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Mixed bag of results for tea crop

The year 2002 would be viewed by tea producers with mixed feelings. Production was satisfactory and higher than the previous year's. Tea prices in rupee values were at most times higher than the 2001 levels.

This was particularly evident in the case of Low Growns, according to a John Keells Ltd report.

However, input costs rose sharply, mainly due to the wage increase and electricity charges. Consequently, profits of tea estates and private factories eroded sharply. The buying side operations continued smoothly last year with international buyers focusing on Colombo for their requirement of Ceylon teas, which helped the efficient disposal of all varieties.

An area of concern is the increase in sales that are bypassing the auction system, the report said. As more producers seek private and direct sales to improve their cash flow, the demand at the auction will be reduced and consequently, the prices will fall, which could affect all producers.

Of the world's major black tea exporting countries, Sri Lanka showed improved harvests while India and Kenya in particular have todate recorded crop losses despite having a satisfactory crop in October. Consequently, as at end of October, a crop deficit of 25 million kilos was evident. Last year there was a fairly substantial surplus from these countries.

The rupee averages for the High Grown teas on a cumulative basis to end November is slightly higher than 2001 while the Medium Growns reflect an improvement of over three rupees, and the Low Growns an improvement of over nine rupees. The High Grown teas had a poor second quarter as in previous years, but enjoyed very good price levels in September and October. November was less than satisfactory, and compares poorly with the corresponding month of last year particularly, as the last two months of 2001 witnessed very strong marketing conditions.

Low Growns had a good year in terms of the rupee auction averages, and until end of October, the average of each month was appreciably higher than 2001. Prices towards the middle of the year reflected a significant drop and the average, which stood at Rs. 171.76 in March declined to Rs. 151.86 in July, the John Keells report said.

A Rs. 20 drop in four months is quite significant but the High Grown average declined nearly Rs. 35 during this period. Rush crops and poor quality in the second quarter have hurt the profitability of tea factories. Tea factories harvest a significant portion of the yearly crop during the second quarter. It is therefore important that strategic changes are made in the future to prevent the heavy cropping period of the second quarter from yielding poor results.

Traditional buyers of Ceylon Tea have continued to lend good support at the Colombo Auction. The CIS continues to be the single largest market, and an increase was seen in its off-take during January to October.

The Middle East, as a region, was the largest buyer of Ceylon tea, but there were fluctuations within each country. Shipments to Dubai have declined, but Iraq has sharply increased its purchases. Although a drop was observed in Libya up to end of October, this is expected to be reduced by the end of the year, as strong buying has continued in the last few months.

Markets such as UK, Germany, Holland and Japan continued to bid strongly on the better quality Ceylon teas. However, international markets are looking more for cheaper teas at the expense of quality of the overall blend. This could affect the prices of the better Ceylon teas. Therefore, it is of utmost importance that exporters engage in more value additions and in international brand marketing.

2003 - a forecast

The report states that while the world production surplus of 2001 would have been absorbed into the marketing system during 2002, last year's shortfall will help a firmer crop during the first quarter of the New Year. The shortfall has been mainly in the CTC category. Hence, small leaf teas would benefit from the stronger market.

The production of long leaf teas from Sri Lanka has been at the previous year's levels and the market is expected to behave in the customary fashion which is a steady demand in the first quarter. The market for the second quarter will depend to a great extent on how Sri Lanka copes with its rush crops particularly in May and June. The market for third and fourth quarters will depend on the cropping pattern of the three big producers and exporters - India, Sri Lanka and Kenya. However, until this year's world crop overtakes the 2002 production figure, the general market should continue to be bullish.

Crescat Development Ltd.

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