Adverse weather dampens tea productions

* Cost of production more than doubles, yields down to 40%

Prolonged heavy showers and strong gale force winds have drastically impacted tea production with some estates having recorded only 40% of their estimated average yield in the past two months. Regional Plantation Companies (RPC’s) say that with crops declining, the coming months will be critical for the plantations with regard to the bottom-line, the Planters’ Association of Ceylon said yesterday (09).

The adverse weather conditions with rainfall being the highest in 47 years has severely impacted Cost of Production (COP) which has escalated to more than double, averaging around Rs 700/- among some estates, particularly in the NuwaraEliya regions. Severely affected are estates in and around NuwaraEliya, Hatton, Dickoya, Agrapatna and Talawakelle areas from which some of the best upcountry teas are harvested. At present, crop yieldsare only 40 to 45% of the average, thus sending alarm signals to producers. "Buyers must take note of this critical situation that is prevailing," said Senarath Pahathkumbura, General Manager, Elpitiya Plantations PLC and a veteran planter. "Present COP due to the bad wet weather is between Rs 700/- and 730/- per kilogram while Net Sale Averages (NSA) are around Rs 325/- thus incurring a severe loss to the producers," he explained.

Pahathkumbura went on to note that buyers should consider the situation and pay the producers a reasonable price per kilogram of tea. "A low yield means low productivity and therefore very high Cost of Production, irrespective of productivity parameters".

The decline in crops is dealing a further blow to the tea and rubber industry which is already reeling from the impact of the wage hike to workers on COP. Sri Lanka’s cost of production of tea is the highest in the world with 65% of the cost attributed to labour.

"Our most important asset on the estate is human resource and while we had taken steps to control the escalating COP in the aftermath of the April 2013 wage hike by incentivizing our human resource cadre, the horrible weather has been a huge set back" lamented Pahathkumbura.

According to officials, some Plantation Companies have recorded a loss of Rs 100 Million in the last month, atrend that cannot be sustained if it continuesand will be detrimental to the future of the industry.

Elpitiya Plantations lays special emphasis on crop targets with productivity parameters monitored on a daily basis. Formulas worked out to study norm averages versus revenue has resulted in workers getting attractive incentives when targets are exceeded. This incentive helps pluckers, now re-designated as Harvesting Assistants,to harvest maximum yields.

"More crops means lower COP as the crop is the determining factor in the production process," explained Pahathkumbura who went on to note that good agricultural practices will always ensure good yield, resulting in a win-win situation for both the Plantation Companies and the workers.
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Half price sale for plantations coming soon.

This news is somewhat misleading for investors point of view .

Until last month the tea production was increasing. (*See bottom para )

Only in June it came down due to bad weather specially in up most part of the country due to heavy winds and rains.

Even in previous months upcountry production was down due to unfavourable weather when  medium and low level plantations reporting one of the best seasons due to favourable wide spread rains.

On the otherhand June was a 'going low' month for every year.
In  2011, 12 also total production went down by 5-6 million kgs in June.

Hence  companies managing plantations in medium and low level regions MAY report production increase with the prevailing favourable rains.

When production reports released, trading prices of low-mid companies may go up if they prove what I predicted.  (wage effect not considered)

What are the stocks mainly having low and medium level plantations ?

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By the way, Sri lanka is saving 10 billion Rupees each month with lesser oil imports due to liquid power given from heaven. If rains continued throughout the year our budget deficit will reach to much healthy level boosting every other sector.

Hence even if few billions lost due to upcountry tea problem the rains will give us a much better country end of the year.

MAY TEA CROP NUDGES UP

The country’s tea crop of 33.6 mkgs recorded for May 2013 reflects a 0.9 mkgs higher than the output achieved during the corresponding month last year.

Lanka Commodity Brokers said whilst the output from the high grown plantations has shown a drop of 458,320 kgs, the crop recorded from the medium and low elevations recorded gains of 109,433 kgs and 1,307,377 kgs respectively.

“There was fairly widespread rainfall in May and although plantations in the medium and low elevations were able to benefit from this, the high grown plantations experienced too much rain coupled with very dull conditions and did not have sufficient sunshine to spur growth,” Lanka Commodity Brokers added.

During the period January to May, 2013 a total of 148.9 mkgs has been harvested which is a yoy increase of 11.2 mkgs.

The low grown sector has contributed the most with a surplus of 6.8 mkgs, followed by high grown at 3.0 mkgs and medium elevation teas at 1.3 mkgs, according to Lanka Commodity Brokers.  

Daily FT (Tuesday - 25th June, 2013)