By Ravi Ladduwahetty
Sri Lanka’s tea exports to Iran, the second largest market after the Russian Confederation, suffered a debilitating blow with the Government of Iran deciding to take Ceylon Teas off the essential list of imports last Thursday.
"This has caused us quite a bit of concern," Jayantha Keragala, Chairman of the 114 – year old Colombo Tea Traders Association (CTTA) told The Island Financial Review late Saturday night, quite euphemistically, obviously not wanting to trigger panic signals across industry stakeholders- exporters, brokers, small holders and the 21 Regional Companies numbering 4 million, a fifth of the national population whose livelihoods would be at stake.
The salient feature is that out of a total of 318 million kilos of Ceylon teas which have been exported last year, 45 million kilos (11.9 percent) has been to Iran and that is the significant aspect of this matter. Sri Lanka exports the FBOP teas, FBOPF1 teas (TIPI teas) and the OP teas and in addition to that, TIPI teas are imported to Iraq only from Sri Lanka which has been impacted by the decision of the Iranian government significantly, Keragala said.
The reason for the government of Iran lifting Ceylon Teas off the essential list is not known yet but the heart of the matter is that with this development, what would also happen is that the premium prices that the Ceylon Teas would fetch would be lower than what was in the existing market which was thriving, the CTTA Chief said.
In real terms, this would also mean that the Iranian importer who paid around 1200 Iranian Riyals to the United States Dollar, will now have to pay 2000 Riyals to the dollar to import Ceylon Teas to the Iranian market with the Dollars in the black market. What this effectively would mean is that the sector which will be most affected will be the small holder segment of the local plantation industry that grow and process the low growns which were thriving in that market.
Earlier, the Iranian market which had issues with US Dollar imports following sanctions imposed by the United States which impacted payments for the Sri Lankan tea exports, had some relief later with two private sector Iranian banks – the Saman Bank and the Persian being the only two unsanctioned banks and the Dollars for the tea exporters were arriving steadily.
A Sri Lanka private sector tea industry delegation led by Keragala was in Iran recently and they have been informed by the Iranian tea importers that they will somehow adopt a strategy and mechanism to pay Dollars to the Sri Lankan exporters in the same manner that pay the Indian exporters, but that was well before last Thursday’s bomb shell of the Iranian government knocking off Sri Lankan teas off the essential list which will impact the pricing of the local tea exporters to the Iranian market.
Meanwhile, Sri Lanka Tea Board Marketing Director Hasitha De Alwis told The Island Financial Review that a further debilitating blow was the inroads that Kenya was making into the Iranian market which was meant that that country too was deviating on the dependence on the five traditional markets that the African country was exporting its CTC teas to.
Kenya had made a phenomenal increase in its tea exports to Iran from the 83,000 kilos in January 2011 to 1 million kilos in January 2012 and it has exported 5 million kilos to Iran for 2011 which is also an indication that it is treating Iran as an alternative market to its five tradition markets of United Kingdom, Egypt, Sudan, Pakistan and Afghanistan, De Alwis said.
Kenya has indentified Iran as a key market which could also pose a threat to the export of Ceylon teas to that market, he said.
The latest statistics and data released on the tea industry is that the tea small holder sector has 400,000 people directly involved in a total stakeholder strength of 2 million, the 21 Regional Plantation Companies have 950,000 living in the estates where 237,000 are involved in plucking and other ancillary services and the remaining million of the industry stakeholders constitute the Colombo based exporters and brokers along with the packers and shippers.
Low growns recorded substantial gains since March – Past SLTFOA Chairman
Past Chairman of the Sri Lanka Tea Factory Owners’ Association Anil Perera said that the highest ever low grown average has been the 446 in September 2009 and that the overall demand for tea since the third auction in March, has recorded a positive trend with the Low Growns in particular, recorded substantial gains.
The Gross Sales Average for the tea market went over Rs. 400 for the first time in February while the National Sales Averages for the Low Growns was Rs. 350 in February, Rs. 371 in March and Rs. 412 In April. The corresponding statistics of the National Sales Averages for Low Grown Teas for February has been Rs. 364 in February, Rs. 390 in March and Rs. 439 in April.
The primary reason adduced for the increase was the devaluation of the Rupee against the US Dollar and the shortfall recorded in some of the producing countries – India and Kenya.
He said that it was indeed important that the producers focused on quality towards the sustained efforts to maintain prices without compromising on the raw material standards which was a prerequisite to the manufacture of quality teas.
He said that tea production for 2012 will be on par with that of 2011 with the good growing conditions and that the national production was likely to be at a healthy level.
Meanwhile, industry sources also highlighted the importance of the regulatory body- the Sri Lanka Tea Board exercising its authority and take action against producers who dispose their teas to local exporters through unauthorized channels. They said that this would entail the diversion of all teas produced to the Colombo tea auction which is the primary mode of sale and thereby concentrating on the demand at the auction centre.