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Sri Lankan Crisis Boon for Indian Tea Companies

By News Canvass | Apr 19, 2022

Indian Tea Companies is working on a strategy to fill the supply gaps that have opened up in the global tea market following the sudden economic crisis that has engulfed Sri Lanka, the world’s largest tea exporter.

Sri Lanka Faces Worst Economic Crisis

  • The Sri Lankan Economy has been facing one of its worst over economic crisis. The reason are mismanaged government finances and ill timed tax cuts besides the impact of Covid 19 Pandemic.
  • Huge Piles of Foreign Debt, series of lockdowns, soaring inflation, shortage in fuel supply, fall in foreign currency reserves and devaluation of currency has adversely impacted the country’s economic growth.
  • Sri Lanka’s economy was in trouble even before the Covid pandemic struck. The Lockdowns further added its woes and impacted the informal sector hard, which accounts for nearly 60% of the country’s workforce.
  • The country’s foreign exchange reserves have fallen 70% in the past two years to about $2.31 billion leaving it struggling to pay for essential imports including food and fuels.
  • Tourism one of the key sources of foreign exchange for the country was badly hit due to the Covid Pandemic. Besides the remittance from Sri Lankans working overseas also declined sharply.
  • Job Losses have become a common phenomenon in almost every household. Besides fall in earning has led to rise in poverty rates.
  • Trucks at the port are unable to cart food and building materials to other urban centres or bring tea from plantations dotted around Sri Lanka’s verdant inland hills.
  •  Buses that normally transport day labourers across the capital sit idle, some hospitals have suspended surgeries and student exams were postponed because schools ran out of paper.
  • The Government has also frittered away public money on white elephant projects, including a lotus shaped skyscraper that dominates the Colombo Skyline with a revolving restaurant that now sits dormant.
  • Poor Policy decisions have compounded the problems. Sri Lanka is now seeking a bailout from the international Monetary Fund, But negotiations could stretch until the end of the year and people are bracing for even leaner times ahead.
  • Rolling Power cuts that stretch for hours each day leave restaurants and corner stores trying to operate under dim candle light.
  • Other Business owners give up and draw down their metal shutters for the evening.

Opportunity Opened Up for India

  • The strategy includes working out alternative payment mechanisms for trade with sanctions-hit Russia and Iran, marketing and brand promotion activities in Europe and North America, and supporting exporters facing high freight costs.
  • The island nation has been left grappling with a sharp decline in tea production amid 12-14 hour power cuts, as it announced a default on all its external debt of $51 billion.
  • The department of commerce and the directorate general of foreign trade are exploring ways to address the bottlenecks faced by tea exporters.
  • India’s orthodox (or loose-leaf) tea production is enough to cater to the gaps left by Sri Lanka. India is at present trying to talk to exporters and trying to address the bottlenecks related to payment settlement issues with Iran, support amid skyrocketing freight charges, and brand promotion in newer markets. If these issues are addressed, Indian exporters can go full throttle.
  • Tea exporters said India is well-positioned to capture markets in countries that import orthodox tea. India could strengthen its footprint in Iran and the Sri Lankan economic crisis could open up newer markets such as Turkey, Iraq, the US, China and Canada.
  • Data collated by the Tea Board of India showed that in 2019, Sri Lanka exported tea worth $167 million to Turkey, $132 million to Russia, $75 million to Iran, $104 million to Iraq and $55 million to China.
  • Russia, Iraq, Turkey, Iran, and Chile are among the top markets for Sri Lankan tea. India could capture markets in these countries if the Sri Lankan economic crisis deepens further.
  • With a significant exporter like Sri Lanka facing an unstable political and economic environment, the global price of tea could soar. Listed Indian tea companies were also trading higher following the unfolding of the Sri Lankan economic crisis.
  • McLeod Russel India gained over 11%, CCL Products was up over 10%, and Tata Tea up nearly 13%, last month. Neelam Alai Agro also gained nearly 10% in the last 30 days.
Indian, Sri Lankan Teas Popular In Russia
  • Both Indian and Sri Lankan orthodox teas are popular in Russia, and India’s dependence on the CIS country for the export of the beverage is significant.

  • The demand for Indian orthodox tea could go up with the shortage of Sri Lankan variety. However, international buyers have allegiance to Sri Lankan tea and their logo, despite the shortage of the crop.

  •  Russia, like India, is also an important market for Sri Lanka, and traders in the neighbouring country are also facing problems in transporting the commodity to the CIS country with a dearth of containers.

  • With the war situation, Russian buyers were out of the market for the last three-four weeks but now they are returning and this could put more pressure on the prices of Sri Lankan tea, Kanoria said.

India’s Strategy ahead

  • The fall in quality of tea may be detrimental for Sri Lanka in the Iranian market and that’s where there is an opportunity for India to focus on increasing its market share in Iran, which down the line would increase India’s total global market share.

  • Even India’s evolving role at the global stage and its transforming perception during this pandemic is benefitting these new entrants into the Indian tea industry.

  • The role India plays at the global stage has, in part, aided efforts at reorganizing the Indian tea industry and the goal of providing quality product to global consumers.

  • Indian tea is also at the center of indigenous holistic wellness traditions, interest in which has grown tremendously since the Covid-19 pandemic.

  • An uptick in demand for herbal and organic teas has created a shift in consumer purchasing habits. More people are now looking to buy domestically produced products.

  • Furthermore, a warming climate is exacerbating existing challenges of pests and diseases and creating new ones: lack of dependency on precipitation and temperature levels. These compounding challenges threaten the quality of yields that, in turn, will disrupt the entire supply chain. Investments in research and technology adoption can help tea growers adapt to these changes.

  • Finally, community development in tea growing regions and among tea growers, through education and infrastructure development can improve and ensure the quality of yield. Tea tourism can raise revenue and infuse cash into the industry, allowing estate owners to further invest in product and capacity development.

  • By translating consumer requirements to farmers, brands can create sustainable supply chains that answer to changing market trends and create a market for Indian tea in all corners of the world.

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