Starbucks goes for ready-to-drink tea

Bertleet Produce marketing Tea Surveillance Report 2008:

The quantity of tea arriving at the Colombo auction this week increased to 7.017 mkg from 6.976 mkg traded in the previous week's sale. Meanwhile, the Ex-estate crops showed a decrease from 0.732 mkg to 0.693 mkg.

Market Segments: In the Ex-estate segment, better Uvas were very strong whilst plainer types too moved up. Japan was at the frontline of Uva seasonal buying whilst other seasonal buyers such as Germany and Holland too were quite strong.

Strong interest from Europe, UK and the CIS was also evident. Meanwhile Russia is said to have increased its buying due to the upcoming winter season and the end of its summer vacations. In general, brighter Dimbullas, Uvas and Nuwara Eliyas picked up throughout the sale due to the erratic weather patterns in the island as well as the shortfall in the global markets.

In the Tippy market segment, lower demand was witnessed where the CIS, Dubai and Iran were very selective this week. In the Leafy grade segment, Pekoe grade lost rupees ten to 15 per kilo comparatively to last week and the expectation for the next two to three weeks is for the market to remain at these levels.

Once the Ramadan period is over and the winter buying starts, some sort of a relief for the producers could be expected. Still the best teas offered at the auctions were sold at last levels or even more at times.

Ready Tea: Pepsi with the partnership of Unilever, will now manufacture, distribute and market Starbucks' Tazo teas. According to Starbucks the new agreement should make Tazo ready-to-drink beverages available to a larger audience. Starbucks has worked with PepsiCo since 1994, when the companies created a joint venture to develop and distribute some of the leading brands of energy drinks and coffee.

Meanwhile, the tea beverages will be bottled through a Pepsi and Unilever venture known as the Pepsi/Lipton tea partnership. The ready-to-drink tea is a booming business in the USA. The beverages now account for 75 per cent of the tea market, with US$ 7.4 billion in 2007 sales, up from US$ 4.6 billion in 2003, according to Packaged Facts. The category is expected to grow to US$ 15 billion in sales by 2012.

Plantation Bubble?: Colombo share prices are not reflecting the profits of plantation companies, raising questions about the plantation bubble bursting all too soon. According to the rate of plantation company financial growth, their respective share price has not increased rapidly. This may be because investors in these firms are cautious of the future of these companies according to sources.

However, stock market analysts claim that when working out the profitability of plantation firms, considering the Net Sales Average (NSA) is just one part. But the cost of production as well as the management fee component too needs to be considered.

Meanwhile, according to industry sources, next year the tea prices will hold due to the crop shortfall in Kenya as well as the marketable surplus tea declining in China and India. At present, 50 per cent of our teas go to the Middle East where the buying power is very high.

Company News: Tata Tea which has already entered into a joint venture with Russia is looking at the US market with a war chest of US$ 500 million for acquisitions according to company sources.

The Chairman of Tata Tea, claimed that the sale of the energy brand and transfer of the north Indian plantation division were important developments in the last one year.

The company has recorded its highest ever turnover and net profit of Rs. 1,263 crore and Rs. 313 crore, respectively. Currently, with 42 brands in 45 countries, Tata Tea has transformed its complexion from a tea company selling bulk tea to branded products dependent on its plantations, then to a tea company with the freedom to acquire its raw material from any place in the world. They have also diversified in to other sectors.

Acid Rain: According to Prof. O. A. Illeperuma of the University of Peradeniya, Sri Lanka is on the verge of facing ecologically harmful acid rains in near future. According to studies carried out by environmental scientists, in Anuradhapura, Mahailuppallama and Uva areas over many years during North-Eastern rainy seasons, Sri Lanka is likely to experience acid rains in the future.

This will cause acidification of lakes and streams and lead to the damage of trees at high elevations and many sensitive forests soils as well as harm public health.

The threat of acid rain cannot be taken lightly as it poses a major threat to the country's agriculture. As well as it was emphasised that Sri Lanka was the only country that does not have research projects on the subject of acid rains and how to deal with it.

Plantation Stocks: With reference to the weekly surveillance of the 18 plantation stocks, nine were lower in value whilst eight reported a gain and one reported static. Elpitiya, Kahawatte and Maskeliya plantations showed a gain of 7, 6 and 3 per cent respectively week on week.