Chemical Fertiliser Ban to Hit Tea Production-F&W

By Paneetha Ameresekere | Published: 2:00 AM Jan 10 2022
FT Chemical Fertiliser Ban to Hit Tea Production-F&W

By Paneetha Ameresekere

Though global tea production prospects this year (2022) are expected to be fairly firm, with a two per cent year on year (YoY) gain forecast, however, vis-à-vis Sri Lanka, this country may be an exception, due to the ban in chemical fertiliser imports imposed in and around the middle of last year (2021), Forbes and Walker Tea Brokers (F&W/Forbes) warned.

Its ill effects are likely to be seen in the first quarter (1Q) of 2022, it said. Although the Government of Sri Lanka (GoSL) subsequently reversed this ban, only some degree of recovery may be expected in 2Q 2022, that too, provided extreme weather conditions not being a reality, it said.

However, 2021 showed a welcome recovery primarily due to  favourable weather conditions, which, nevertheless, in all probability is unlikely to be maintained in 2022, Forbes warned.


Further, ageing tea bushes and low productivity are downside risks for ‘Ceylon Tea’, it said.

“The weakening of the rupee in 2021 didn’t have the desired impact on tea prices in the review year primarily due to the sharp increase in freight rates and to a lesser extent other input costs such as packing material charges,”  Forbes said.

It said that year on year (YoY), as at last year end, the rupee depreciated by 14.49 per cent to Rs 200.92 to the US dollar.

Meanwhile, Sri Lanka’s tea export earnings last year are likely to have increased by between Rs 30-32 billion (13-14 per cent) year on year (YoY) to be between Rs 260-262 billion, Forbes said.

Tea export volumes in the review period increased by seven per cent (20 million kilos) to 290 million kg, it added.

Forbes further said that tea production, last year over 2020 increased by eight per cent to 301 million kgs.  

However, average tea auction prices, both in US dollar terms and in rupee terms fell, with the decline in dollar terms being 9.27 per cent (29 US cents) YoY to $ 3.13 a kg, while in rupee terms this decline was 2.03 per cent (Rs 12.77) to Rs 615.44 a kg, Forbes statistics showed.

Tea, according to latest Central Bank of Sri Lanka (CBSL) statistics, was the country’s third largest foreign exchange earner in 2020, behind remittances and garment exports, in that descending order. Meanwhile, complementary data in compiling this article was also obtained from CBSL statistics

“Year 2021 began positively with the tea trade continuing to adapt itself to the ‘new normal’,” said Forbes. Virtual meetings and the culture of remote work took precedence during the year. This however didn’t hamper the progress of the industry despite other challenges, both domestic and external, it said.  

Digitisation of the auction system which was a major stepping stone for the tea trade last year, continued successfully in its journey with further sophistication and advancements which have helped strengthen the trading aspect whilst creating more opportunities for stakeholders to enhance their knowledge with access to real time, Forbes said.


Meanwhile, 2021 began with a steep movement in tea prices in the first quarter (1Q) in comparison with 2020, it said. Reopening of markets and trade routes previously closed due to the Covid-19 Pandemic, showed signs of positive progress, which mainly contributed to this increase, it said.

But as auction offerings continued to increase throughout 1Q 2021 vis-à-vis the Covid-19 Pandemic induced declines in 2020, Colombo auction prices began to make a correction towards mid to end May 2021. 

Ceylon tea production of 278.8 million kg in 2020 was the lowest recorded since 1997. Nonetheless, 2021 showed a welcome recovery primarily due to favourable weather conditions, which, however, in all probability is unlikely to be maintained in 2022, Forbes warned.

Therefore, due to envisaged good weather in Kenya, Kenyan tea will play a significant rule when assessing the total global supply situation, it said. Colombo tea auction prices are the highest among tea prices vis-à-vis other global auction prices, Forbes added. 

For example, while the average auction prices for tea in the first 11 months of last year fetched $3.13 per kg, that of Kolkata fetched $ 2.89, Cochin ($ 1.93), Guwahati  ($ 2.52), Chittagong ($ 2.38),  Mombasa ($ 1.95), Kenya ($ 2.05) and Limber ($ 1.37), said Forbes.

Another factor that needs due consideration for 2022 is the growing demand for tea in producer countries, which, ipso facto, has left lesser exportable volumes. India with its aged plantations shows little promise in growth when reviewing data over a period of time, said Forbes.

 On the other hand, Kenya, together with the rest of the African region in general have shown steady growth in production in the past several years, reaching a historically high figure of 569 million kg in 2020, it said. Although 2021 recorded a decline in the African region’s tea production vis-à-vis 2020, it yet showed a 15 per cent growth rate over a five year span.


Globally, in 2020, tea production fell, led by the Covid-19 pandemic and to a lesser extent climate conditions. Forbes however said that last year, both global tea production and consumption showed an increase, with, perhaps, production increasing more rapidly. Therefore, the market deficit is likely to have had narrowed in 2021 compared to 2020, it said.

Meanwhile in 2022, tea consumption is likely to be dominated by Asia, led by India and China. China in particular has been an important market for Sri Lanka tea. Similarly, tea consumption in 2022 in India is also likely to show a growth, where tea consumption growth in 2021 was weak led by the Covid-19 Pandemic. The Indian market too for the island is a potential market for Sri Lanka tea, considering its sheer size and high per capita tea consumption, said Forbes.


Another potential market for growth is the USA in respect of 2022. The US market could be singled out as a fast growing market, particularly for the high value instant tea and iced tea categories, said Forbes. Tea exports from Sri Lanka to the USA have shown significant growth in recent years, it said. 

Meanwhile, Colombo tea auction prices, 4Q 2021 over 3Q 2021 have shown significant increases due to multiple factors triggering improved demand such as lower volumes, better quality and in anticipation of lower volumes in 1Q 2022 as described above, said Forbes.

 Tea auction prices in rupee terms, in the first two months of 4Q 2021 (October-November 2021), vis-à-vis 3Q 2021, increased by 5.49 per cent (Rs 32.30) to Rs 621.06 a kg, it said. Other factors that are likely to be favourable for Sri Lanka tea in 2022 are an envisaged rupee devaluation in early 2022, improved demand for Sri Lanka tea due to the proposed oil for tea deal with Iran, orthodox tea importers running deficits in their inventories since 2015 and higher oil prices leading to higher demand in Middle Eastern oil producing countries. When oil prices are high, tea prices too fetch high prices.

“These factors aid us to predict stronger rupee prices for Sri Lanka in the first half of 2022 in general and in 1Q 2022 in particular,” said Forbes. Market demand for good quality tea will continue to command premium prices as it is envisaged that there will be a dearth in good quality tea in 2022, it added.  

However, the negativisms which may impact Sri Lanka tea in 2022 are climate change, demand for constant wage increases, more so in the current context of double digit inflation which will continue to undermine Sri Lanka tea’s competitiveness in the global market, Forbes warned.

With a view to successfully battling climate change, the industry will have to improve the water retention quality of the soil with a systematic infilling programme also needing to be on board and in the medium term, a structured replanting programme, complemented by a mechanised programme, particularly for tea harvesting needs to be pursued, it said. 

Therefore, the global competitiveness of Sri Lanka tea would much depend on how the above aforesaid needs for Sri Lanka tea is addressed by the industry aided by the GoSL, Forbes said in conclusion. 

By Paneetha Ameresekere | Published: 2:00 AM Jan 10 2022

More News