- Enforcement of B60 programme to temporarily constrain availability of tea
- However, rigorous enforcement is expected to act as a catalyst for enhanced quality control
- Rising input costs in inflation-adjusted terms to lower farmer profits
- Commitment to sustainability to provide opportunities and challenges to outperform competitors in beverage sector
The Ceylon Tea cuppa is expected to face short-term constraints as it steers through 2024 but the regulatory initiatives and global trends are expected to shape the industry’s outlook, the tea brokers said.
The enforcement of the B60 programme, which mandates the tea growers and manufacturers to adhere to enhanced standards for green leaf production, is anticipated to temporarily constrain the availability of tea, according to the insights from the tea brokers outlining the 2024 outlook for the Ceylon Tea industry.
Despite the short-term limitations, the industry analysts, including Forbes and Walker Tea Brokers, suggest that this regulatory initiative could ultimately contribute to elevating the overall quality of Ceylon Tea. The rigorous enforcement is expected to act as a catalyst for enhanced quality control, potentially fostering a positive trajectory for the industry’s reputation and product excellence in the long run.
From a global perspective, the analysts predict the output to increase by 1.5 percent to 3 percent in 2024 and 2025, which is far below a historic average of an annual 4.4 percent. However, the forecasts are subject to a high degree of uncertainty, due to a probable El Niño and the unknown factor of its intensity.
“Combining these factors, from a supply point of view, due consideration needs to be given to the fact that the first quarter is a lean period for almost all producer countries and in Sri Lanka, the Western quality season experienced during this time of the year lends towards improved availability of better quality teas,” Forbes and Walker Tea Brokers said.
Another factor for consideration is the rising input costs that in inflation-adjusted terms would lower farmer profits. As such, the prospects for investments in the sector to increase productivity and the yields would thus remain weak.
Although the global fertiliser prices have eased sharply in 2023, they remain high by historical comparison. As an alternative, the governments in the tea producing countries should and are likely to endeavour to offset high input costs by pursuing production efficiencies via technology and the constant labour shortages by improving mechanisation, etc.
“All these factors in the long term are likely to accelerate production growth but the boost to output would be mild, as the rollout would be gradual,” Forbes and Walkers Tea Brokers said.
Meanwhile, tea consumption in India, constituting about 20 percent of the world’s demand, is projected to increase by 3-4 percent over the next two to three years, benefiting Sri Lanka, due to its proximity and trade relations. In contrast, Russia, the largest tea importer globally, faces a decline in consumption amid economic struggles and sanctions.
Turkey, accounting for around 4 percent of global tea consumption, with a saturated market, is likely to experience stagnation in imports, due to its weak economic performance. Iran, another key market for Ceylon Tea, faces trading constraints with third party payments, potentially hampering smooth imports.
Major tea-consuming nations, also significant producers, have seen a shift from 63 percent domestic consumption in 2013 to 72 percent in 2022. China’s consumption is expected to grow, particularly in black tea, while the market for ready-to-drink products, once on the rise, may see a decline in favour of quality loose tea. In the US, although a smaller market, steady growth is anticipated, with a focus on instant, iced tea and specialty teas, distinguishing it from other major markets dominated by loose-leaf varieties.
Commitment to sustainability with integrity will afford opportunities and challenges to outperform competitors in the beverage sector.
In Sri Lanka, more stringent taxation policies are due to be introduced in 2024, further increasing the costs in the manufacturing sector predominantly.
Meanwhile, Forbes and Walker Tea Brokers noted that on a more positive note, the International Monetary Fund bailout deal, expected to be finalised in 2024, would provide an element of confidence for the exporters to make more competitive offers in the short to medium term, following a more stable parity rate for the Sri Lankan rupee.
However, the auction prices would also be quite pivotal on the parity rate and if any unforeseen devaluation of the Sri Lankan rupee would occur during the period under review, it would be beneficial for the industry, considering that many importer country currencies have devalued over some time.
