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14 July 2007 12:40:20

Sri Lanka low grown teas fetch record prices

July 13, 2007 (LBO) – Sri Lanka's low grown tea prices have surged owing to strong demand from key buying countries and a shortfall in the crop, brokers said.

Prices of low grown teas, grown mainly in the low country districts and by smallholders, have been climbing steadily for the past one year.

But the low grown auction average price has risen sharply in the last few months and is now close to 300 rupees a kilo.

Some invoices have been fetching record prices in recent auctions, brokers said.

They said the rise in auction prices was because of a combination of reasons.

The main reason was a shortfall in the crop caused by bad weather, which meant that with demand remaining strong, prices were bound to rise.

Strong demand from key buying countries like the Middle Eastern nations and those in the former Soviet Union, which have developed a taste for low grown teas, was another reason.

A third reason for the sharp rise in Colombo auction prices was the depreciation of the rupee which has fallen sharply against key trading currencies like the dollar.

Anil Cooke, of brokerage Asia Siyaka Commodities, said the low grown production up to May 2007 was 77 million kg, almost 10 million kilos or 12 percent lower than that produced in the same period last year.

"We had a spell of dry weather in the first quarter of this year followed by excessive rain and strong winds," said Cooke. "So low grown tea production to end-May is behind last year's production."

While small holders, who now produce the bulk of the island's tea crop, were enjoying good prices, tea factory owners who produce the black tea faced escalating costs.

"The picture is not all rosy," said Cooke. "The cost of manufacture has also escalated. In the low country the price of raw materials – the leaf - changes with the auction prices according to the bought leaf formula. So the margin for manufacturers does not change significantly."

Forbes and Walker Tea Brokers said that at this week's auction the 2.6 million kilos of low grown teas on offer met with improved demand again.

"Yet again Pekoes was the feature of the sale with a new all-time record price being established," the brokers said in their market report.

"Overall Pekoes gained 20-30 rupees per kg. There was good inquiry from Turkey, CIS, Dubai, Iran and Saudi Arabia."

Forbes and Walker officials said high oil prices were also a factor in the tea market's rise.

Middle Eastern countries and Russia, which were big oil producers and exporters, were able to pay better prices because of their oil wealth, they said.

Uppdaterad 2007-06-15

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