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Tea yields unlikely to recover to 2010-2015 levels: Forbes & Walker

07 Jan 2021

Forbes & Walker (Pvt.) Ltd. predicts that although the Sri Lankan tea output is likely to recover in 2021, it is unlikely to achieve the highs registered from 2010-2015, and therefore the supply situation would continue to remain tight. Issuing a report on the tea industry’s review of 2020 and a preview for 2021, Forbes & Walker noted that from a Sri Lankan perspective, it is most likely that the Sri Lankan rupee would weaken once the imports on non-essential items are relaxed, and in such circumstances, would augur well for rupee tea prices, considering that some of the key importer country currencies too have depreciated post the Covid-19 pandemic. “From a global perspective, tea production in 2020 is likely to record a deficit, reflecting the crop shortfall primarily from India and Sri Lanka. Kenya, on the other hand, has recorded a fairly significant increase year-on-year, perhaps reflecting a cyclical recovery after a drought-induced decline in 2019. Further, black tea production growth over a period of time 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, has experienced a crop shortfall in recent times,” the report stated. In global perspective, a recovery in tea consumption in 2021 in Asian countries was seen, particularly in India and China, which together is estimated to be 55% and more of global demand. Forbes & Walker also noted weak market outlook from European countries following the economic downturn, which is unlikely to impact tea prices in a significant manner. “Uncertainty about US trade policy towards China poses a risk to tea sales. It is hoped that US policy will become less combative with the political change. Oil prices moved higher during the first two weeks of December based on stronger Asian demand, effective OPEC+ supply management, and positive news on the vaccine front, whilst Brent oil crossed $ 50 for the first time since March,” it added. 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 worst-case scenario. However, prices for orthodox rotorvane (small leaf liquoring teas) would largely weigh on the recovery of tea production in North India, which is unlikely to be regularised during the first quarter of 2021, as almost all producer countries experience dry weather conditions and it is often a lean cropping period. “In these circumstances, tea prices are unlikely to show a dramatic change from current levels up until the end of the first quarter of 2021, and perhaps on a cautiously optimistic note, we could expect these levels to remain till around mid-2021. Tea prices thereafter would largely depend on the supply scenarios that unfold during the first quarter of 2021,” Forbes & Walker further noted. Amidst the optimistic outlook for prices, the industry continues to be challenged with constant wage increases and lower rates of mechanisation, which would continue to undermine the competitiveness due to higher average production costs than other large producer/exporter countries. In terms of 2020 performance, Sri Lankan tea production declined to 53.1 million kg from 73.4 million kg during the corresponding period in 2019 – a decline of 27% – in the first quarter of the year. Total auction average of Rs. 594.81 showed an increase of Rs. 9.51, compared to Rs. 585.30 recorded during the first quarter in 2019. Mid growns appreciated Rs. 9.86 quarter on quarter, whilst low growns showed a gain of Rs. 19.51. However, high growns recorded a decline of Rs. 19.61. In the same quarter, tea exports totalled 59.5 million kg, recording a decline of 14.1 million kg vis-à-vis 73.6 million kg during the corresponding quarter in 2019. Earnings from tea exports of Rs. 49.2 billion recorded a deficit of Rs. 13.2 billion vis-à-vis Rs. 62.4 billion during January-March 2019. Overall, FOB values too declined to Rs. 826.39 in 2020 from Rs. 847.57 in 2019. Meanwhile, in the second quarter, total tea production of 75.3 million kg recorded a deficit of 10.1 million kg vis-à-vis 85.4 million kg during April-June 2019. During this period, low growns showed the steepest negative variance of 7.2 million kg, followed by negative variances of 1.5 million kg and 0.6 million kg from the high and medium grown regions, respectively. Tea exports totalled 64.5 million kg in the second quarter of last year, recording a deficit of 7.0 million kg vis-à-vis 71.5 million kg during the corresponding quarter in 2019. Export earnings totalled Rs. 56.8 billion, recording a decline in earnings of Rs. 2.6 billion, compared to Rs. 59.4 billion in 2019. FOB value of Rs. 831.11 recorded an increase of Rs. 50.17 vis-à-vis Rs. 881.28 in corresponding quarter in 2019. In the third quarter of last year, total production showed some recovery, totalling 72.0 million kg during the quarter under review, with a marginal deficit of 2.0 million kg when compared to the 74.0 million kg harvested during the corresponding quarter in 2019. Tea exports totalled 74.2 million kg, marginally behind 75.9 million kg in 2019. Export earnings stood at Rs. 64.4 billion vis-à-vis Rs. 60.6 billion in 2019. At the end of the third quarter of 2020, tea exports totalled 198.2 million kg vis-à-vis 221.0 million kg in 2019, a deficit of 22.8 million kg. Export earnings totalled Rs. 170.5 billion vis-à-vis Rs. 182.5 billion, which records a deficit of Rs. 12.0 billion in earnings. In the last quarter of 2020, October/November production totalled 48.2 million kg, recording an increase of approximately 3 million kg. Whilst this would be the only quarter to show a positive variance in production, and if December production would equal the 21.8 million kg achieved in 2019, annual production for 2020 would be marginally above 270 million kg. This would record an approximately 30 million kg (10%) shortfall when compared to 2019. In 2020, the tea industry showed its “resilience” by rising to the occasion in digitising the auction in a “very short” period of time, which facilitated the uninterrupted sale of tea, according to the report. It further stated that this initiative was spearheaded by the Colombo Tea Traders’ Association (CTTA), and supported by the Colombo Brokers’ Association (CBA) and its technical partner CICRA Holdings. Concurrently, many other auction centres around the world too adopted and changed to the methodology of selling tea digitally, transforming the character of the “tea men”. “The coronavirus outbreak left the global economy looking bleak, with likely recessions in many developed economies across the world. Whilst there was some hope of recovery in the second half of the year, the continuation of the pandemic shattered all hopes, which meant the uncertainty continued. Consequently, lower fiscal revenues and higher public expenditure placed many countries in a slump,” the report added.  Consequent to the lower volumes harvested from around the latter part of 2019, prices were edging up on the previous year’s levels, which were propelled quite sharply following the pandemic, where consumers around the world went on a panic buying spree of food items, of which tea was no exception. Consequently, many importers remained desperate for urgent shipments, which led to strong buying at the Colombo Tea Auction.


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