| Business |
||||||
|
Back
to plain Karu from "Kaluwara" For the minister,
it is a case of going back to being a "plain Mr. Jayasuriya"
instead of being dubbed "Kaluwara" (dark) Jayasuriya because
of the initial struggle to come to grips with the situation. Jayasuriya
has a lot to be cheerful about because his job was on the line if
he failed to end power shortages by next month. In January this
year, Jayasuriya - a former chairman of the ruling United National
Party (UNP) - vowed to quit by June if the power cuts were not completely
lifted by that time. As much as the need for peace, the power crisis was also a crucial issue at last December's parliamentary polls in which the UNP-led coalition secured a victory over the alliance. The government's failure to solve the power crisis which has affected everyone was one of the reasons for the downfall of the Chandrika Kumaratunga government, many analysts say. The new regime didn't have it easy either; in fact extending power cuts to daytime from night as the situation worsened. With the dry spell of weather continuing, it dashed the hopes of the authorities who were praying that the hydropower water catchment reservoirs would fill up, enabling the turbines to work. While peace and the recovery of the economy may be the biggest challenges of this government, issues like power and the rising cost of living are equally important to ordinary Sri Lankans. The power crisis has affected residents of this country across the island. From students, parents, businessmen, tourists to the ordinary man/woman on the street, everyone has been hit by the power shortages. The crime rate increased as thieves broke into dimly lit homes at night. Industries were compelled to buy generators or face huge losses. The use of generators increased production costs which businessmen in turn passed on to the consumer. It was a national and unending problem faced by the people who were particularly annoyed by casual remarks from the former Power Minister Anuruddha Ratwatte who once said the country was dependent on hydropower and if there was no rain, there were no solutions. "Why do we need a minister if he is going to depend on rain to give us power?" was a question many of us asked at the time. When the new government took over the reins of office, the deficit in the power sector was 200 megawatts. Officials said that while the demand for power was 1,400 megawatts, only 1,200 megawatts could be generated through hydro and thermal power plants. That situation
has since then changed to a surplus position. Jayasuriya said there
is now a surplus of 200 megawatts with 1,600 megawatts of generation
capacity as against a demand of 1,400 megawatts. Thankfully the
authorities are not going to depend on hydropower generation anymore
in their long-term arrangements. Often ministers
set targets but fail to set personal goals like in the Jayasuriya
case. It would be wonderful if all ministers are given a set of objectives with sufficient resources and told to complete it within a specific period or quit. Tea
- outlook for 2002 bearish Market prices in dollar terms declined for all categories of tea, but the worst hit was the teas from the higher elevations. In spite of favourable weather both quality seasons were a financial failure. The average price per kilo in 4Q 2000 was $1.81 - 1.89. In January 2001 the total national average price per kg was $1.81. The market slipped continually and bottomed out at $1.44 in July - a drop of 20 percent. Values picked up thereafter and closed at $1.62. If 1999 is treated as an exception; one has to go back to 1995 for comparable levels of price. Outside Sri Lanka increasingly poorer orthodox teas of Vietnamese, South Indian and even Indonesian origin are being passed off as Ceylon Tea. At the same time brands that were based on a pure Ceylon Tea standard have been diluted with other origins. In Russia for example blends containing minimal quantities or no Ceylon tea are being labelled as 'Ceylon tea'. Further, unauthorised use of the Lion Logo is rampant. There has been little or no action to counter this phenomenon which seems to be growing at an alarming pace. Production Galle was the largest tea growing agro-climatic district in Sri Lanka in 2000 and accounts for nearly 15 percent of the country's production. In 2001 Galle was worst hit by the dry spell and was the only major growing area in the Low Grown sector to record a shortfall. Ratnapura has taken over as the prime tea producing area in the country in 2001. In the High
Grown planting districts all major growing areas recorded a crop
shortfall. The two highest producing agro-climatic districts Demodara/Haliella/Badulla and Malwatte/Welimada recorded a drop in production by 8 percent and 11 percent respectively. The sharpest drop in 2001 compared with 2000 came from Balangoda (-35 percent). Haputale declined by 20 percent. The success story for the region, however, was Madulsima district where production actually increased two percent from 2.58 million kg to 2.63 million kg. Nuwara Eliya too did well to maintain production at around 2000 levels. Our forecast for national production for 2002 is 310 million kg. This is based on the assumption that High and Mid-Growns maintain year 2000 levels and that Low Growns increase from 166 to 170 million kg. This assumes that the weather remains constant. We are concerned, however, because the Regional Plantation Company's (RPCs) are due to re-negotiate the collective agreement in June. Historically
they have often led to work stoppages, go-slows and sabotage before
agreement is reached. An interesting, perhaps historical, development
