EconomyNext – Finlays Colombo has said it will reduce reliance on tea exports to the Middle East where terrorism has affected distribution and warned of lower prices this year because of trouble in key Gulf markets and Russia.
"The single biggest inhibitive factor for the tea division was the relentless turmoil in Syria and Iraq," Finlays Colombo Chairman, Mr. Kumar Jayasuriya said.
The Syrian conflict, in its third year, has had a sustained toll on infrastructure and civil life while the expansion of the ISIS terrorist group across northern Iraq made delivery of shipments more costly and uncertain.
Although tea prices at the Colombo auction hit new highs in 2014, the combination of high prices and market volatility saw volumes in key markets drop and margins on fixed-price contracts reduced, Jayasuriya told shareholders in the firm’s annual report.
Finlays Colombo is part of Britain’s Swire group and is a big exporter to the Middle East.
Finlays Colombo Managing Director Christian Johansen described 2014 as a "tough year" for its beverage packing business because of trouble in the Middle East.
"The intensification of the civil war in Syria and the creation and rapid expansion of ISIS in Iraq materially impacted exports to both countries," he said.
This affected buyers of Finlays tea with the result that exports to two of its biggest markets saw a double-digit decline, he said.
Seeking to diversify exports, Finlays Colombo expanded its distribution network in Saudi Arabia and increased the number of high value products sold to both the European and Japanese markets.
"The upper segment of the tea business remains a priority for us," Johansen said.
"Our tea division will continue to diversify away from the Middle East so as to reduce the heavy risk associated with that region. Acquiring the packaging business for new brands and expansion of geographic coverage will be key focuses."
Troubles in the Middle East and the weakening of the Russian rouble are likely to reduce tea auction prices this year, Johansen said.
"It is difficult to see similarly high prices (to 2014) at the auction given the importance of the Russian market to Ceylon tea, though it remains to be seen what other exporters will do," he said, noting however that Finlays has no direct exposure to Russia.
The Middle East, however, remains unpredictable, he added.
An expansion or entrenchment of ISIS would continue to affect consumers’ livelihoods and further disrupt the company’s tea distribution channels.
"With significant amounts of business going to Iraq and Syria, our flagship enterprise remains highly exposed to this volatility," Johansen said.