of production. “Currently our earnings are being used to cover the increased costs, we do not have any extra income to reinvest,” he stated.
Despite what appears to be a stable market, exporters are continuing to calls for a reduction in tea prices owing to what they describe as falling demand. Chairman of the Colombo Tea Traders Association, Jayantha Keragala, was quoted in the media last week as saying that Ceylon Tea had been taken off Iran’s essential commodity list. He claimed that this would be a severe blow to the tea industry.
However, Director General of the Sri Lanka Tea Board, N. Hemarathna, refuted these allegations. “The Colombo Tea Traders Association work often directly with private companies and so they may face issues when trading overseas. However, Iran has not removed Ceylon Tea off of its essential list of imports”, he said.
The increased pressure by the exporters to reduce the price of tea, despite high demand remains a mystery. Keragala refused to comment when contacted by the paper.
Contrary to gloomy predictions by industry players analysts are forecasting a bright future.
Economic analyst, Haren de Sarem, explained that Sri Lanka’s tea industry will soon be faced with little competition in the international market. “India, China and Bangladesh are expected to withdraw from the market next year as they cannot handle the growing domestic demand. This will leave only Kenya and Sri Lanka as the main exporters,” he said.