in South India has seen unions agree to wage cuts while accepting
productivity related incentives. This would be a useful model for
Sri Lanka. Considering
that domestic consumption is in excess of 20 million kg, one would
have to assume that there were some carry over stocks from the previous
year. Last year's export figure amounts to 99 percent of total production. If first quarter tea production in 2002 continues low, then traders would need to rely heavily on current availability to meet market requirements. Over the past five years exports have increased nine percent to 293 million kg from 268 million kg in 1997. During this period bulk tea shipments have grown 19 percent from 148 million kg to 176 million kg. Exports in this form have increased in absolute terms but have grown primarily at the expense of packet tea. Value Addition
- Challenges for the future We see a pattern
in these developments that will have long term implications for
Sri Lanka's tea industry. Many of the markets importing value added
Ceylon tea were at relatively early stages of market development,
at least as far as tea is concerned. Following the
depreciation of the rupee, the value of exports grew 16 percent
year-on-year 2000. In dollar terms, however, export earnings totalled
$691 million and showed little change over the previous year. Declining
dollar earnings on a per kilo basis has been steady and 2001 is
the lowest in the last five years. Based on market forecasts for
value of tea and level of value addition targeted, we do not expect
2002 to show any improvement. Direct shipments
to this market have accounted for 22 percent of all Sri Lanka's
tea exports. Further we estimate that at least another 2-4 percent
(6-10 million kg) of tea is shipped indirectly through neighbouring
countries. The main market in this grouping is Russia, for which
complete data is not available. Direct shipments, however, reflect
a share of 79 percent or 50 million kg of total exports to the region.
The second most important region for Sri Lanka tea exports is the Middle-East and North Africa to which 54 percent (162 million kg) tea have been shipped. The U.A.E, which is gaining significance as a regional hub, is the prime destination in the Middle East having absorbed 34 million kg. The U.A.E. is the second largest destination after Russia/CIS. 68 percent of imports have been in bulk form almost entirely for re-export. Libya increased imports by 100 percent to 18.9 million kg, becoming the third most important market. Turkey, Iraq,
Iran, Saudi Arabia and Jordan follow and are featured in the top
ten markets for Sri Lanka tea exports in 2001. Sri Lankan tea exports
in 2001 reached over 60 countries. 93 percent of exports was concentrated
in the regions studied previously. North and South America accounted
for four percent of the balance with Chile growing in significance
having absorbed 5.6 million kg. Further, India and Sri Lanka have discovered that the nature of buyer-seller relationships is equally important. This explains the sometimes seemingly unjustified price differences that exist between the three major auction centres of Colombo, Mombassa and Calcutta. In India the
tea industry is going through one of its worst periods with many
plantations ceasing to be viable as prices crash and costs rise.
The higher yielding (and therefore lower cost) producing countries particularly those in Africa are still profitable even at current price levels. Under industry pressure India has commissioned studies that have looked long and hard at its massive internal market and relatively smaller export activity. Shrinking consumption static or shrinking domestic consumption has compelled more vigorous generic promotion nationally. At the same time shrinking export volumes and values are to be boosted. India's international efforts seem to focus on countering apparent gains made by Sri Lanka. Given the limited market penetration of India's value added products, it is likely that the first wave of activity will target price-based competitive strategy. In markets such
as Russia/CIS import duties are baised against value added products.
Sri Lanka's strength is its value added presence. The Indian factor
could therefore impact on Sri Lanka's tea prices in the short and
medium term. The country
is targeting production of 150 million kg over the next ten years.
Its product focus seems to be green tea and orthodox black tea manufacture.
Crucial Markets The Middle East and North Africa are crucial markets for orthodox Ceylon teas. Stability in the region has been undermined following recent global developments. Implications for other markets too are significant as movement of tea is primarily through the Suez Canal. Shipping and insurance costs would rise and invariably will come out of the tea price. Our sentiment for 2002 and 1Q 2003 is bearish, particularly for High and Mid- Grown sectors. In Sri Lanka wage revisions are due mid-year. If wage increases are not linked to productivity the situation for plantations will be critical. We feel that the depreciation of the rupee could slow down and its rate will not compensate for declining tea prices in dollar terms. Sri Lanka will therefore need to gear up for a tough year. The only glimmer
of hope is the possibility that the Free Trade Agreement with Pakistan
will go through by end-2002. Sri Lanka would be lobbying for a fast-track
agreement on tea, targeting a 20 million kg quota. Also, there is
talk of El-Nino affecting Africa in 2002- 2003. An industry cannot,
however, be run on the expectation that a problem will cripple a
competitor.
|
||||||
Copyright © 2001 Wijeya Newspapers
Ltd. All rights reserved. |
