Prospects for Ceylon Tea remain high amid less exposure to global challenges

Ceylon Tea commands higher prospects in 2020 and beyond as it remained one of the few commodities less prone to the economic downturn, although the pandemic dealt a crushing blow to many other industries and businesses, said John Keells PLC, a commodities broker specialised in the tea trade. 

The demand for tea stayed intact even during the worst of the pandemic, as the people, who were restricted to their homes, wanted more tea to drink, although logistical disruptions may have posed challenges to cater to that demand.  

In a bid to ensure continuity of the auctions unabated by the lockdowns, the Colombo Tea Auction migrated into an electronic platform on April 4 and has since conducted several auctions successfully.

“From an export perspective, the increasing consumption of tea globally, gives rise to new export market opportunities for Sri Lanka. 

According to analyst reports, consumption of black tea is on the rise, led by China and India, while tea is said to be less exposed to global economic changes. This bodes well for the Sri Lankan tea industry, which has seen increasing export volumes to China, thus making China one of the newly emerging markets for traditional orthodox black Ceylon Tea,” John Keells PLC Tea Review said in its outlook report for 2020.

In the decade from 2008 to 2019, Sri Lanka’s tea exports to China had risen from 910,000 kgs to 11.9 million kilogrammes (M/kgs).  

However, during the first three months of 2020, the tea export volumes declined by 14.5 M/kgs to 59.5 Mkgs while the export earnings fell by Rs.13.2 billion to Rs.49.2 billion, compared to the same period in 2019, with the largest plunge witnessed in March.

In 2019, Sri Lanka exported 292.7 Mkgs of tea with earnings of US $ 1,351 million, compared to 282.4 Mkgs with earnings of US $ 1,425 million in 2018, with diminished dollar earnings resulting from the weaker rupee. 
While there is a growing demand for black tea in the East, John Keells observed a rising trend for green tea in the West, led by the United States, to consume tea as a ready-to-drink beverage, which is healthy, natural and non-alcoholic. 

According to a report by Global Industry Analysts (GIA), as cited by John Keells, the global green tea market is expected to be US $ 8.1 billion by 2025. 

“The GIA report also indicates the expectation for demand to remain high in the USA, maintaining a 4.9 percent growth momentum, while countries in Europe steadily increase their market share over the next five to six years. Asia, which represents countries such as China and Japan, are expected to continue to lead the green tea market in the coming years,” John Keells said. 

Meanwhile, a report by Mordor Intelligence forecasts the global tea demand to grow by 4.5 percent every year, from 2020 to 2025.

However, Sri Lanka’s tea industry fortunes highly depend on the weather patterns and over rely on five key markets for close to 50 percent of the exports. 

Last week, the sector said 40 percent of the production from the regional plantation companies was affected by the dry weather spell but pinned hopes on the rainy season to return from May for higher yield thereon. Meanwhile, Sri Lanka remains highly dependent on Turkey, Iraq, Russia, Iran and Libya, for 48 percent of its tea exports, with the remaining 52 percent is scattered across a number of markets with many representing only a single percentage point. 

As Ceylon Tea is the most expensive tea variety in the world, which also faces challenges from other competing producing countries such as Kenya, India and China, John Keells advised to focus on supplying differentiated teas and adding value to compete more effectively in the premium and more specialty tea categories. 

“Changing global tea consumption trends has also yet to be capitalised on by the Sri Lankan tea industry while non-productivity issues related to wages and low mechanisation have impacted the competitiveness of Ceylon Tea, resulting in high production cost and therefore higher prices at the tea auctions. Issues such as increasing input costs, declining productivity, ageing tea bushes and high social costs will continue to impact the profitability of the industry in the long term.”