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Indian tea companies smell opportunity as Sri Lanka crisis brews

As the economic crisis in Sri Lanka —  the world’s largest exporter of orthodox tea — continues to rage across the island nation, tea producers in India look to cash in on the opportunity to seize the market.

The country’s largest tea growing company, McLeod Russel India, expects orders to come in from July.

“A huge opportunity is coming up for everyone in India.

“McLeod Russel is well placed because we have the capacity for orthodox tea,” said Azam Monem, director, McLeod Russel.

About 10 per cent of McLeod’s production is orthodox tea.

Amalgamated Plantations Private (APPL) — carved out of erstwhile Tata Tea to run plantations in North India — normally sells tea in auctions but will consider other options if they see opportunity for direct exports to Iran which is a major export destination for Sri Lankan tea.

“An in-depth assessment and evaluation is required to understand the market dynamics in Sri Lanka.

“Wherever there is a shortage, there is a business opportunity. The question is, how do we address it,” Vikram Singh Gulia, managing director, APPL, said.

Tea producers in South India may also look to step up orthodox production.

“An opportunity is opening up. It will be beneficial for South India because agro climatic conditions are similar to Sri Lanka.

“We can scale up production by 5-7 million kilogram.

“The capacity is there, it’s just a matter of price against cost.

“It would also help the sector if the orthodox incentive scheme is re-introduced,” said Sanjith R Nair, secretary, The United Planters’ Association of Southern India (UPASI).

Some companies are already seeing enquiries.

“We have been getting more than usual queries from around the world as buyers are afraid that they may have to try and find replacement from North and South India, Vietnam and Indonesia,” said Himanshu Shah, chairman, M K Shah Exports, one of India’s largest orthodox tea manufacturing and export companies.

The opportunity for Indian tea firms lies in the anticipated shortfall in tea production in Sri Lanka.

After the Covid-19 pandemic, tea production in Sri Lanka recovered in CY2021.

But an ICRA report said that the increase was limited due to withdrawal of the use of chemical fertilizer around mid-2021 and its impact was pronounced from November 2021 onwards.

“Cumulative production during the four-month period of November 2021 to February 2022 is lower by 18 per cent on a year-on-year (YoY) basis,” the report mentioned.

With the ongoing crisis, the trend of lower production is expected to continue.

“Unless there is incremental support from the government in Sri Lanka, production is expected to take a major hit.

“The current scenario is such that factories cannot run optimally because there is no electricity,” said Kaushik Das, vice president, ICRA.

“Moreover, there is a crisis in availability of diesel which is creating bottlenecks in moving the leaf from the garden to the factory for small tea firms”, he added.

The inability to procure the required pesticides and fertilisers, is also likely to impact health of bushes, impacting production.

Excluding China, the production of orthodox tea has been largely stagnant globally over the past few years.

In the global market, Sri Lanka is the largest supplier of orthodox teas, exporting more than 95 per cent of its production, according to the ICRA report.

Sri Lanka’s major export destinations are Russia, Iran and the UAE and therein lies India’s opportunity and challenge.

While these are common markets for India, exporters to Russia have been facing challenges since the war in Ukraine.

Sanctions on Russia resulted in delays in payments. Also, sending shipments is a major stumbling block to trade.

But exporters believe that a payment mechanism between India and Russia could open up huge opportunities for exports.

If a rupee-ruble mechanism is put in place, it will be a game changer for Indian orthodox teas, said Shah.

“It is being worked on and we have our fingers cross on this.

“If the government finalises the rupee-ruble mechanism and the rupee-rial barter is revived, then a lot of the woes of exporters will be eased,” said Tea Board sources.

But while in the near-term, India may see increased enquiries for exports due to the crisis in Sri Lanka, Das pointed out that in the long-term, good quality, consistent supplies and exports in value-added form will determine whether India will be able to make deeper inroads into markets controlled by Sri Lanka.

In addition to tea exporters, the economic crisis in Sri Lanka may benefit the Indian apparel industry in a small way but it will be the removal of import duty on cotton that may change the industry fortunes, said an official from Tamil Nadu exporters group.

Rediff Business

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