N E W S L E T T E RJULY 2020

Page 1Tea Exporters Association Sri Lanka

A delegation of TEA led by the Chairman held discussions with Chairman of SLECIC to address a number of issues related to tea exports sector.

• Assistance to explore new markets for Ceylon Tea as the exporters faces high risks when entering in to new markets.• The issues of necessity to have clear guidelines on markets covered by SLECIC and also the criteria adopted for risk assessment of buyers.• Continue to share the information on defaulted buyers to safeguard exporters.• Review rates of SLECIC as the current rates are high especially for S&M companies.• Need to fast track the issue of buyers’ status reports and credit approval.

The SLECIC chairman was very receptive to the issues brought up by the TEA and assured that it would extend its’ full co-operation to expand tea exports and minimize the risk of payment defaults. They are planning to strengthen them self by employing a global debt collector to secure the payments due to local exporters. SLECIC requested for support of exporters to identify the payment defaulters to safeguard the interests of all businessmen.

TEA Welcomes New Members

The committee of management of TEA approved the membership of following companies effective from August 2020.

• Unitrades (Pvt) Ltd• Samley Teas (Pvt) Ltd • Nature Ceylon Trading (Pvt) Ltd• Black Tea Exports (Pvt) Ltd• ASB Freignt (Pvt) Ltd (Affiliate Member)

SRI LANKA TEA PRODUCTION – JANUARY TO JUNE 2020Sri Lanka Tea Production for the month of June 2020 totalled 26.8 million kgs registering a decrease of 0.7 million kgs vis-à-vis 27.5 million kgs of June 2019. High Growns show a gain, whilst Mediums and Low Growns show a decrease.

January-June 2020 cumulative production totalled 129.0 million kgs, recording a decrease of 29.8 million kgs against the volume of 158.8 million kgs in January-June 2019. It is relevant to note that this is the lowest bi-annual total production since 1995 when only 127.5 million kgs were recorded. January-June 2020 High Grown production totalled 30.4 million kgs, the lowest since 1992 when only 29.1 million kgs were recorded. Similarly, Mediums totalling 22.4 million kgs for the current year is the lowest since 2009 when only 21.4 million kgs were produced during the 1st half. Low Growns for January-June 2020 totalling 75.3 million kgs too is the lowest since 2009, when January-June production was only 72.7 million kgs.

June 2020 CTC production totalled 2.3 million kgs showing a gain of 0.4 million kgs vis-à-vis 1.9 million kgs of June 2019. All elevations have shown a growth with High Growns in particular showing a substantial gain over the corresponding period followed by Medium Growns, whilst Low Growns have shown only a marginal gain. Meanwhile, cumulative CTC production for January-June 2020 of 11.7 million kgs too showed a gain of 0.4 million kgs vis-à-vis 11.2 million kgs of January-June 2019. On a cumulative basis too, High Growns have shown a fairly significant growth followed by Medium Growns, whilst Low Growns show a slight decrease.

July 2020

TEA seeks SLECIC assistance to explore new Markets

Congratulations Joining Our Team…..

(SLTB)

Page 2Tea Exporters Association Sri Lanka

The available tea crop figures for January-June 2020 period are appended below (in MT)

World Tea Crop – Kenya Passes 300 m/kgs for the First Six Months

The tea crop figures of some leading tea producing countries for the period of January to June 2020 are furnished below (in million Kg).

July 2020

(SL Customs)

Page 3Tea Exporters Association Sri Lanka

SRI LANKA TEA EXPORTS - JANUARY TO JUNE 2020

829.12 (USD 4.71) of June 2019 - the highest ever in SLR and USD terms.

Tea exports for the month of June 2020 totalled 23.6 million kgs, showing a decline of 0.5 million kgs vis-à-vis 24.1 million kgs of June 2019. Tea bags and bulk tea exports show a gain when compared to the corresponding month of 2019, whilst Packeted tea shows a decrease. Total revenue of Rs. 21.3 B realized for the month of June 2020, however, has shown a growth of Rs. 1.4 B vis-à-vis Rs. 19.9 B of June 2019. Consequently, the FOB value realized Rs. 902.29 (USD 4.89) recording a growth of Rs. 73.17 vis-à-vis Rs.

When analysing January-June 2020 cumulative exports of 124.0 million kgs, shows a decline of 21.1 million kgs when compared with 145.1 million kgs of January-June 2019. On a cumulative basis, all main categories of exports (i.e. Tea bags, Packeted tea and Bulk tea) have shown a decrease compared to the corresponding period of 2019. Total revenue too of Rs. 106.0 B records a decrease of Rs. 15.8 B vis-à-vis Rs. 121.8 B of January-June 2019. The total FOB value, however, for the period January-June 2020 of Rs. 854.92 (USD 4.65) has shown a growth of Rs. 15.46 when compared to Rs. 839.46 (USD 4.73) of January-June 2019. Although a growth in Sri Lankan Rupee term is seen, in USD terms the FOB value shows a negative growth as against the corresponding period of 2019.

