Sri Lanka Chaos Opens Tea Export Opportunity That India May Miss

India, the world’s second-biggest tea producer, will likely fail to take advantage of an export gap in the global market sparked by Sri Lanka’s economic crisis, according to a top grower.

The chaos in Sri Lanka could cut tea supplies by about 40 million kilograms in 2022, said Azam Monem, director at Mcleod Russel India Ltd., one of India’s largest growers. While India has been touted to fill that gap, it’s unlikely that it will be able to do so due to the high costs involved, Monem said.

Sri Lanka mainly produces orthodox tea, which tends to be harvested and processed by hand. It is popular with tea drinkers in Russia and some eastern European countries. Production costs are generally higher for orthodox tea and the output process might cause crop losses, according to Monem.

Local producers are reluctant to spend money to upgrade their output process on worries that the window to sell more orthodox tea would be available only for a limited period. Non-orthodox tea made by machines that crush, tear and curl, or CTC, accounts for about 85% of domestic output, according to Prabir Kumar Bhattacharjee, secretary general of the Tea Association of India. The cost to produce orthodox tea is 20 times more, Bhattacharjee said.

READ: How Sri Lanka Landed in a Crisis and What It Means: QuickTake

It would be difficult for the company to invest in upgrading its production process without government support, Monem added. Still, it aims to boost output of orthodox tea to as much as 12% of total production from 8% to 10% now.

India’s overall tea exports are unlikely to return to pre-pandemic levels due to payment issues with Russia and Iran following U.S. sanctions, said Atul Asthana, managing director of plantation firm Goodricke Group Ltd. Both Russia and Iran are major buyers of Indian tea.

He added that some shipments of Goodricke are stuck due to the war in Ukraine. It’s also unable to ship to Iran because of sanctions.

India’s exports sank 6.8% in 2021 from a year earlier to 195.5 million kilograms, data from Tea Board India show. Shipments totaled 252.15 million kilograms in 2019.

(Bloomberg)