SRI LANKA TEA PRODUCTION - AUGUST 2023

Sri Lanka tea production for the month of August 2023 totalled 18.25 million Kgs, showing a marginal decrease of 0.07 million Kgs vis-à-vis 18.32 million Kgs of August 2022. All Elevations have shown an increase in comparison with the corresponding period of 2022. The Low Grown elevation however saw a decline of 1.35 million Kgs in comparison corresponding period in the previous year.

Compared to 23.87 million Kgs of August 2021, August 2023 shows a decrease of 5.62 million Kgs.

January-August 2023 cumulative production totalled 174.21 million Kgs, recording an increase of 2.67 million Kgs vis-à-vis 171.54 million Kgs of January-August 2022. Compared to the corresponding period in 2022, all elevations, except for the Low Growns, have shown positive variances in the year 2023.

Compared to 211.97 million Kgs of January-August 2021, cumulative production of 2023 shows a decrease of 37.76 million Kgs. On a cumulative basis, all elevations show a decrease over the corresponding period of 2021.

The available tea crop figures for the first eight months’ period are appended below (in MT).  

SRI LANKA TEA EXPORTS - AUGUST 2023

Tea Exports for the month of August 2023 totalled 23.33 million Kgs, showing a gradual increase of 0.33 million Kgs vis-à-vis 23.00 million Kgs of August 2022. All categories except for Instant Tea and Green Tea have witnessed a decline against the corresponding month of 2022.

January-August 2023 cumulative exports totalled 158.32 million Kgs, showing a decrease of 12.74 million Kgs vis-à-vis 171.06 million Kgs of January-August 2022. Tea in Bulk and Packeted Tea continue to show negative variances, whilst the remaining product categories recorded a marginal increase.

FOB value for the period stood at Rs. 1,801.24, an increase of Rs. 330.70 vis-à-vis Rs. 1,470.54 of January-August 2022.

All categories showed gains in USD terms as well when compared to the corresponding period of 2022.

Iraq has secured top position for the month with a total of 14.73 million Kgs followed by Türkiye at No. 2 with 13.33 million Kgs. Russia with 12.34 million Kgs sits at 3rd position with an increase of over 14% against last year's 10.10 million Kgs. Thereafter, the U.A.E (7.49 million Kgs) and China (5.77 million Kgs) occupy the 4th and 5th places respectively. Other notable importers are namely, Azerbaijan, Libya, Saudi Arabia, Syria and Germany.

The tea export figures for the first eight months are listed below (in MT).   

MAJOR IMPORTERS OF SRI LANKA TEA – JANUARY TO AUGUST 2023/2022 - in MT

SRI LANKA TEA PRODUCTION – JANUARY TO DECEMBER 2022 

Sri Lanka tea production for the month of December 2022 totalled 19.50 million Kgs, showing a decrease of 1.02 million Kgs vis-à-vis 20.52 million Kgs of December 2021. All elevations have shown a decline over the corresponding month of 2021.

It would be relevant to note in comparing the December 2020 production figure of 28.66 million Kgs, December 2022 shows a significant decrease of 9.16 million Kgs.

January-December 2022 cumulative production totalled 251.50 million Kgs, recording a significant decline of 47.99 million Kgs vis-à-vis 299.49 million Kgs of January-December 2021. On a cumulative basis, all elevations have shown substantial decline over the corresponding period of 2021. 

Interestingly, compared to 278.85 million Kgs of January-December 2020, cumulative production of 2022 shows a decrease of 27.35 million Kgs. On a cumulative basis, all elevations have shown a decline over the corresponding period of 2020.

The available tea crop figures for the twelve months period are appended below (in MT). 

SRI LANKA TEA EXPORTS – JANUARY TO DECEMBER 2022

Tea Exports for the month of December 2022 totalled 19.30 million Kgs, showing a decrease of 4.86 million Kgs vis-à-vis 24.17 million Kgs of December 2021.

All Main categories of Bulk Tea, Tea Packets & Tea Bags have shown a decrease when compared to the corresponding period of 2021.

January-December 2022 cumulative exports totalled 250.19 million Kgs, showing a decrease of 35.82 million Kgs vis-à-vis 286.01 million Kgs of January-December 2021.  

All main categories of exports (Bulk Tea, Tea Bags and Packeted Tea) have shown a decrease compared to the corresponding period of 2021.

Revenue of Rs. 411.09 billion realised from Tea Exports for January-December 2022 shows an increase of Rs. 147.74 billion in comparison to the Rs. 263.35 billion of January-December 2021, thus recording the highest ever in a calendar year.

FOB value of Rs. 1,643.11 records an increase of Rs. 722.35 compared to Rs. 920.76 of January-December 2021, thus recording the highest ever FOB value surpassing the previous best which was realised during the corresponding period of 2021.

Total US Dollar FOB value of US$ 5.10 has recorded an increase of US$ 0.42 in 2022 when compared to US$ 4.68 recorded in 2021.

