Sri Lankan Tea Industry is one of the main contributors to the national GDP. In analyzing the supply situation, it would be relevant to segregate CTC (Crush Tear Curl) and orthodox tea production. Yet another factor that needs due consideration is the growing demand for tea in producer countries, which may leave lesser exportable volumes,” the report stated.

Global production, in all probability, may show growth in 2018 once statistical data has been tabulated – which would essentially be of CTC origin. Orthodox tea could be considered in short supply considering the decline in Sri Lankan tea production commencing 2016, it said.

Sri Lanka’s tea production in 2019, consequent to the Government’s decision to lift the ban on the use of Glyphosate for tea industry is likely to give much relief to the producers and in particular, to the large-scale plantations which would be able to carry-out the required agricultural practices to achieve the full potential of the plantations.

The Government’s recent decision to allow a more liberal policy on fertilizer – should contribute favourably (needless to say, subject to extreme weather conditions not being a reality). However, aging tea bushes and low productivity levels would be a downside.

Demand growth in China and India

Similarly, India with its aged plantations is unlikely to show any significant improvement in its output. On the other hand, Kenya with its steady growth in production in the past several years is poised to achieve 500 Mn/kgs in 2018 and is likely to play a significant role when assessing the total global supply situation.

Demand growth in China and India, considering the magnitude of these two markets, is likely to influence prices, and consumption is expected to outstrip production.

USA too could be singled out as a fast-growing market, particularly for Specialty Tea, instant tea and iced tea segments, whilst imports from Sri Lanka to the US have shown quite a significant growth in 2018.

Tea Prices

Other factors that are likely to impact Sri Lankan tea prices include;

1. As highlighted elsewhere in the report, Colombo Auction prices have shown a significant appreciation in the 4th quarter, on the 3rd quarter, particularly in respect of Leafy orthodox teas.

2. The first quarter traditionally is a low cropping period with enhanced product quality from most producer countries. This scenario will augur well for Small Leaf liquoring varieties that would be on offer.

3. Another important factor that might influence tea prices is the variation in Foreign Exchange rates. The Sri Lankan Rupee, which was under severe pressure at the commencement of the 4th quarter 2018, stabilised somewhat towards mid December.

If this trend is reversed and the previous depreciation pattern that was seen a couple of months ago becomes a reality, this too would help Colombo Auction prices in rupee terms.

4. Improved demand from Iran following the recent indications that tea would not be featured on the list of items attracting US import sanctions.

5. Importers of orthodox teas are likely to have lower inventory levels in the backdrop of deficits accumulated since 2015.

“These factors would enable us to predict an upward movement in prices, particularly in the first half, for most varieties of orthodox teas. The market demand for teas thereafter would greatly depend on how the global tea industry would progress during the first half. As we have periodically highlighted, market demand for good quality teas would command a premium, consistently throughout the year,” the report stated.

References

1.Original Post: http://www.sundayobserver.lk/2018/12/23/business/whither-tea-industry-outlook-2019

2.More about Ceylon Tea: http://www.pureceylontea.com/