Rebound in Sri Lanka’s Tea Industry in 2023
The tea sector in Sri Lanka has experienced growth in 2023, with improvements in production and export. After facing challenges in the previous year, the country's focus on enhancing tea production has started to yield positive results. In Jun-23, Sri Lanka produced 22,990 metric tons (mt) of tea, marking a 14% year-on-year (YoY) increase. Overall, during the first six months of 2023, tea production slightly increased by 1% YoY, reaching 133,440 mt. The improvement in production in 2023 is mainly driven by higher production in High & Medium Grown teas, while Low Grown teas saw a marginal increase.
Source: Forbes & Walker Tea Brokers
It is worth noting that Sri Lanka’s tea-growing areas are mainly concentrated in the central highlands and southern inland areas of the island. Tea grown in these areas is broadly grouped according to their elevations –low-grown teas are teas grown at an elevation between sea level to 600 meters (m), mid-grown teas are from 600m to 1,200m, and high-grown teas are grown at an elevation above 1,200m.
The recovery in Sri Lanka's tea production can be attributed to the country's efforts in addressing last year’s challenges. In 2022, Sri Lanka experienced an economic crisis, which significantly impacted the tea industry. The fallout from the Covid-19 pandemic and the Russian-Ukraine war triggered a balance of payments crisis. Sri Lanka's economic activity was severely undermined by dwindling foreign currency reserves, resulting in prolonged power cuts and fuel shortages. Shrinking foreign currency reserves also made it difficult to import sufficient amounts of fertilizer, disrupting the cultivation needs for Sri Lanka’s tea. The situation remained challenging throughout the year, leading to heightened food insecurity, widespread protests, political instability, and multiple changes of administration. However, in Mar-23, Sri Lanka received a USD 3 billion bailout from the International Monetary Fund (IMF), which marked a turning point in the country's economic recovery and offered renewed hope for the tea industry's prospects. The financial aid facilitated increased fertilizer imports, contributing to the rise in tea production this year.
In terms of the global market, Sri Lanka's tea export in 2023 also has good prospects. Considering the challenges faced by competitor markets. India, a major tea-producing country, started the year with a shortfall of 3,000 mt in Jan-23 compared to the previous year's harvest. Unseasonably high temperatures and inadequate rainfall severely reduced yields in the tea lands of North India, leading to rising production costs. Consequently, overseas buyers have turned their attention to Sri Lanka.
In the first six months of 2023, Sri Lanka's bulk tea exports witnessed a 31% YoY increase amounting to USD 249 million. The country experienced notable increases in tea exports to key markets such as Türkiye, Russia, China, and Saudi Arabia. These positive export figures reflect the industry's resilience and growing demand for Sri Lankan tea in the global market.
Source: Forbes & Walker Tea Brokers
As Sri Lanka's tea-growing regions prepare for the dry season in August, a temporary decrease in production is anticipated. However, the quality of the tea is expected to continue improving. Russia, one of the main destinations for Sri Lankan tea, is expected to step up purchases beginning in August ahead of its peak consumption season later in 2023. It is projected that tea production in Sri Lanka will reach 270,000 mt of tea by the end of 2023, exceeding last year's 251,500 mt. With the competitor market facing its own challenges, Sri Lanka's recovery from the previous year's setbacks is expected to continue, ensuring a promising year for the tea industry and contributing to Sri Lanka's economic recovery.