Sri Lanka tea export earnings boosted by high prices

MAY 3, 2007 (LBO) – Sri Lankan tea exports fell in the first quarter of 2007 but earnings were up because of high prices caused by supply shortages owing to a strike and dry weather, brokers said. Shipments of Ceylon tea in January-March 2007 fell 4% to 74.4 million kg from the record 77.8 million kg shipped in the same quarter the previous year, brokers Asia Siyaka Commodities said.

“The earnings picture, however, is positive,” they said in a market report.

Sri Lanka earned a total of 23.6 billion rupees (217 million dollars) during the first quarter of 2007 compared with 21.7 billion rupees (213 million dollars) in the same period last year.

Despite the depreciation of the rupee during this period to an average of around 108 to the dollar from 101 in 2006, it was the sharp increase in tea prices that accounted for the higher earnings.

“The main reason was that tea prices moved up sharply during this period as a result of the post-strike production fall and subsequent extended dry spell curtailing supply to the auction,” the brokers said.

Production on most high grown estates was brought to a standstill late last year by a strike by labour unions demanding higher pay followed by dry weather.

This severely curtailed supplies to the Colombo auctions forcing buyers to scramble for whatever tea that was available at higher prices.

“The resulting record high auction prices for most categories of tea boosted export earnings in US dollars as well,”Asia Siyaka Commodities said.

“This is the highest ever dollar earnings from tea exports during first quarter and even surpasses 207 million dollars earned during the boom year of 1998.”

However, the per kilo price for tea in 1998 was much higher in US dollars as volume shipped was only 68 million kg.

The Commonwealth of Independent States remains the largest importer of Sri Lankan teas followed by Iran, the UAE and Syria, Forbes & Walker Tea Brokers said.

Tea bags and green tea export volumes increase in the first quarter of this year compared with the previous year while tea in bulk and packets fell although they have shown an increase in value terms.

Asia Siyaka Commodities said that despite the “rosy” export income picture many exporters would have been compelled to absorb the artificially high auction prices on contracts entered into previously. “This aspect should be considered as a further negative consequence resulting from last year’s strike. Previously, tea producers lost heavily as cost of production rose sharply following loss of crop due to the strike.”