Total revenue of USD 1,277 million shows a decline of USD 61 million compared to 1,338 million of January-December 2021.

Iraq has remained as the No. 1 major importer of Ceylon Tea following a marginal increase of 2% YoY in January-December 2022. Russia has moved a place to the No. 2 position with a decline in imports (9.6% YoY) followed by UAE, which has also declined (2.5% YoY). Türkiye has moved down to the 4th position having decreased imports significantly (47% YoY). Iran, which has remained at the 5th shows a decline of (17% YoY) in imports during January-December 2022. Other notable importers are Azerbaijan, Libya, China, Germany and Chile.

A significant decrease in imports is reported from China (21%), Chile (26%), Syria (21%), Japan (10%) and Jordon (25%) YoY.

A notable increase in imports is recorded from Azerbaijan (14%), Germany (2.7%) and USA (8%) YoY as expanding markets for ‘Ceylon Tea.’ 

The tea export figures for the twelve months are listed below (in MT).  

MAJOR IMPORTERS OF SRI LANKA TEA – JANUARY TO DECEMBER 2022/2021 - in MT

The commencement of the year 2023 (1st Quarter) would perhaps be much-awaited by all stake-holders, particularly from a production point of view with the revoking of the ban imposed on the usage of chemical fertilizer on tea plantations.

The expectance of a higher crop intake alongside an improved Western Quality Season compared with previous years are certain elements that would undoubtedly provide the forthcoming year a positive note to commence upon.

We analyse below the supply and demand situation that exists and project likely market scenarios taking into consideration recent developments in importer countries.

Production 

Tea production in almost all producer countries have shown negative growth in 2022 vs. 2021 with Sri Lanka recording the steepest decline of 44-48 M/Kgs (15%-17%) year-on-year.

Historically, a low production year usually follows with an improvement in crop and therefore, assuming that the output in most producer countries would improve in 2023, we are projecting a firmer growth in global tea production during the forecasted period. However, an area of concern would be the rising input costs, meaning that in inflation adjusted terms, farmer profits would remain lower than in the past.

Governments in tea producer countries will no doubt have to improve efficiency of production using digital technology to lower production costs, tackle labour shortages and improve supply chain management. Such would reap dividends in production growth in the medium to long term as the roll out would be gradual. 

Prices

In projecting tea prices, the following would be salient factors for consideration.

•  Consumption growth is estimated to have surpassed production in 2022 and the market surplus is likely to have narrowed more so for Orthodox teas considering the significant shortfall in crop in Sri Lanka (i.e. low inventory levels in most importer countries).
• The main tea consuming countries are also the largest producers and in recent years a rising share of output has been retained for domestic consumption.
• Asian consumers continue to dominate tea consumption, in particular China and India, which are estimated to account for over 50% of the global demand.
•  The forecasted tea consumption growth in India is anticipated to be relatively firm in 2023 following an improving Corona virus situation compared with 2021.
•   Chinese consumption is likely to grow showing a preference for black tea. Although ready-to-drink products were rising firmly before the pandemic, analysts predict that quality loose tea will continue to dominate the local market.
•  The US market for tea though small is expected to show a fairly firm growth in consumption. However, with most of the larger tea markets dominated by loose-leaf tea; the US remains one of the most important single markets for instant and iced tea, and perhaps handcrafted specialty teas.
•   The recent reduction in freight costs and the likely tendency of a weakening of the Sri Lankan Rupee would be an added advantage for importers of ‘Ceylon Tea.’

Combining these factors, due consideration needs to be given to the fact that the 1st quarter is a lean period for almost all producer countries and from a Sri Lankan perspective, the traditional Western Quality Season experienced during this time of the year lends towards an improved availability of better-quality teas.

In the absence of a global measure of tea stocks, predicting tea prices becomes a near impossibility. Therefore, if the supply and demand equation would be a deciding factor, it would be reasonable to assume that prices in respect of Large Leaf Orthodox teas would sustain at these levels, perhaps even as a worse case scenario. However, prices for Orthodox Rotovane (Small Leaf liquoring teas) would largely weigh on the recovery of tea production in North India which is likely to be regularised in the 2nd quarter of 2023.  

In these circumstances, rupee tea prices are unlikely to show a dramatic change from its current levels up until the end of the 1st quarter 2023 and perhaps on a cautiously optimistic note, we could expect these levels to remain until around mid-2023 subject to any unforeseen circumstances. Tea prices thereafter would largely depend on the supply scenarios that unfold during the 1st quarter of 2023.

Amidst the optimistic outlook for prices, the industry continues to be challenged with constant wage increases and lower rates of mechanization and more recently, the sharp rise in finance costs which would continue to undermine the competitiveness due to higher average production costs than other large producer/exporter countries.

(Forbes & Walker Tea Brokers (Pvt) Ltd)