Garments, Tea, Down The Precipice

• Sri Lanka’s Top Exports Hit

Tea production in the first half of the year fell by 5.4% year on year (YoY) to 161.4 million kilos, while prices fell even more sharply by 7.8% YoY to US$ 2.91 per kg. at the Colombo  Tea Auctions in June, Central Bank of Sri Lanka (CBSL) statistics showed.
Meanwhile in the first seven months of the year tea production fell by 4.4% YoY to 187.3 million kg., it added.
Tea, after garments is Sri Lanka’s second biggest product export. The chief reason for the fall in tea production was the recent drought that prevailed across the island. With the drought eating into production one would have had expected prices to go up based on the “supply and demand” theory, ie too little goods allegedly being chased after by so many, but that was not to be, at least as far as tea is concerned.
The main reason for this is US sanctions imposed on Iran, Sri Lanka’s second largest tea importer after the CIS, over its nuclear programme which penalizes foreign banks doing business with Iranian banks by blacklisting such. This has resulted in state owned banks such as the Bank of Ceylon shying away from doing business with Iran.
The decline in tea exports comes in the backdrop of a fall in garment exports (by 6% in June), made worse by the euro zone crisis, affecting exports to Sri Lanka’s largest market, not least garments. This has been made worse by the EU taking away the concessionary GSP + duty free facility from Sri Lanka for alleged human rights abuse during the closing stages of its war against the LTTE, which penalty has resulted in certain garment export firms relocating some of their production facilities to Bangladesh (which enjoys duty free export status to the EU) in order to continue to enjoy this duty free facility at the expense of a loss of export earnings and jobs to Sri Lanka.
Meanwhile Forbes & Walker in a recent tea report said that tea production in July declined by 1.06 million kg. YoY to 24.5 million kg. It further said that tea production in the first seven months of the year declined by 3.94% (7.7 million kg.) to 188.1 million kg. YoY, a slight variance with the aforesaid CBSL figures.