Tea crash gets worse Dr. Ziad Mohamed’s future still in limbo

Tea performances reported to us over the past week give clear geometric progression of impending doom. Added to seemingly unavoidable disaster of the industry the compounding retrograde situation of the future of the Director Tea Research Institute (TRI) Dr. Ziad Mohamed too remains un-resolved. We would revert to the TRI factor later in this storey.

Forbes and Walker Ltd., Managing Director Tea Roshan Fernando said that the tea crash which has hit the industry was collective results of many factors not least drop in standards of tea offered at the Colombo auction. He said this was to be expected because auction offerings now reaching Colombo were harvested during immediate post holiday season. Harvests at that time were heavy and with priority being taking in crop available, standards were sacrificed resulting in buyers paying lower level prices for even the best on offer.

That apart from the Iran factor (Reported by us 2 weeks ago) too has had desultory influences on the industry, he said.

He also made the point that a World Trade Organisation (WTO) report published in 1994 has now attained credibility.(we referred to this report in these pages last year, and again in January this year) That report warned that the Tea industry worldwide production, would exceed demand by 1 percent by 2005. The Kenyan drought last year delayed the debacle, but the spectre of over production was now upon us and should be P1 consideration for attention and action. Urgency could not now be overstressed, he said.

Other tea producing countries had already commenced realigning their priorities to defray the crisis, but in the local context urgency for action has still not been considered he said. Reverting to the Director TRI, Dr. Ziad Mohamed, and his future, we endeavoured to contact the Ministry, but failed. The information desk was not occupied.

Asia Siyaka Tea Brokers Ltd., Deputy Chairman Anil Cooke said that consequent to Dr. Mohamed’s visit to Japan about 90 per cent good will that was lost was restored, and the Japanese Trade Ministry was now awaiting scientific findings of Dr. Mohamed’s research to decide on the all clear certificate to re-commence buying Ceylon Tea. With Dr. Mohamed’s ‘vacation of post’ letter was not withdrawn, the entire tea industry has been held to ransom through indecision of the Chairman Tea Research Board. Trade sources were of the same view. The added debilitation of the ‘Iran’, problem too has had its impact, and that as well has impacted on the tea market, and its poor showing over the past few weeks.

Brokering sources said that it was time the tea industry was resurrected to its former cabinet standing, and given its level of importance as before the Mahinda Government was voted in.

The Asia Siyaka tea market report reported that Libya and Comoros have joined the Common Market for Eastern and South Africa (COMESA), free trade agreement. -Island-By Steve A. Morrell

Maskeliya shines among Western high growns

Maskeliya Plantations Limited (MPL) controlled by the Richard Pieris group has set new records at the Colombo tea actions recently, achieving the majority of the country’s top ten tea estate slots in terms of prices achieved, a MPL news release said.

The company said that it has been getting the highest prices for Western high grown teas at the auctions with a record average price of Rs.245 per kilo.

Noting that it had been achieving top prices at the auctions over a considerable period, MPL said that one of its estates, Moray, had been number one price-wise for the last five years in the Western high grown category. Laxapana, also a MPL estate, had finished second.

MPL, managed by RPC Management Services (Pvt) Limited, a member of the Richard Pieris group, was expected to do well with the context the context of rising tea prices in the financial year 2005/06.

The company noted that the last quarter of the financial year historically was a strong performer and the company’s results for the full financial year should do nicely.

The MPL portfolio is tea dominated with net profits moving up from Rs.26 million in 2003/04 to Rs.81 million a year later – an increase of 211%.

Maskeliya expected to further improve net profits during fiscal 2005/06 in the context of operational efficiencies achieved by trimming production cost and improving product quality.

The company said that they were conforming to stringent quality requirements specially from the Japanese market and this had helped push up prices which would help the bottom line in fiscal 2005/06.

MPL expected five of its estates – Laxapana, Moray, Glenugie, Strathspey and Craig – to contribute significantly to an improved performance in 2005/06, a company spokesman said.

A superior performance was expected in the teeth of increased electricity charges, fuel and other input costs on top of the full year impact of the last wage hike.

MPL said that it has been maintaining excellent industrial relations and expected that its results oriented and innovative management style would help it to achieve significant results. -SIO

Tea production a record high in March

by Elmo Leonard

Sri Lanka’s tea production for March at 29.5 million kilograms is the highest for the month, since in March 2000, 32 million kilos were recorded. "Notwithstanding favourable weather, something has been added into the national yield, from unsold teas during January and February," a tea trade source said.

Commenting on the March 2000 figure of 32 million kilos, the Asia Siyaka report said, "But many believed that the year 2000 figure was inflated by addition or accumulated unrecorded production data from the two previous months." Between 2000 and 2006, production for March ranged between 23 and 25 million kilos.

This year’s production data too seems exceptionally high when considering that in 2005 the figure for March was 24.8 million kilograms, the Asia Siyaka report said.

Meanwhile, Sri Lanka’s arch rival on export volumes of tea, Kenya, who edged out the Indian Ocean island’s exports to emerge the world’s largest exporter last year, shows a mere 11.67 million kilo crop for February, while Sri Lanka’s yield for that month was 22.93 million kilos. At end-February, Kenya’s crop stood at 29.61 million kilos, a backdrop of 30.34 million kilos from 59.95 million kilos recorded at end-February 2005.

Sri Lanka’s crop for February 2006 was 22.93 million kilos and in 2005 it was 21.82 million kilos. At end February, Sri Lanka’s crop figure, at 47.82 million kilos, superseded Kenya’s 29.61 million kilos. But rains have recommenced in Kenya and its crop for March is expected to have risen, according to the Colombo tea trade.

