The tea industry is in a cash crunch with over half of low grown teas remaining unsold at the Colombo Tea Auctions. Private tea factories and smallholders are now asking the government to step in, to ease cash flow problems in the industry.
“The tea prices are coming down, but the bigger concern is the large volumes of low grown tea that is unsold. Prices have reduced before as well, but we have not seen such large quantities of tea stocks not being sold like this,” said Dr Sarath Samaraweera, a committee member of the Private Tea Factory Owners Association, on Thursday, at a media briefing.
“At this week’s auction, 58% of the low grown teas was not sold,” said Dr Samaraweera. Prices of mid and high grown teas have also dropped, but tea factories say, it is the low grown teas that are seeing drastic price reductions.
“In July the average price for low grown tea was around Rs 390 per kilo. In August this fell to Rs 356 and in September it was Rs 346 and now it is around Rs 270,” said Dr Samaraweera.
As a combined result of the sudden price drop and large unsold stocks, tea factories are experiencing a cash flow squeeze. So the factories are asking the government to increase liquidity in the sector.
“We have asked the government to allow a debt moratorium for our bank debts, and to increase credit availability for the industry. We have asked for a credit facility of Rs 6 billion, at concessionary terms,” said the Vice president of the Tea Factory Owners Association, Paani Malinga Dias. Low grown teas are mainly bought by Russia, the Ukraine and Middle Eastern countries like Iran, Iraq, Saudi Arabia and Jordan. Over the past four weeks purchases by these countries have reduced significantly.
“But the demand is there. With the winter season coming the demand should increase. But for some reason, buying has reduced. We are not sure why. We suspect that this may be due to the global financial crisis,” said Dr Samaraweera.
The tea factories say the slow sales are not due to quality aspects. “Across the board, low grown teas are unsold. Even the good quality teas,” said Dr Samaraweera.