The tea export figures for January-June 2020 are listed below (in MT).

Iraq has emerged as the No. 1 importer of Sri Lankan Tea for the period January-June 2020 followed by Turkey and Russia. Other noteworthy importers are Iran, Azerbaijan and China. It is also relevant to note that Chile too has shown a fairly substantial growth in imports. Meanwhile, destinations such as Libya, Syria and the UAE have shown a significant decrease in imports during the period under review.

July 2020

experience with a fashionable product and integrating the gourmet quality tea into their life style. The growing retail sector is innovatively catering for new preferences through a diversity of tea origins and flavours.

Page 4Tea Exporters Association Sri Lanka

MAJOR IMPORTERS OF SRI LANKA TEA - JANUARY/JUNE 2020

EXCHANGE RATE MOVEMENTS – AS AT 29TH JULY, 2020

SRI LANKAN TEA PRODUCTION & YOY GROWTH (IN MKG) JANUARY TO JUNE – 2015/2020

July 2020

2. Forecast for MENA Region – 2017

Page 5Tea Exporters Association Sri Lanka

ELEVATION WISE – STATISTICS - COLOMBO AUCTION AVERAGES

JULY 2020

SRI LANKAN TEA EXPORTS & YOY GROWTH (IN MKG) JANUARY TO JUNE – 2015/2020

July 2020

(Ceylon Tea Brokers PLC)

Summary of developments in the major tea producing countriesWith significantly large quantities of exports during April and May, cumulative exports from China are not much different to levels achieved last year. This perhaps reflects the reality of coming out of COVID-19 influenced lockdowns early, having gone into lockdown earlier. A significant increase in exports to Uzbekistan is notable.

In India, crop figure released for the month of April is half of the crop in the corresponding month of 2019 and the cumulative crop reflects a 40% shortfall.

The complete sale no. 28 of the Mombasa auctions was conducted on an electronic trading platform for the first time. Whilst the cumulative crop up to May records a growth of 50%, it is worth noting the steady demand at the weekly auctions over the last few months in spite of the huge quantities on offer.

The High Court in Kenya has brought to a halt, pending a judicial review scheduled for September, efforts made by the government to seek to carry out administrative reforms within the tea industry. Earlier, an eight-member committee had been appointed to oversee the implementation of regulations governing the tea industry with the view of changing the working model of the KTDA and making fresh efforts to make tea farming more lucrative.

Weekly Auctions Mombasa – There was fair general demand throughout the month even though approximately 20% of the teas remained unsold each week. The weekly average price hovered around US$ 1.73 p/kg. In addition to the major buyers, CIS countries, Sudan, Afghanistan, Yemen and Middle East countries showed increased activity at times.

Kolkata – There was very strong demand throughout the month. Weekly average prices were as high as Ind. Rs 300 p/kg (US$ 4 per kg.) with the added impetus of strong support from the Middle East. Guwahati – There was no sale during the second week of the month. Robust demand was sustained at each of the auctions that took place and the average price in week 3 was Ind Rs. 283.50 (US$ 3.79 p/kg.) Kochi – In week 1, there was strong demand mainly from the upcountry buyers and in the following weeks, demand continued for CTC teas whilst orthodox varieties also met with good demand but at lower prices. Chittagong – Both blenders and loose tea buyers operated with selective interest in week 1. Following several weeks of weak demand, there was improved interest shown in week 2, particularly for the better liquoring varieties. However, demand was subdued at the following sale. Jakarta – Whilst there was steady demand in week 1, there was only fair general demand in week 2 with a significant share remaining unsold. There was even less demand at the following sale. Limbe – There was one auction conducted during the second week during which very strong demand was witnessed. Incidentally, this was the first instance that the Limbe auction was held on a Thursday.

July 2020

(Forbes & Walker Tea Brokers (Pvt) Ltd)

Page 6TeaTExporters Association Sri Lanka

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Page 7 Tea Exporters Association Sri Lanka

Unilever to keep its India and Indonesia tea units The Unilever Tea Company recently stated, it intends to retain its tea businesses in India and Indonesia, months after it announced a global strategic review of the tea business. The rest of the tea brands and estates in other regions will be carved into a separate entity.

