Sri Lanka Tea Output to Rise as Rain Eases Dry Weather

22nd February 2010, www.bloomberg.com, By Anusha Ondaatjie

Tea production in Sri Lanka, the world’s fourth-biggest grower, may increase this year as rain in the main growing areas eases dry conditions that damaged the crop last season, according to the nation’s tea board.

Output may exceed 300 million kilograms, compared with 290 million kilograms in 2009, said Lalith Hettiarachchi, chairman of the Sri Lanka Tea Board, in a phone interview today. Warm weather and a wage dispute reduced the previous crop.

A global tea shortage may widen this year and extend into 2011 as a rebound in production in Africa, Sri Lanka and India trails demand growth, McLeod Russel India Ltd., the biggest tea grower, said last month, predicting the deficit may be as much as 130 million kilograms by April.

“The rise in production is not significant to bridge the global deficit,” said Hettiarachchi. “The biggest suppliers like China and India are increasing local consumption so the exportable surplus is getting reduced.”

Shipments from India, the largest grower, dropped to 191.49 million kilograms last year from 203.1 million kilograms in 2008, after the driest monsoon in almost four decades damaged crops of tea, sugar cane and rice, according the country’s tea board.

“The weather has been conducive and we should reach at least 300 million kilograms provided there is no labor unrest over any unscheduled wage hike this year,” Hettiarachchi said.

Average prices at the Colombo tea auctions reached a record 405.77 rupees ($4) a kilogram in the third quarter of last year. In January, 26.4 million kilograms sold for as much as 440.41 rupees a kilogram, the board said on its Web site.

‘Buoyant Demand’

“Prices should hold through this year or go beyond,” said Hettiarachchi, helped by “buoyant” demand from Russia and the Middle East, Sri Lanka’s traditional markets.

Still, Sri Lanka, the third-biggest supplier of black tea, may earn $1.2 billion from exports this year, little changed from 2009, according to the board. Tea is the country’s second- highest export earner after apparels.

“Although prices compensate, Sri Lanka’s export growth is limited by our production levels,” Hettiarachchi said.

Production last month was 26.9 million kilograms, compared with 17.9 million kilograms a year earlier, the board said.

The board is in talks with plantation companies to increase re-planting programs and grow more high-yielding variety.

“With the production costs high, companies aren’t willing to inject more capital into the business,” Hettiarachchi said.

Labor makes up about 60 percent of total costs, more than double than in other tea-growing countries such as Vietnam, he said. Productivity, gauged by the kilograms plucked per person in an eight-hour period, is less than half of India’s “in a similar terrain,” he said.

To contact the reporter on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net.