Financial Times

Tea traders say industry is bracing to meet challenges

The Colombo Tea Traders Association say that despite the difficulties, the industry is bracing to face the current challenges. In a statement, the association explained that the crisis in the tea sector started with the global economic melt-down, which precipitated a crash in all commodity prices in August this year. Since the sharp plunge in prices in such a short-time frame was unexpected, the uncertainty it created left a large percentage of teas unsold. The decline in prices, and the large volume of unsold teas caused a cash-flow crisis throughout the supply chain.

As part of the solution to the problem, the Sri Lanka Tea Board purchased a little below 1 million kg of tea at a value of Rs.230 million. While the Tea Board’s intervention helped the industry, tea traders say plans must now be formulated to dispose of these tea stocks. Tea traders say that the avenue of barter trade between friendly countries is no longer available. “However, the plans for eventual disposal will have to be discussed with the trade, so as to ensure that any export will not interfere or cause confusion with the well established sales channels and existing agency agreements,” the statement said.

“The import of teas to many Middle Eastern countries and the USSR [prior to its dismantling], which was controlled by the state some years ago, has now been liberalised in sympathy with the concept of “Free Trade” adopted the world over. Therefore, the avenue of Barter Trade between friendly countries is not available any more,” it said. The tea traders noted that the current situation should not lead to neglect of good agricultural practices. “A very sensitive aspect in this scenario is the lot of the small holder, the backbone of the industry, who supplies about 70% of the raw material [green leaf] for the manufacture of the end-product – Black Tea. If they are compelled to neglect good agricultural practices on account of the diminishing returns on their crop, the long-term consequences could be devastating,” said the statement. Tea traders said that in addition to tea smallholders, other players in the industry, like the tea factories, tea brokers and tea buyers, are also still not out of difficulties.

The statement noted that private tea factory owners and the Regional Plantation Companies are left with depleted working capital, which is “severely affecting” their multifaceted operations. Brokers, who advanced funds to producers on the basis of the higher prices that prevailed, cannot recover their dues. Buyers are carrying stocks of tea at prices well above the current market rates, on which interest is fast accruing at phenomenal rates. (DS)

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