“In January, Unilever announced a strategic review of its global tea business, which includes leading brands such as Lipton, Brooke Bond and PGTips. This review has assessed a full range of options. We will retain the tea businesses in India and Indonesia and the partnership interests in the ready-to-drink tea joint ventures," the Anglo-Dutch company said when it also announced the first-half earnings for 2020.

In India, Hindustan Unilever Ltd (HUL) sells the Brooke Bond and Lipton tea brands.

“The balance of Unilever’s tea brands and geographies and all tea estates have an exciting future, and this potential can best be achieved as a separate entity. A process will now begin to implement the separation, which is expected to conclude by the end of 2021," Unilever said.

The tea business that will be separated generated revenues of €2 billion in 2019.

(Business Standard)

Analysts tracking the company said HUL’s strong position in tea, where it competes with Tata Consumer Products (Tetley and Tata Tea), makes it a key player in the packaged tea market in India.

Unilever’s announcement comes just days after HUL posted a 51.7% year-on-year (y-o-y) jump in its food and refreshment business in the June quarter as the nationwide lockdown prompted more households to buy its packaged coffee, tea and jams.

Vietnam Tea Exports down by 10% The Government should build corporations with financial resources to help the domestic tea industry add value, branding and sales, said Chairman of Vietnam Tea Association.

Tea is one of the agricultural commodities greatly affected by the COVID-19 pandemic. In the first five months of this year, tea exports reached about 46,000 tonnes, worth about 72 million USD, down more than 10 percent in value compared to the same period in 2019.

Chairman, VTA said traditional markets of Vietnam such as Taiwan (China), Pakistan and Russia were closed. In other markets, businesses could not sign new contracts, while previously signed contracts now would require deep discounts, delays to delivery times or had been cancelled.

According to the prediction of the East Africa Tea Trade Association, world tea prices will fall in the near future, while restrictions on shipping of goods will reduce demand for tea in many countries. This will cause difficulties for the export of Vietnamese tea.

About 90 percent of domestic tea consumption comes from small establishments with unstable quality. Vietnamese tea businesses have created brands, such as Cozy, Phuc Long, Cau Tre, Cau Dat and Vinatea. Although there have been many more attractive product lines, Vietnamese tea businesses are still struggling to find ways to bring products to consumers.

July 2020

Tea production in Vietnam has returned to normal, so output will not be affected by the pandemic.

(Vietnam News)

China's economy to grow 2.5 pct this year

Chairman said the Government’s policies have only focused on tea production development rather than consumption; so many producers have sold raw tea to businesses, and are not interested in selling directly to customers.

“Meanwhile, it is not easy for Vietnamese businesses because the cost to open a tea distribution network is three times higher than that of a production factory,” Chairman said.

Insiders have said that the coronavirus pandemic is an opportunity for many tea companies to change and improve product value instead of chasing output. Most Vietnamese tea has been exported as raw materials, which are then processed and packaged for consumption in the local market or exported to a third country. Vietnamese tea only accounts for about 5-20 percent of the finished product value, while brands usually account for 40-60 percent. This is why Vietnam is among the countries with the lowest tea export prices in the world.

China's economy will grow 2.5 percent this year, Bloomberg News has reported, citing the UBS Group AG that raised its forecast from 1.5 percent due to the recovery in domestic consumption and strong investment.

Chinese economy will expand 5.5 percent this quarter from a year earlier, and 6 percent in the final three months of 2020, Bloomberg quoted the bank's chief China economist Wang Tao and others as saying.

The surprising strength of Chinese exports in the second quarter prompted the economists to increase their estimate for trade in the rest of the year, and they also revised up the inflation forecast to 2.5 percent for 2020 from 2.4 percent earlier, the report said.

The property sector is expected to show more resilience, thanks to the economic recovery and effects of easier credit, said the report, noting that Oxford Economics also upgraded its full-year GDP forecast to 2.5 percent from 2 percent on a strong rebound in the second quarter.

Citing a survey of 67 economists, Bloomberg said in another recent report that, China's growth in the current quarter will be 5.2 percent from a year ago, faster than the 3.2-percent expansion in the three months to June. The Chinese economy returned to growth in the second quarter, marking an important milestone in the global struggle to recover from the virus shutdowns, the report said.

Solid inbuilt momentum in the domestic economy , coupled with external tailwinds from recovering global demand , are setting the stage for a further growth acceleration in the second half of the year, Aidan Yao, senior economist at AXA Investment Managers in the survey, was quoted as saying.

(Xinhua News)

July 2020

Page 8Tea Exporters Association Sri Lanka

Russia’s Central Bank has lowered its key rate by 25 basis points to another record low of 4.25%, according to a statement published by the regulator following its recent board meeting.

