Sri Lanka wants 'friends' to buy tea

Sri Lanka has appealed to "friendly countries" to buy tea to help the country weather the global financial crisis, AFP quoted officials as saying. Foreign Minister Rohitha Bogollagama and senior officials of the tea board on Friday met ambassadors and envoys of main tea-buying countries to urge their support.

The Sunday Times newspaper reports that the decline in tea prices (which have almost halved in the past two months), and the large volume of unsold tea have caused a cash-flow crisis throughout the supply chain. However, last week demand had improved at last week’s Colombo auctions, reports said.

Last year Sri Lanka, one of the world's top black tea producers, earned a record $1.02 billion from tea, the third-highest foreign exchange earner after garments and remittances, Reuters reported.

Sri Lanka had enjoyed high demand, earning $1bn in the first ten months of this year. But the global financial crisis has reduced demand in key export markets.

Russia and former Soviet republics are the largest markets for Sri Lankan tea, accounting for nearly a fifth of the total tea exports, followed by the Middle East and North Africa.

LBO quoted analysts as saying the downward trend in oil prices might reduce the buying power of big buyers like the Middle East and Russia, though the approaching winter could help prop up the tea market.

As part of shoring up the industry against falling demand, earlier this month the Sri Lanka Tea Board purchased almost 1 million kg of tea at a value of Rs.230 million, the Sunday Times reported.

The intervention came after Sri Lankan government told the Tea Board to buy stocks to inject cash into the tea sector and stabilize it after nearly 60% of the tea at the Colombo Auctions remained unsold.

Colombo, which conducts the world's biggest tea auctions, saw prices hit 4.26 dollars a kilogramme in August before sliding to 2.19 dollars a kilogramme by the end of October, tea board figures showed.

However, while the government’s intervention helped the industry, traders say plans must now be formulated to dispose of these tea stocks – without putting downward pressure on prices.

"Buyers are carrying stocks of tea at prices well above the current market, on which interest is fast accruing at phenomenal rates," the Colombo Tea Traders’ Association (CTTA) said.

Meanwhile, the Private Tea Factory Owners Association last week thanked President Mahinda Rajapakse for his government’s intervention. “The tea industry which is dominated by the rural tea small holder sector benefitted by the timely state intervention under the direction of President Mahinda Rajapaksa,” the chairman of the Private Tea Factory Owners Association, Anil Perera, said in a statement.

On Friday Ambassadors and envoys Egypt, Iran, Russia, Saudi Arabia, Iraq, Kuwait and Qatar were briefed about Sri Lanka's tea woes. A Palestinian representative was also present.

"Sri Lanka is seeking the support of friendly countries who are principal buyers of Ceylon tea to remain active in the tea market to promote tea exports and to maintain price stability," the foreign ministry said Saturday.

Russia and former Soviet republics are the largest markets for Sri Lankan tea, accounting for nearly a fifth of the total tea exports, followed by the Middle East and North Africa.

LBO quoted analysts as saying the downward trend in oil prices might reduce the buying power of big buyers like the Middle East and Russia, though the approaching winter could help prop up the tea market.

The Sri Lankan government has spoken of trying to arrange some kind of barter deal with major buying countries but the CTTA warned that it was an outdated concept.

"The avenue of barter trade between friendly countries is not available any more," the CTTA said, in reference to the liberalization of the market in keeping with ‘free trade’ principles, which ended such arrangements.

Sri Lanka’s tea pickers, who are iconic symbols for the island’s tourist trade, earn less than $2 a day and live in desperately impoverished conditions. They are mainly Upcountry Tamils.