ECONOMYNEXT – Global packers are looking to buy tea at 2 – 2.5 US dollars a kilo, making a guaranteed floor price unviable and the need to move up to high-end niche products more urgent, an industry official said.
“We’re at a very critical juncture in the entire industry,” said Niraj de Mel, former chairman of the Sri Lanka Tea Exporters Association told its annual general meeting.
“Packers are looking for 2 dollar and 2.5 dollar teas,” said de Mel, also former chairman of the Sri Lanka Tea Board.
These prices were below the cost of production of many estates but multinational firms that pack teas meant mainly for supermarket shelves were looking for cheap origins for their blends.
“That’s about the level at which they can arrive at an optimum price for their supermarket shelves," de Mel told EconomyNext.com.
“If we look at supermarket shelves and compete there we’ll be compelled to receive 2 – 2.50 dollars a kilo.”
Tea prices had fallen sharply at the Colombo auctions owing to problems in key export markets like Russia and the Middle East.
“We’re shipping to countries with problems. So we need to move away from the mass market, innovate and target markets in the West to get better prices as our production costs are high.”
De Mel also said a floor price of 80 rupees a kilo guaranteed by government was fixed when auction prices peaked and was not sustainable.
“It was a foolish move. Foolish unsustainable actions are not the answer,” he said.
De Mel said the new government’s policymakers should take decisions based on what industry bodies like the Tea Exporters Associations recommend.
The government introduced the floor price scheme after the steep fall in tea prices in recent months, part of a global slump in commodity prices. (Colombo/September 7 2015)