"On 24 July 2020, the Bank of Russia Board of Directors decided to cut the key rate by 25 bp to 4.25% per annum. Disinflationary factors continue to exert considerable influence on inflation," the regulator said.

The Bank of Russia Board of Directors will hold its next key rate review meeting on September 18, 2020.

The Central Bank also downgraded its inflation forecast for 2020 from 3.8-4.8% to 3.7-4.2% for 2020, whereas in 2021 inflation is expected to be 3.5-4%.

Russia Central Bank cut rates

In the context of prevailing disinflationary factors there is a risk that in 2021 inflation might deviate downwards from the 4% target, the regulator added.

"A significant easing of monetary policy since April aims at curbing this risk and stabilizing inflation close to 4% over the forecast horizon. According to the Bank of Russia’s forecast , given the current monetary policy stance, annual inflation will reach 3.7-4.2% in 2020, 3.5-4.0% in 2021 and will stay close to 4% later on," the Central Bank said.

If the situation develops in line with the baseline forecast, the Central Bank will consider the necessity of further key rate reduction at its upcoming meetings, it noted.

Medium-term inflation dynamics will be significantly impacted by fiscal policy, in particular, the scale and efficiency of the government’s measures towards mitigating the consequences of the corona virus pandemic and overcoming structural constraints, as well as the speed of the 2021-2022 budget consolidation.

The Bank of Russia expects the economy to be recovering gradually, as the restrictions are being lifted step-by-step. The revival of business activity is still moderate and uneven across industries and regions, the regulator said. "In June, the decline in industrial production, the contraction of orders in both external and domestic market, and the growth of unemployment slowed down. Proxy indicators suggest a slight rebound in investment activity. Recovery continues in retail trade and the services sector. Consumer demand was supported by the fiscal policy measures. At the same time, weak external demand coupled with restrictions under the OPEC+ deal lead to a drop in exports, causing an adverse effect on economic activity," the statement said. Further economic recovery might be unstable due to a fall in incomes, moderate consumer behavior, cautious sentiment of businesses and external demand-side restrictions.

GDP is projected to decrease by 4.5-5.5% in 2020. The Russian economy is thereafter expected to follow a recovery path with growth predicted to total 3.5-4.5% in 2021 and 2.5-3.5% in 2022, the Central Bank said.

(TASS News)

Page 9Tea Exporters Association Sri LankaJuly 2020

(The Hindu)

India to introduce a new Tea Auction system

Page 10Tea Exporters Association Sri Lanka

July 2020

The Tea Board of India will soon unveil a new system to auction tea on a pilot project basis at Coonoor in the Nilgris.

Known as the “ascending ” auction system, this is currently in place in Japan for fish auctions and in the Netherlands for floriculture. Based on the recommendations of the Indian Institute of Management - Bangalore, the new platform has been developed for tea auctions.

Virtual training sessions are on for stakeholders.The board may start the trial session in two or three weeks, the executive director of Tea Board said in Coonoor.

Explaining the benefits of the new system, he said that it would ensure transparency in pricing and fair play between buyers and sellers.

Sellers will have a say in the price fixed for the auction and buyers will have a choice. When the base price is fixed for a particular lot, the system will keep increasing the price at regular intervals till just one buyer is left to buy that lot.

Kenya Tea RegulationsThe tea industry regulations and their schedule of compliance requirements are ready to be implemented and should start immediately, Government says.

Agriculture and Fisheries Cabinet Secretary said the implementation of the tea regulation should be fully executed by February 28, 2021 as set out in the timelines given in the Crops (Tea Industry) Regulations, 2020.The CS noted that particular attention should be paid to the provisions allowing the renegotiation and amendment of the current agreements, especially agreements relating to management agents and factories.

“As we set out to implement the guidelines, there are timelines given that will be strictly enforced and there will be penalties for failing to comply with the requirements which include suspension, revocation or variations of licenses and registrations,” he said.The timelines are those on management, manufacturing, buyers and exporters, brokerage as well as tea auction trading rules which should be adhered to and the government expects cooperation and compliance by all stakeholders.

The CS directed the Agriculture and Food Authority (AFA) to immediately undertake a technical inspection of the newly installed E-Auction system to ensure that the auction is operating consistently with best practices for commodity trading.

CS urged all players in the value chain to work together with government and play their part in these critical reforms saying that tea is too important a sector to be left to cartels and middle-men.

“The government’s goal, is to create an inclusive sector that properly recognizes and rewards the primary stakeholder – the tea farmer. That cannot be achieved under conditions of poor governance and systemic unfairness, and Parliament to expedite the Tea Reforms Act.

(The Daily)