Achieving tea production, export targets remains grim due to fertiliser shortage

• TEA expects situation to normalise with govt. allowing importation of chemical fertilisers fortea industry 
• Optimistic of achieving 280mnkg output and US $ 1.3bn export earnings this year
• Urges corrective measures with regards to exchange rate to build export-based economy

Despite the improved growing and climatic conditions, Ceylon Tea is unlikely to achieve the tea production and export targets for the year, as the industry has faced a fertiliser shortage, due to the import ban on chemical fertilisers and agrochemicals imposed by the government.

“Although the growing conditions were good compared to last year, unfortunately due to the shortage of fertiliser, the desired results are currently not been achieved. The exporters were expecting a crop of 320 million kilos for 2021 but achieving 320 million kilos may be a difficult task, given the present circumstances,” Tea Exporters Association (TEA) Chairman Sanjaya Herath said in his address during the 22nd Annual General Meeting held virtually last Friday. Accordingly, TEA has lowered its expectation on achieving the export earnings target of US  $ 1.5 billion and production target of 295 million kilos set by the authorities and industry. However, TEA is optimistic of achieving 8 percent growth in tea export income by the end of this year. 

“The tea exporters are optimistic that an export volume of 280 million kg would be possible and the total tea export revenue will surpass US $ 1.3 billion by the end of this year, an increase of 8 percent over US $ 1.2 billion achieved during the last calendar year. 

The significant growth in tea exports and its corresponding revenue achieved by the exporters to date, despite facing multiple challenges locally and internationally, is indeed remarkable,” Herath noted.

He was optimistic that the tea production and quality would bounce back as the fertiliser become available, following the government’s decision to reverse the ban on importation of chemical fertiliser and agrochemicals for the tea sector.

For the moment, TEA noted that market opportunities for organic Ceylon Tea remain limited, given that organic tea is rather a fresh concept in the Middle East, Russia, CIS and the other major markets accounting for 75 percent of Ceylon Tea exports. Further, the global organic tea market represents only about one percent of the total world tea production.

Meanwhile, the tea exporters have been alarmed by Ceylon Tea becoming more expensive and uncompetitive in key traditional markets, due to the artificial pegging of the rupee to US dollar. Herath cautioned that Ceylon Tea could ultimately be replaced with cheaper tea varieties originating from India and Kenya, unless the government fails to consider the matter ‘seriously’. “In order to build an export-based economy, one major critical factor is the exchange rate. Given the eminent risks we may face if the artificial pegging of the rupee to US dollar is prolonged, we trust that the authorities will take corrective action soon, taking into account the challenges the exporters will face in maintaining its market share in traditional markets,” he stressed.

In particular, the depreciation of currencies in major importing countries such as Russia, Turkey, Iran, Libya, Syria, etc. has already adversely impacted the tea prices at the Colombo tea auction. Among the external factors, the disruptions to supply chain logistics, which include the ongoing shortage of empty containers, non-availability of vessels and rise in freight rates, have adversely impacted the Ceylon Tea exports. According to TEA, Sri Lanka could have exported another seven to eight million kg of tea in the first nine months of the year, if not for the supply chain issues. The association estimated revenue loss to the industry, due to the shipping issue, to be around US $ 35-40 million during the period. 

While the rising freight rates is a global scenario, TEA believes that the state intervention could address the shortage of empty containers. Driven by favourable weather conditions, the tea production during the nine months of the year rose by 16 percent YoY to 234 million kilos, reaching a two-year high. In keeping with this trend, the tea export volume also grew by 7 percent YoY to 211.6 million kilos, although comparatively a lower growth rate than a production growth rate, due to certain internal and external factor.