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Sri Lanka’s predominately orthodox production requires 2.5 million pluckers that harvest about 40 pounds (18 kilos) of tea daily to make ends meet. Double digit inflation, nearing 50% for food, lengthy power cuts, and shortages of expensive fuel combined with falling yield led workers to protest in massive vigils that have become violent in recent weeks. Photo by Adobe iStock.
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The Colombo Tea Auction postponed Sale No. 18, May 10. Business leaders called on Sri Lanka President Gotabaya Rajapaksa to appoint a new government and then step down immediately. Photo by Business News.
Repercussions of a tumultuous spring rise as Sri Lanka suspends its tea auction due to economic upheaval; India bypasses sanctions by resuming tea shipments to the Russian Federation, and Covid-19 lockdowns delay shipments from China by an average 74 days.
Violent protests and economic uncertainty forced the Colombo Tea Traders Association to cancel its Tuesday, May 10 tea auction, postponing sale No. 18. Representatives of 38 export sectors valued at a combined $16.7 billion estimated an overall decline of 20% to 30% in exports since the economic crisis. Tea will likely sustain even more significant setbacks as spring yields falter.
Russia and Ukraine purchase about 18% of the black tea produced in Sri Lanka. Planters say that a prolonged conflict will “severely” impact tea exports. Dry weather compounding limited processing due to power rationing. Tea production declined by 15% in March.
The war diverted essential tourism dollars from Russian and Ukrainian visitors (down 41% in April), and the foreign currency crisis and severe devaluation triggered record inflation leading to unrest.
In May, politics injected additional complexity as new Prime Minister Ranil Wickremesinghe replaced President Gotabaya Rajapaksa’s brother following violent clashes with citizens protesting conditions.
“This political crisis takes focus away from addressing Sri Lanka’s daunting economic challenges, which must be given utmost priority to protect key sectors, employment, and livelihoods,” Jayantha Karunaratne, chairman of the Colombo Tea Traders Association, told the Sunday Observer.
“The private sector is united in demanding an immediate solution from all political parties and parliamentarians once we fully comprehend the dire and potentially catastrophic consequences that would be unleashed on the people and the country if parliamentarians and the government failed to act,” said Rohan Masakorala, c.e.o. of the Shippers Academy Colombo.
Foreign reserves stood at $50 million as Colombo officials met with ambassadors from China, the US, Japan, and Britain in hopes of securing the World Bank’s monetary support alongside emergency loans from the International Monetary Fund.
Lakshini Fernando, head of macroeconomic research at Asia Securities in Colombo told Bloomberg News, said that turmoil in the streets will “definitely” delay a bailout. “We’re not at the bottom yet,” he said, “It’s going to get worse before it gets better.”
India Bypasses Sanctions
Shipments of tea from India to the Russian Federation are being offloaded for the first time since EU and US sanctions were imposed following the Feb. 24 invasion of Ukraine. According to the India Times, renewing bilateral trade with deliveries largely through ports in Georgia was through Sberbank, which remains a part of the SWIFT network that facilitates the settlement of payments.
Ajay Sahai, director general and c.e.o of the Federation of Indian Export Organizations confirmed details of the rupee-rouble transactions that are structured to bypass sales in US dollars. FIEO represents about 200,000 Indian exporters. Three hundred Indian companies are operating in Russia, with many planning to increase their presence in the market.
“Tea exports to Russia have begun,” confirmed Mohit Agarwal, director of Asian tea, a leading exporter. “We have just shipped five containers to Russia.” Russia annually imports around 43 million kilos of tea, mainly from Assam. A combination of hostilities and sanctions has virtually halted shipments since March, according to Asian News.
Tea traders offering orthodox teas grown in Southern India say they are determined to wrest market share from Sri Lanka by attracting buyers to the Kochi, Coonoor, and Coimbatore auctions. Exporters to the CIS (Confederation of Independent States) and Russia drove demand, buying 88% of the quarter-million kilos of tea offered last week. Prices are up INRs3 to an average of INRs159 per kilo for Nilgiri whole and broken leaf teas.
Since February, 470 western companies have suspended or scaled back their operations, and 110 others announced they would postpone new investments, according to a report in the Asian Times. Russia is currently the most heavily sanctioned country, with approximately 5,000 sanctions in force.
Russia and India have been allied since the 1970s trading oil, fertilizer, and grain for spices, rice, and tea. India relies on Russia to provide two-thirds of its military equipment. India did not import any oil from Russia in January and February but has since contracted for 26 million barrels, higher than the entire quantity imported in 2021.
China, India, Turkey, and Pakistan recently increased trade with Russia to offset sanctions that virtually eliminated the exchange of goods from the EU and US. A fresh round of sanctions will soon disconnect Sberbank, The Credit Bank of Moscow, and the Russian Agricultural Bank from SWIFT, the international payments system. India routinely bypasses US sanctions imposed on Iran, routing payments in rials for 35 million kilos of tea through the UAE and Turkey.
Expect Delivery Delays to Worsen
First-flush teas that travel by air freight arrived on time this year, but shipments by sea for tea processed in May will encounter unusually long delivery times. According to Winward, an Israeli maritime data firm, 20% of the world’s container vessels are waiting outside congested ports. A quarter, or 412 ships, are stuck outside Chinese ports.
Since March, delivery times between China and major European and US ports have quadrupled primarily due to Chinese travel restrictions and testing requirements that prevent truck drivers from relieving congestion. After seven weeks, Shanghai, the world’s biggest container port, is still in lockdown. There are currently 384 ships waiting to berth with delays adding an average of 74 days to destinations, pre-pandemic.
The surge in e-commerce because of the pandemic transformed the supply chain for manufacturers, retailers, and distributors. E-commerce has increased supply chain complexity for tea, requiring additional primary and secondary packaging to enable a packaged product to enter the longer, more complex distribution chain of an e-commerce world to meet shifting consumer expectations.
Warehouse stocks are declining as Covid-related port closures curtail supply and the extended Shanghai lockdowns halted manufacturing of flexible plastics.
China’s flexible packaging manufacturers supply much of the global tea industry’s films, cardboard, and packaging materials used in making everything from overwrap and tags for tea bags to PET bottles for ready-to-drink iced teas. The Chinese market, representing about 5% of the global packaging total, was valued at $39 billion in 2020. Seventy percent of the world’s packaging materials originate in emerging countries that are currently struggling with logistics and pandemic-related restrictions on transport. Higher prices seem inevitable as inflation, fuel, and transport delays continue. According to Smithers Research, a move towards sourcing ‘local’ packaging materials has been seen, although more expensive.
Shanghai’s vibrant packaging sector has been among the hardest hit in recent months. Typical is Shanghai Zijiang Enterprise, the fifth-largest packaging company in China, which employs 7,000 people making PET preforms, PP bottles, crowns, anti-theft caps and labels, and metalized paper and BOPA films. It is a primary supplier for Nestle, Unilever, Danone, and Coca-Cola products.
According to a BBC report, according to officials, 90% of Chinese are vaccinated nationwide, but only 38% of those older than 60 received three vaccinations in Shanghai, a city of 25 million.
Meanwhile, restaurants are closed, delivery services are curtailed, and streets and shopping centers in Beijing are empty as COVID community infections rise. The city shut down many of its subway stations, and residents in controlled areas deemed to be at risk are not allowed to depart the city.
Millions of residents are still forbidden to leave their homes in 27 cities impacting up to 185 million residents across China.