Sri Lanka's production and export of Ceylon tea are likely to reach an all time high this year, brokers Asia Siyaka Commodities said yesterday.

Tea production should reach a new record of around 298-300 million kg this year, helped largely by unseasonal rains, they said in an assessment of this year's performance and forecast for 2001.

This year will be "a record one for tea exports both in quantity and rupee value," the brokers said in their Interim Tea Review 2000.

The quantity shipped should exceed 275 million kg, against 269 million kg last year.

"This will be the highest ever quantity exported and exceeds the previous record of 271 millionkg achieved in 1998," Asia Siyaka Commodities said.

They also forecast that the rupee value of exports will exceed Rs. 50 billion this year.

In dollar terms the market recovered from a low $1.44 per kg in June 1999 to $1.82 per kg by December this year, a gain of 26 per cent.

In comparison, the rupee figure has risen 43 per cent to around Rs. 147.50 per kg from Rs. 102.85 in June 1999. Tea prices bottomed out in May last year at Rs. 77.99 ($1.11) per kg, the brokers said.

Since then, aided by a Kenyan crop shortfall and more demand from Russia and the CIS as well as the Middle East, the market has revived to end the year up 78 per cent.

Russia and the CIS, the biggest market for tea, continue as the prime destination for Ceylon tea exports for the sixth consecutive year, accounting for 21 per cent of total exports.

The United Arab Emirates, which has emerged as a major regional hub, comes second absorbing around 15 per cent of all tea exports.

Each year's harvest has been a new record with production of black tea rising six per cent since 1994 when it was 245 million kg.

This year's record crop comes largely from increases in production of Low Growns which make up more than half the crop and are made mostly by small holders.

"We forecast that Low Growns will easily exceed the record production figure of 150 million kg achieved in 1998," Asia Siyaka Commodities said.

Production of High and Mid-Growns too is expected to increase given improved management and agricultural inputs by the regional plantations companies.

The brokers described this year as one of "consolidation" for the tea industry after the market fell following the devaluation of the Russian rouble.

"It is a considerable achievement considering that prices dropped 25 per cent from September 1998 to June 1999," they said.

A key factor in the revival of the market was the resumption of active buying for Russia and the Commonwealth of Indedendent States (CIS) and the Middle East, helped by stronger oil prices.

The average price per kilo of tea at the Colombo auctions was consistently higher than last year in rupee terms, although in dollar terms even at the peak, Colombo's prices were still lower than the 1997-98 "pre-rouble crash levels". The sharp devaluation of the rupee this year will add further value to tea exports. "This year's closing rates are a strong positive signal of what is in store at least during the first half of 2001," Asia Siyaka Commodities said. Exports of Ceylon tea could get a boost when Indian teas are taxed the same as teas from other origins in the Russian market from January 2001.

"This could cause the greater price conscious segment to look for better value Ceylonese," the brokers said. "The market for Low Growns should therefore at least hold at this year's levels."

Sri Lankan Low Growns have unique liquoring characteristics that other tea producers have not been able to match and are much in demand in the CIS and the Middle East.

"We should capitalise on it in our marketing," a senior Asia Siyaka Commodities official said. "Our quality can't be matched by other producers of orthodox teas."

Russia was becoming a more sophisticated market and buyers were willing to pay well for good quality Ceylon tea, he said.

"In the good old days Russia took High Growns like Uda Pussellawas and Nuwara Eliyas which have a particular Sri Lankan character," he explained.

However, over the past four or five years Russian consumers got used to Indian teas because of a barter deal between New Delhi and Moscow.

"But now they becoming more and more sophisticated and are looking to buy good quality teas which India does not have," he said.

The continual production problems in Kenya, Sri Lanka's main rival, which caused a drop in quality and a crop shortfall this year, could benefit Sri Lankan high grown small leaf teas, the Asia Siyaka report also said.

Kenya makes mainly CTC teas which are used in tea bags. The small leaf grade High Grown BOP fannings are sometimes used as a substitute for CTC Pekoe fannings.

The brokers also warned that soaring domestic interest rates could have a negative impact on the market, just when it is poised for take off.

The combination of very high interest rates and shrinking bank facilities depleted by inflated rupee prices will have an effect on the brokers' ability to trade, they said.

At the same time delayed cataloguing, owing to the record crop, is squeezing producers. (21/12/2000)

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