Sri Lanka Tea Harvest is Under Duress
Tea producers are under severe stress in Sri Lanka as the early harvest unfolds.??
The Sri Lanka Tea Board reported that February marked the lowest tea yield in 13 years, down to 18 million kilos, nearly 20% compared to the same period last year. Export earnings declined 4.5% in January, according to Ceylon Tea Brokers.? The Tea Exporters Association reported the country produced a total of 40,981 kilos through February.
Electrical power in rural areas is now limited to five hours a day, down from 10 hours. Tea processing has shifted to night work so that rollers can operate continuously. There are 996 registered tea gardens on the island, and while relatively few operate factories, every garden is dependent on fuel for transport.??
A diesel shortage since the beginning of March means stocks are now dwindling. Prices spiked to SLR176 per liter ($2.34 per gallon in US dollars). Gasoline is SLR254 per liter.?
PMD Tea Managing Director Dananjaya Silva writes that in the Dimbula Valley, “Tea estates that had kept fuel stocks have been forced to provide fuel to their transport agents so that teas from the estates can be delivered to Colombo after being sold at the auction.”?
The cost of fertilizer is closely tied to petroleum prices. Until last year Sri Lanka spent an estimated $300 to $400 million annually importing fertilizer. Last May, the government ceased importing fertilizer and discontinued a national fertilizer subsidy as fertilizer prices spiked in November. The cost of Urea, a chemical essential to leaf production, has increased six-fold. Farmers say they can no longer afford to feed their plants, resulting in a nearly 50% drop in production and food shortages. Sri Lanka's agriculture department forecasts a 30% decline in the March rice harvest.
Those who can afford chemical inputs find that the war in Ukraine has disrupted trade. Sanctions prevent timely payments for the final shipments of the 30 million kilos of tea already exported to Russia. Blockades of Black Sea ports are preventing the delivery of the four million kilos of tea that Ukraine imports annually. Sri Lanka imports 45% of its wheat from Ukraine and inbound shipments are at a standstill.
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Estate superintendents write that workers employed at tea gardens are queuing for hours to receive bare essentials, including rice, fuel, cooking gas, and milk powder. Rice now costs a third more than last year. Prices of vegetables such as carrots and tomatoes have increased five times. According to the National Consumer Price Index, food prices jumped by 6.9%, and the overall inflation rate increased to 15.1% in February 2022. Food inflation rose to 30.2% in March.
Sri Lanka’s tea industry generates much of its revenue by adding value to bulk teas. The continued devaluation of the rupee means that materials for finished goods, including paper, packaging, cardboard, and plastics, have increased at a time when overseas transport is unreliable and costs are unusually high.
Biz Insight: The crisis in Sri Lanka is economic. Foreign debt is high. The current trade deficit is $6 billion, and foreign exchange reserves are nearly depleted. The International Monetary Fund calculates Sri Lanka's public debt as unsustainable.
Sri Lanka, an island crowded with 22 million people, depends heavily on food imports. In normal times the cost of imports is offset by the $7.5 billion spent by visiting tourists, revenue that declined by $4.7 billion last year. In April the government said that it would default on $35.5 billion in foreign debt and miss a $78 million interest payment. The country now has a 30-day grace period.
Concerns about food security during the pandemic now reveal a severe vulnerability. Extreme poverty rates have doubled since 2019. The World Bank reports that nearly 12% of Sri Lankans live in poverty, concentrated in rural agricultural areas, with more than 80% of the poor living in villages. Micro-credit indebtedness among rural farming communities is high and desperate; sometimes, violent, farmer-led protests are frequent, forcing the police and military to intervene.
In late March the government declared a state of emergency and ordered a nationwide curfew. To curb public dissent, Sri Lanka blocked access to social media and messaging platforms, including Facebook, WhatsApp, Twitter, and YouTube. Protests continued leading so some fatalities
In April the country officially requested emergency financial assistance from the International Monetary Fund (IMF).
In Colombo Prime Minister Mahinda Rajapaksa is seeking to amend the Constitution to consolidate powers currently residing in the executive, judiciary, and legislative branches of government.