SRI LANKA TEA PRODUCTION - NOVEMBER 2019

Sri Lanka Tea Production for the month of November 2019 totalled 23.9 million kg, showing a decrease of 0.9 million kg vis-à-vis 24.8 million kg of November 2018. High Growns have shown a fairly significant growth YOY followed by Mediums, whilst Low Growns show a decline as against November 2018.

The January-November cumulative production for 2019 of 278.1 million kg shows a marginal gain of 0.5 million kg against the volume of 277.6 million kg of January-November 2018. On a cumulative basis, Medium Growns have shown a growth, whilst Low Growns have remained static. High Growns, however, show a decrease compared to January-November 2018.

The January-November 2019 cumulative CTC production totalled 21.6 million kg, showing a marginal decrease of 0.3 million kg when compared to 21.9 million kg of January-November 2018. On a cumulative basis, all elevations have shown a negative growth YOY.

The summary of tea production for the January to November 2019 is appended below (in MT)

CATEGORY

QUANTITY (MT)

Orthodox

254,065

CTC

21,607

Green

2,506

Total

278,178

SRI LANKA TEA EXPORTS - NOVEMBER 2019

Tea exports for November 2019 totalled 21.9 million kg showing a marginal gain of 0.6 million kg vis-à-vis 21.3 million kg of November 2018. Tea in packets has shown a growth YOY, whilst bulk tea has remained static while tea bags have shown a decline compared to November 2018.

The January-November 2019 cumulative exports totalled 268.9 million kg, showing a gain of 11.9 million kg when compared with the volume of 257.01 million kg of January-November 2018. All categories of exports(i.e. packeted tea, tea bags and bulk tea) have shown a growth YOY. Revenue too, for the period January-November 2019 of Rs. 221.4 billion have recorded a gain of Rs. 10.8 billion vis-à-vis Rs. 210.6 billion of January-November 2018. Consequently, the FOB value of Rs. 823.51 per kg for January-November 2019 gained Rs. 3.83 vis-à-vis Rs. 819.68 per kg of January-November 2018.

Turkey has secured the No. 1 position as the largest importer of Sri Lankan Tea for the period under review, followed by Iraq and Russia. Other noteworthy importers are Iran, Libya, China, Azerbaijan, Syria and UAE. Meanwhile, destinations such as USA, Germany, India and Saudi Arabia have shown a significant growth in 2019 compared to the corresponding period of 2018.

The relevant export figures for first eleven months are appended below. (in MT).

DESCRIPTION

QUANTITY (MT)

Tea In Bulk

112,211

Tea In Packets

128,389

Tea In Bags

21,111

Instant Tea

2,840

Green Tea

4,370

TOTAL

268,921

MAJOR IMPORTERS OF SRI LANKA TEA – JANUARY TO NOVEMBER 2019/2018 (MT)

COUNTRY

2019

2018

TURKEY

35,853

32,063

IRAQ

35,367

35,493

RUSSIA

26,985

27,750

IRAN

20,263

22,105

LIBYA

11,633

11,137

CHINA

10,627

9,153

AZERBAIJAIN

10,571

9,513

SYRIA

10,208

9,343

U.A.E.

9,192

10,106

GERMANY

6,907

5,445

SRI LANKA TEA PRODUCTION AND EXPORTS - 2018

Sri Lanka tea production for the period January-December 2018 reached  303,843 MT  showing a decrease of 3,237 MT against the volume of 307,080 MT registered during the same period of 2017.  The decline in tea production has reflected in two categories – orthodox and green teas  while CTC tea  production has rose over the previous years’ volume. The orthodox tea production has come down by 5,322 MT with green tea segment registering a decrease of 23 MT only over the  2017-2018 period .  The non-availability of an accepted weedicide , labour issues may have  contributed towards the decline in tea production in high and medium  grown elevations. The adverse weather conditions affected the low grown elevation tea cultivation to a great extent.

CTC tea  production for year  2018 recorded  23,902 MT, registering  the highest ever volume  surpassing the previous best of 23,303 MT achieved  in 2012. It also records a gain of 2,108 MT  vis-à-vis 21,794 MT  produced in  2017. The breakdown of 2018 tea production is appended below ( in MT ).

 

2018

Orthodox

277,340

CTC

23,902

Green

2,601

Total

303,843

Sri Lanka tea exports for the period January-December 2018 reached 282,363 MT  against the volume of 288,984 MT  registered for 2017 showing a decrease of 6,621 MT . The decline in tea exports is a result of some external and internal factors . Among the external factors the US financial sanctions on Iran was a key issue while the decrease in tea production in the country top the domestic issues . The decline in tea exports has witnessed in all categories of tea exports. 