The Bartleet tea report of April 26 shows crop figures of major producing and exporting countries, "todate" at 141.39 million kilos, a backdrop of 158.64 million kilos from 300.03 million kilos, during the corresponding period of 2005.

The production factor down, augurs well for Ceylon tea, which competes with the best teas in the world, through the Colombo tea auctions.

Sri Lanka’s Q1 production, at 76.5 million kilos is a five-year high. This is more than 5 percent over 72.6 million kilos during the first quarter of last year, Anil Cooke of Asia Siyaka said. The highest for the first quarter was 79.5 million kilos, in 2001. In the four years that followed, Q1 averaged around 72 million kilos.

The Asia Siyaka report said that the elevational breakdown of tea production in March 2006 YoY 2005 shows low growns recording a sharp increase of 26 percent i.e. 15.8 million kilograms against 12.5 million kilos. High growns too increased 13 percent to 7.8 million kilos from seven million kilos last year.

Mid growns achieved a very modest gain during the period. In spite of these increases both high and mid grown segments trailed the 2005 figures by around 4 percent. In contrast the low growns are up 13 percent from 39.3 million kilos in 2005 to 44.6 million kilos in 2006.

This increase along has taken the national total up to 76 million kilos a gain of 5 percent on the previous year’s Q1 figure of 72.6 million kilos.

Private tea factories in trouble

By Don Asoka Wijewardena

As a result of excessive taxes and levy imposed on both large and small scale tea producers the future existence of private tea factories seems to be very slim,according to Private Tea Factory Owners Association.

Private Tea Factory Owners Association Secretary General Tilak Alawattagama said that Sri Lanka was one of the principal producers of quality tea in the world and the country had been exporting around 300 million kg of tea to various countries.

He noted that Sri Lanka had been able to earn about Rs.75 billion per year through tea exports and added that unlike the Garment Industry the raw materials needed for the industry could be found within the country.

He also emphasised that there were around 300 private tea factories in the country and about 260 factories had been affiliated to the Association and added that the contribution made by the private tea factories had not been duly recognised though the association had been playing a crucial role in Tea Research Institute,National Plantation Management Institute and Small Tea Estate Development Authority in accordance with the Sri Lanka Tea Board Act.

Allawattagama also said that the Association had arrived at some important decisions on the future of private tea producers.-Island

Shock waves that hit tea last week

By Steve A. Morrell

From the legal profession to professionals in the Tea industry the question was asked that if the ‘Book was thrown’ at the Director TRI, then there would be far bigger persons who should be behind bars, now. They said that irrespective of Government Financial regulations and Administrative regulations ( 2 Documents that direct government service), the precedent had already been set that these documents were violated with impunity when applied to persons of celebrity status in the Government. Based on these precedents this was a blatant attempt by some to tarnish the good reputation of this official.

Dr. Ziad Mohamed stepped into the Chair of the Director TRI, with excellent credentials. He was also the best choice to succeed those before him who were all men of impeccable character and integrity. Therefore the purported charge of misappropriation of cash, and the precedent set by others who were known rogues, who thumbed their noses at the system, were good enough reasons for fundamental rights applications, said some leading attorneys, who contacted the ‘Island’, immediately the news broke.

Tea industry sources said that this episode would not auger well for the industry.

In the long run, Japan would discredit ‘Ceylons’ , so too would other countries who adhere to the Ethnic Tea Partnership. Additionally EU countries who were now insisting on HACCP standards. Action against Dr. Mohamed therefore would have wide ranging repercussions that would gravely affect the tea industry, they said.

The Japanese tolerance levels on detected contamination standards in Ceylon tea necessitated that The Director TRI with others who were identified, were required to visit Japan to defuse bad assumptions that the incidence of the weedicide 2-4 D, and Glyphosate, were being professionally studied. In our issue of February 29, we reported that the TRI was carrying out trials and studies to prepare a dossier to be submitted to the Japanese market that weedicide traces were not harmful.

Sri Lanka in the War Risk list again

The London-based Joint War Committee has placed Sri Lanka in the war risk list again after the bomb blast which took place in Colombo last week. Shipping sources said that the industry leaders had voiced concern over the move which could affect trade with the island nation.

The decision of the Joint War Committee is the result of an assessment by the independent consultants to exceed an enhanced risk benchmark established by them.

In June 2005, the Lloyd’s Joint War Committee – the advisory body composed of underwriters from the Lloyd’s market – added Thailand, Somalia and the busiest sea lane, the Strait of Malacca, to its list of dangerous waters. The list’A0contains areas which are regarded as in jeopardy from war, strikes, terrorism and related perils. As a consequence, the Lloyd’s Market Association, which is responsible for issuing standard policy wording for the Lloyd’s Market, decided to remove piracy from the traditional marine insurance policy and treat it like a war risk.

This allows Lloyd’s underwriters to cancel vessel policies at seven days’ notice and to request a separate premium whenever a ship plans to sail into a region that is considered a war risk area. Ship owners need to notify the insurer every time they enter dangerous waters. In the case of the Strait of Malacca, this leads to thousands of notifications each year.

Underwriters define war risk premiums based on recommendations made in a war risk table, such as the one from Swiss Re. In the table, every war risk area is assigned a risk rating that is then translated into a specific rate. The more dangerous a region is considered to be, the higher the percentage of the ship value an owner has to pay as a hull war risk premium. These rates currently vary from 0.0175 to 0.04 percent per annum for a standard war risk rate on hull.

The sources said that at present rate for held covered regions were 0.1 per cent. The ratges were likely to go up by this week. Underwriters have issued the notice of cancellation and costs would be known only after the effective date of cancellation on May 7, they said.-Island