Mixed outlook for Ceylon Tea in 2023

• Output expected to improve but prices remain uncertain

A mixed outlook for the country’s tea industry is forecasted in 2023 amid the global challenges, of which the impact is becoming increasingly difficult to predict.

Forbes & Walker Tea Brokers shared that the kick off of the year 2023 is much-awaited by all stakeholders, particularly from a production point of view, with the revoking of the ban imposed on the usage of chemical fertiliser on tea plantations. However, it remains unclear in which direction the tea prices would head in the new year.

The expectation of a higher crop intake alongside an improved Western Quality Season compared with previous years are certain elements that would undoubtedly provide the year a positive note to begin with, Forbes & Walker Tea Brokers said. Tea production in almost all producer countries has shown negative growth in 2022 when compared with 2021.  Sri Lanka recorded the steepest decline of 15-17 percent year-on-year (YoY). 

According to Forbes & Walker, historically, a low production year usually follows an improvement in crop. Therefore, assuming that the output in most producer countries would improve in 2023, the tea broker is projecting a firmer growth in global tea production this year. However, an area of concern would be the rising input costs, meaning that in inflation adjusted terms, farmer profits would remain lower than in the past, it said. In terms of prices, consideration needs to be given to the fact that 1Q23 will be a lean period for almost all producer countries. From a Sri Lankan perspective, the traditional Western Quality Season experienced during this time of the year lends towards an improved availability of better quality teas.  In the absence of a global measure of tea stocks, predicting tea prices becomes a near impossibility. Forbes & Walker said that if the supply and demand equation would be a deciding factor, it would be reasonable to assume that the prices in respect of the Large Leaf Orthodox teas would sustain at these levels – even as a worse-case scenario. 

However, the prices for the Orthodox Rotovane (Small Leaf liquoring teas) would largely weigh on the recovery of tea production in North India, which is likely to be regularised in 2Q23. “In these circumstances, the rupee tea prices are unlikely to show a dramatic change from their current levels up until the end of 1Q2023 and perhaps on a cautiously optimistic note, we could expect these levels to remain until around mid-2023, subject to any unforeseen circumstances,” it said. As a result, the tea prices would largely depend on the supply scenarios that unfold during 1Q23.

The tea broker went on to stress that amid the optimistic outlook for prices, the industry continues to be challenged. The factors impacting the industry are identified as constant wage increases and lower rates of mechanisation and more recently, the sharp rise in finance costs, which would continue to undermine the competitiveness, due to higher average production costs compared to other large producer and exporter countries.