Tea Industry’s performance in 2020 and prospects for 2021 | Daily News

Tea Industry’s performance in 2020 and prospects for 2021

Once again, the tea industry showed its resilience by rising to the occasion in digitalising the auction in a very short period, which facilitated the uninterrupted sale of tea. This initiative was spearheaded by the Colombo Tea Traders’ Association (CTTA) and supported by the Colombo Brokers’ Association (CBA) and its technical partner CICRA Holdings.

Notwithstanding the gloom and doom fr5om the COVID-19 pandemic – tea, with its wellness properties and considered to be a cheap beverage, gathered widespread interest globally which helped the wheels of the tea industry to keep turning.

Consequent to the lower volumes that were harvested from around the latter part of 2019, prices were edging up on the previous year’s levels, which was propelled quite sharply following the pandemic, where consumers around the world went on a panic-buying spree of food items, of which, tea was no exception. Consequently, many importers remained desperate for urgent shipments, which led to strong buying at the Colombo Tea Auctions.

Global tea production fell in 2020 after a continuous increase for many years as weather conditions have been mixed and in many major tea producing countries. Kenya would be the only exception where production has increased quite significantly and largely reflects a cyclical recovery after a drought-induced decline in 2019.

Indian production was badly impacted by the Coronavirus pandemic with restrictions on tea plucking during the shutdown of economic activity in March-April and thereafter the heavy rain, resulting in flooding in most parts of Northern India contributed to an estimated 15% fall in production in 2020. This could be quite significant particularly considering that almost 80% of India’s production is absorbed by its domestic demand.

Fourth-quarter 2020 Update – (Interim)

At the time of compiling this report, industry data about the period under review remains incomplete.

October/November production totalled 48.2 M/Kgs, recording an increase of approximately 3 M/Kgs. whilst this would be the only quarter to show a positive variance in production and if December production would equal the 21.8 M/Kgs achieved in 2019, annual production for the year 2020 would be marginally above a 270 M/Kgs.

Tea Auction prices in the fourth quarter show an improvement in the third quarter. Total auction average of Rs. 643.15 records an increase of Rs. 27.35 from Rs. 615.80 in the previous quarter.

Here again, the available data om Exports would be for the period October/November which totals 43.3 M/Kgs vis-à-vis 47.8 M/Kgs during the corresponding period in 2019. This records a deficit of 4.5 M/Kgs increasing the to date deficit up to end November to 27.3 M/Kgs. Export earnings totalled Rs. 38.4 billion vis-à-vis Rs. 38.9 billion, marginally behind the 2019 earnings and bringing the to date deficit in earnings up to end November to Rs. 12.5 billion.

Tea market outlook for 2021

As many tea producer countries continue to promote ‘tea drinking,’ the percentage of tea retained in producer countries have increased quite significantly over the last decade, resulting in a declining availability for exports.

Tea consumption continues to be dominated by Asian countries, particularly India and China, which together is estimated to be 55% and more of global demand.

From a Sri Lankan perspective, it is most likely that the Sri Lankan Rupee would weaken once the imports on non-essential items are relaxed and in such circumstances, would augur well for Rupee tea prices considering that some of the key importer country currencies have depreciated post the Covid-19 pandemic.

Sri Lankan tea output although is likely to recover in 2021, is unlikely to achieve the highs registered from 2010 to 2015. Therefore, the supply situation would continue to remain tight.

From a global perspective, tea production in 2020 is likely to record a deficit reflecting the crop shortfall primarily from India and Sri Lanka. Kenya, on the other hand, has recorded a fairly significant increase year-on-year, perhaps reflecting a cyclical recovery after a drought-induced decline in 2019.

Further, black tea production growth over a period of time has essentially been from the African Region, consisting mainly of CTC teas. From an Orthodox perspective, Sri Lanka as a prime supplier together with India and Vietnam have experienced a crop shortfall in recent times.

In the absence of a global measure of tea stocks, predicting tea prices becomes a near impossibility. Therefore, if the supply and demand equation would be a deciding factor, it would be reasonable to assume that prices in respect of Large Leaf Orthodox teas would sustain at these levels, perhaps even as a worst-case scenario. However, prices for Orthodox Rotovane (Small Leaf liquoring teas) would largely weigh on the recovery of tea production in North India, which is unlikely to be regularised during the 1st quarter of 2021 as almost all producer countries experience dry weather conditions and often is a lean cropping period.

In these circumstances, tea prices are unlikely to show a dramatic change from its current levels up until end 1st quarter 2021 and perhaps on a cautiously optimistic note, we could expect these levels to remain till around mid-2021. Tea prices thereafter would largely depend on the supply scenarios that unfold during the 1st quarter of 2021.