The total export revenue of Rs. 231.7 billion  realized during January-December 2018 records a deficit of Rs.1.6 billion when compared with Rs.233.3 billion achieved during the   same period of 2017. However , it is  noteworthy that average  FOB value for January-December 2018 of Rs.820.75 per kg has shown a growth of Rs.13.31 vis-à-vis Rs.807.44 per kg of January-December 2017 thus recording the highest FOB value ever surpassing the previous best which was realized in 2017 in rupee terms. In Dollar terms however, 2017 unit rate is marginally higher than 2018. The total tea export revenue in USD terms is estimated at USD 1.4 billion .

Iraq has emerged as the number one importer of Sri Lankan Tea in 2018 followed by Turkey and Russia with Iran retaining the 4th position. Other noteworthy importers are Libya, UAE, Azerbaijan, Syria and China. Meanwhile, destinations such as USA, Saudi Arabia, and Belgium too have shown a fairly significant growth in 2018, whilst destinations such as Japan and Ukraine have shown a decrease YOY. The summary of Sri Lanka tea exports in 2018 are given below ( in MT ).

 

2018

Tea In Bulk

122,428

Tea In Packets

131,256

Tea In Bags

21,578

Instant Tea

2,481

Green Tea

4,620

TOTAL

282,363

MAJOR IMPORTERS OF SRI LANKA TEA JANUARY TO DECEMBER 2018 ( MT )

COUNTRY

2018

IRAQ

38,435

TURKEY

35,634

RUSSIA

30,580

IRAN

23,914

LIBYA

13,686

U.A.E.

11,077

AZERBAIJAIN

10,550

SYRIA

10,180

CHINA

10,020

CHILE

7,540

JAPAN

7,416

GERMANY

6,042

SAUDI ARABIA

5,590

U.S.A.

5,561

HONG KONG

4,872

Tea Market Outlook for 2020

Predicting the market outlook for the ensuing year in the backdrop of a rather challenging 2019 seems a difficult task. It is important that due consideration be given to numerous factors in predicting tea prices – current global economic situations, uncertainty in key importer countries of Ceylon Tea and equally important, would be climate change and its adverse impact, whilst monitoring the supply and demand equation. 
From a global perspective, production in 2019 is likely to record a deficit reflecting the decline in the tea crop in Kenya and a slowdown in China. Analysts predict that whilst overall global production may record a gain of approximately 2% in 2020, which would be in keeping with the average growth per annum in the last 10 years (2009-2018), this would exclude China which is predominantly green tea. 

Although there would be several factors, the lower growth pattern would emanate primarily due to climate change and its ill effects, lower farmer profits owing to high cost of inputs which would weigh on investment. From a Sri Lankan perspective, non-productivity related wages and low mechanization  in the sector has impacted the competitiveness of Ceylon tea, which has resulted in a high production cost.    

Production growth in the last two to three years has essentially been from the African Region consisting mainly of CTC teas. From an orthodox perspective, Sri Lanka as a prime supplier together with India and Vietnam have recorded a decline year-on-year. Therefore, if the supply and demand equation would be a deciding factor, it is reasonable to assume that prices in respect of orthodox teas would sustain at these levels as a worst-case scenario. 

Tea is the most consumed beverage in the world apart from water and analysts predict tea consumption to be growing steadily driven by China accounting for a significant portion and followed closely by India. The demand for tea is likely to be less exposed to economic cycles than other commodities, which augurs well. Global demand for black tea has had a steady influence from China and is likely to show growth during the ensuing year as well. From a Sri Lankan perspective, exports to China have recorded a significant gain. 

Producer countries consumption is on the rise and consequently, lesser volumes of tea may be available for export which would augur well for prices of orthodox teas, in particular, with its limited supply.  

Taking these factors in to consideration and that global production during the 1st quarter is usually the lowest during the year, the buoyancy in the market is likely to continue throughout 1st quarter. Prices for large leaf orthodox teas , could be considered to be in short supply in the backdrop of the lower output from Sri Lanka over the past two to three years and therefore, the large leaf type teas would continue to attract a premium for the 1st half of 2020. The demand for liquoring small leaf teas from the High and Mid Grown region are likely to encounter downward pressure depending on the availability from other centers, where a degree of substitution is possible.

The market demand for teas for the second half of the year would no doubt depend on how the global tea industry would progress during the first half.  As FB has highlighted periodically, FB is confident that market demand for ‘good quality teas’ would certainly command a significant premium consistently throughout the year.

Whilst tea prices are projected to be buoyant in the first quarter of 2020, for long-term sustainability, the industry needs re-engineering to achieve global competitiveness. Cost of producing a kilo of tea in Sri Lanka is amongst the highest in the world. Rising input costs, declining productivity, uneconomic age profile in tea bushes and high social costs have led to declining profits. Perhaps, higher productivity and cost reduction will have to be achieved for enhancing the  competitiveness of ‘Ceylon Teas’ in the world market in the medium to long term. Therefore, global competitiveness of ‘Ceylon Teas’ will largely depend on how quickly the industry addresses these vital issues. 

(Source - Forbes & Walker Tea Brokers)