Tea prices soar despite COVID-19 disruptions, but the sustainability of the current price levels should be reviewed in the medium/long term.
Prices at Colombo tea auction rose during 2020 Q1. This was largely attributable to the global supply shock from unfavorable weather conditions in most black tea exporting nations. Sri Lanka’s tea production declined by nearly 30% Q/Q for the same period.
In April, the Colombo auction prices rose sharply as global tea supply continued to tumble due to labor deployment issues as a result of COVID-19 pandemic and adverse weather. Weaker local currency, demand induced by the perceived health benefits of black tea and higher tea consumption amidst lockdowns have also helped the Ceylon tea prices to stay buoyant for the said period. Current, higher prices have to a larger extent compensated for the impact on financial performance of tea producers from the lower production levels.
However, with the oil prices plummeting to historical lows, ICRA Lanka will continue to monitor the sustainability of the current price levels as there is a relatively strong correlation between oil prices and Sri Lankan tea prices.