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Sri Lankan economic crisis may provide opportunities for Indian tea exporters

The regular power cuts and non- availability of sufficient quantities of fuel to operate generators have also hampered the day to day operation of tea export companies. The exporters of value added tea have been affected more than others as the tea packing machines that normally operates on 2-3 shifts per day are unable to function even on a single shift without any interruption due to the power cuts. The brand owners face a huge challenge in fulfilling their contractual obligations to the foreign buyers. The exporters are unable to plan the production due to long power cuts. The end result would be low export volume and revenue from tea sector during year 2022. The association has sought the assistance of Sri Lanka Tea Board to obtain the fuel requirements for tea exporters but CEPETCO has not been able to supply the required quantities. The fuel issue also affects the tea manufacturers and transport of tea to Colombo for the auction. The escalation of transport cost along with high auction prices negatively impact on the competitiveness of Ceylon Tea in the global market. It is necessary to provide fuel to the export industries on priority basis in order to ensure the continuous foreign exchange earnings that are vital to the country at the moment.

The Sri Lankan tea exporters who are grappling with a number of internal and external issues such as low tea crop, high COP, fuel issue, sanctions on Russia, high freight rates etc are concerned of the possible loss of market share for Ceylon Tea if the corrective measures are not taken immediately.

Since November last year the domestic tea crop has been declining largely due to the non- application of fertilizer on time and also due to adverse weather conditions prevailed in the tea growing regions during the last few months. In the first two months of 2022 Sri Lanka registered a tea crop of 41 million kg as against 45.7 million kg registered in the same period last year, a decline of 4.7 million kg. As per the tea quantities offered at the Colombo tea auction during the month of March 2022, it is estimated that the tea crop in the first quarter would be in the range of 65 million kg, a drop of about 10% compared to last year. Although tea cropping months have begun with the onset of rain, the fertilizer is adequately not available for the tea growers. Further, the price of fertilizer has gone up by three to four folds making it unaffordable to many tea producers. Since tea export volumes are directly related to available tea crop, the tea export volume is also estimated to be lower by about 8-10% in the first quarter of the year. The exporters are worried about losing Ceylon tea market share to other competitors and also losing valuable foreign exchange earnings.

The value added tea export sector is also affected from shortage of tea packaging materials. The suppliers of tea packaging materials who depend on imported raw materials are unable to secure the required quantities due to shortage of dollars. They do not get priority from Banks when LC is opened for import of materials. The prices of packaging materials too have gone up with the dollar shortage. A similar situation is seen in the supply of tea flavours and other inputs for value addition of Ceylon Tea. These factories too suffer from power cuts and shortage of fuel.

At present, the Colombo tea auction prices have gone up to record levels due to the depreciation of the local currency and non – availability of sufficient quantities. The situation has temporarily mitigated the adverse impact of sanctions on Russia on Colombo tea auction prices. Sri Lanka used to export about 28-30 million kg of tea to Russia and another 4 million kg tea to Ukraine annually. Though there are no sanctions on Ukraine, export of tea to this country has been affected due to disruptions to the shipping and other logistic arrangements. The infrastructure in most parts of Ukraine has been damaged and therefore the retail businesses will not be able to resume the operations soon. The US/EU sanctions on Russia, depreciation of the Ruble, curtail of shipping movements etc have affected Sri Lanka tea exports to this important market. As per available media reports, India and Russia have agreed to carry out their trading business using the Rupee & Ruble. This will enable the Indian tea exporters to continue to supply tea to the Russian market at the expense of Sri Lanka and some other suppliers. China and Vietnam who do not accept US & EU sanctions on Russia will also continue with their tea supplies to the Russian market. Tea Exporters Association (TEA) has suggested to Sri Lanka Tea Board to explore the possibility of having a mutual trading arrangement with Russia but Sri Lanka is yet to initiate any dialogue with Russia on this matter. Since the Russian sanctions may get dragged on for some time, the absence of any acceptable solution to the issue could affect the Ceylon tea share in the Russian market at least in the short to medium terms.

Tea Exporters continue to face difficulties in getting the empty containers for supply of tea. The freight rates have further escalated with sanctions on Russia affecting the pricing of Ceylon Tea. The high COP and the tea auction prices combined with other internal & external factors may adversely affect Sri Lanka tea exports not only to Russia but to other destinations as well.

Some foreign buyers are inquiring about the uninterrupted supply of Ceylon Tea under the current situation in the country. Tea Exporters Association ( TEA ) members are committed to increase the volume of export of tea and foreign exchange earnings and request the responsible state agencies to address the prevailing issues without delay as they could seriously affect the sustainability of the tea industry. The government may also explore the possibility of having a special trading arrangement with Russia to safeguard the important Russian market for Ceylon Tea. It is a matter of time that Colombo tea auction experiences the heat of Russian sanctions.

Tea Exporters Association

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