COLOMBO (EconomyNext) – Sri Lanka’s Central Bank has warned that a further fall in oil prices and the Russian rouble could spell more trouble for Ceylon tea and called for a public-private sector effort to diversify markets.
Export earnings from tea, which account for about 15 percent of total exports, grew by 5.6 percent in 2014 compared to 9.2 percent growth in 2013.
“The slower growth of tea exports reflects decelerated demand from the main export destinations such as Russia and the Middle East which account for about 59 percent of total tea exports,” the bank said in its annual report released Wednesday.
“These countries experienced large revenue shortfalls, as oil prices declined, while Russia experienced large depreciation in the rouble amidst economic sanctions due to geopolitical issues.”
The central bank said concentration of export markets is a key concern as it can lead to instability in export earnings.
Sri Lanka largely depends on a few markets like the European Union and United States which account for around two-thirds of total exports.
Around 66 percent of the Sri Lanka’s tea is exported to the Middle East and Commonwealth of Independent States (CIS) countries, which are highly dependent on oil exports, the report said.
“In order to mitigate this risk, a public and private sector combined multi-faceted approach is essential to diversify the markets.”
It said exporters should use existing trade facilities and trade agreements to enhance market access.
If the Russian rouble continues to depreciate further in 2015, it will have negative impact on Sri Lanka’s tea exports since Russia is the main single buyer of Sri Lankan tea, the report warned.
Tea exports to Russia fell by 5.0 percent in 2014 from a year ago because the larger depreciation of Russian currency and sharp decline in petroleum prices towards the latter part of the year.
Demand for tea in the Middle East market could also decrease due to the continued decline in the oil income of these economies, it said.