Low country tea prices rising so much, causing many big regular buyers of Ceylon Tea such as the Middle East and Russia to look for alternate supply in South India and Vietnam to dilute the Ceylon blend are among challenges facing the local industry.
Chairman of Asia Siyaka, Anil Cooke said that the high prices have accelerated the surge of blending Ceylon tea with other teas. Places such as Dubai are positioning itself as a location for blending Ceylon tea.
Mr. Cooke explained that one way to prevent blending is to deliver the best possible quality, making it hard for businesses to sell imitations. He added that there is a debate in the industry with some advocating that blending should be done in Sri Lanka while others believe it will accelerate the loss of market share.
Mr. Cooke said tea is an essential food item and is part of the basic food basket in Middle Eastern countries, Russia and even in some western economies. Over the last three years, the local market has always been influenced by external factors. In 2008, there was a global commodity boom which saw prices surging up until mid 2008.
In 2009, the two dominant factors that drove the market was the financial crisis which triggered a collapse causing prices to drop far more than expected. Supply was curtailed going into the first quarter of 2009 as there was a global production shortfall. He explained that this short supply was unnatural in which the value chain was bled dry and there was no supply, driving market prices up.
Going into 2010, Mr. Cooke said the supply position is gradually reverting to previous levels of 3 or 4 years ago. He described the prices for the first quarter of 2010 as attractive. How the market behaves in the next two quarters of 2010 going into summer when consumption is relatively lower will be critical, he said.