Ceylon Tea confident of retaining market share with recovery in output

• Tea Board chief confident Sri Lanka could face increased competition from India, Vietnam and East Africa
• In 2022, Sri Lanka’s tea production hit  26-year low, recording YoY decline of 16% or 48 million kilos
• Sri Lanka’s tea output expected to recover close to 300 million kilos this year due to favourable weather and increased application of fertiliser 

Sri Lanka, the world’s largest orthodox black tea producer remains confident in retaining the market share and its brand value reflected in premium prices in key traditional markets this year with anticipated rebound in production despite potential competition emerging from India, Vietnam and East Africa, following the sharp production decline recorded last year, which forced traditional markets to look elsewhere to source supply shortfalls.

“The competition is coming up, but we need to see if Kenya would produce a sizeable quantity. India has always been producing orthodox tea up to 20-25 percent of their black tea output. It has never been a threat to us. It’s just that their pricing is attractive over us at this point in time as our quantity is small, so our availability is small to go after all the demand that’s coming particularly from the Middle East. In that case, we have looked for other origins as well wherever we can source complimentary origins. 

The moment our production goes back to our usual quantity of over 300 million kilograms per annum, we will definitely be back on track without any threat, because we produce tea all year around unlike tea growing regions such as North India which is just opening up for this year,” Sri Lanka Tea Board (SLTB) Chairman Niraj De Mel said.

He made these remarks responding to a recent report titled ‘Consider the State of the Global Tea Industry in 2023, Origin by Origin’ published on World Tea News. It predicted that traditional Ceylon Tea consumption markets such as Russia, Central Asia and the Middle East who were forced to look elsewhere to source orthodox teas last year amid sharp decline in Ceylon Tea output, might have developed a pallet for other origins of orthodox tea. 
“The upshot of this was that traditional Sri Lankan consumption markets were forced to look elsewhere to close the needs gap at prices that were acceptable. India, Vietnam and East Africa were direct beneficiaries of this.

While the crops will return for Sri Lanka, their traditional markets may never have quite the same dogged attitude towards buying Ceylon Tea, as they have tasted the alternatives and found them to be acceptable, opening the door for competition from anywhere capable of orthodox manufacturing,” the report predicted. 
In 2022, Sri Lanka’s tea production hit a 26-year low, recording a Year-on-Year decline of 16 percent or 48 million kilos, with overall tea production dwindling to 251.50 million kilos mainly due to lower fertiliser and other agrochemical applications as a result of short-lived ban on agrochemicals. 

In the year, orthodox tea production declined to 227.12 million kilos from 270.72 million kilos recorded in 2021.
Although, tea production declined by 7.2 percent YoY to 58.52 million kilos in the first quarter of this year, SLTB remains confident of the tea output recovering close to 300 million kilos by end of this year given the current favourable weather patterns and encouraging levels of fertiliser application.
“With fertiliser going in, we will catch up. In fact, we are already seeing better crops thanks to the rainy weather. All in all, I’m optimistic that we will catch up with whatever we lost in the first quarter during the second quarter,” De Mel added.

However, he acknowledged that fertiliser application in smallholders’ sector is yet to reach the anticipated levels due to higher costs of fertilisers despite higher green leaf auction prices.
“Fertilisers have begun to reach the crops, but not to the extent we had hoped; at least a good 50 percent of smallholders are using fertilisers as of now. They were used to a subsidised price of Rs.1, 500 per fertiliser bag earlier, now they have to spend around Rs.13, 000 per bag,” he added.

With expected increased production levels in coming months, he predicted that tea prices are likely to come down a bit, which would in return offer more attractive pricing points to buyers resulting in an increase demand.
Commenting on Kenya’s plan to expand orthodox production through government financing, which is further bolstered by the recent decline in demand for its CTC tea in two key markets, Egypt and Pakistan, De Mel pointed out that it’s not an easy exercise to shift towards orthodox tea production in particular for a country such as Kenya which is used for mass production catering to price-conscious markets.

“For them to shift to orthodox tea production, there are a lot of overhead charges when compared to CTC traditional production. We have always been an orthodox tea producer, most of our orthodox tea producers prefer to stay that way.  We produce 90.91 percent of orthodox tea out of our overall production and will continue to be the most sought after, it will never be ignored by the others,” he said.

Meanwhile, India saw rising tea exports to Russia while making inroads into new markets such as Syria, Libya and Turkey amidst production shortfalls in Sri Lanka. Encouraged by increasing demand, Indian authorities have introduced subsidy scheme for orthodox tea producers in Assam, which is the largest orthodox tea producing state in India.

Similarly, Vietnam’s  tea exporters gained momentum in 2022 partly due to an unexpected Russian demand for black tea.
However, De Mel doubted whether it would be possible to compete with the quality levels of Ceylon Tea while India also has a growing demand for black tea from the domestic market. 
Further, he shared that plans are underway to boost Ceylon Tea exports to Russia and the Middle Eastmarkets from the beginning of this summer.

Focusing on the short-term impact on bottom lines of tea planters and producers, De Mel stressed that the country’s tea industry should not deviate from the quality standards, while industry stakeholders should take advantage of the favourable weather patterns to produce quality tea varieties. (NF)