Sri Lanka tries to limit tea production to stop price plunge

Oct 24, 2008 (LBO) - Sri Lanka's Tea Board Friday said it was advising producers to manufacture only good quality tea and reduce output in an effort to stabilise prices which have crashed in recent weeks.



About half the volume of low grown teas remained unsold at the auction this week, creating cash flow problems for factories and the small holder farmers who grow and supply the leaf.

The biggest buyers of low grown teas are the Middle East and Russia whose buying power has been sharply reduced with the plunge in oil prices and the depreciation of currencies like the Russian rouble and Iranian rial.

"Sri Lanka is particularly affected because 70 percent of our low grown teas go to the Middle East and Russia and their buying power has fallen," Hettiarachchi said.

"Another problem for the collapse in prices is that buyers tend to adopt a wait-and-sea attitude," he added.

"They refrain from buying hoping prices would fall at future auctions when they can buy cheaper."

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Tea Board chairman Lalith Hettiarachchi said the sudden collapse in prices were mainly caused by a combinatio