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Tea Output in Lanka to Miss Target on Dry Weather, Wage Dispute

By Anusha Ondaatjie

Sept. 24 (Bloomberg) -- Tea production in Sri Lanka, the worlds fourth-biggest grower, may drop as dry weather damaged the crop and a wage dispute disrupted supplies.

This years output target of 300 million kilograms may be reduced, Lalith Hettiarachchi, chairman of the state-owned Sri Lanka Tea Board, said in a phone interview. Production was 318 million kilograms last year.

A global tea shortage may widen 10 percent next year as droughts in Kenya, Sri Lanka and India, the biggest exporters, damage crops and propel prices to a record, according to McLeod Russel India Ltd., the worlds biggest tea grower. A disruption in supplies by workers and an increase in daily wages will raise costs for Lankan producers including Maskeliya Plantations Ltd.

Cash flows are being pushed to the maximum, said Malin Goonetileke, secretary general of the Planters Association in Colombo. Prices we are getting are keeping us afloat but we cant expect levels to keep rising for more than a few months.

Workers on Lankas upcountry tea gardens blocked supplies to auctions in Colombo for two weeks earlier this month before winning a 40 percent gain in wages to 405 rupees ($3.50). Higher pay will raise costs by 6 billion rupees, said Goonetileke.

Average prices at the Colombo tea auctions rose 18 percent in the second quarter, according to the board. At auctions on Sept. 8 and 9, 5.2 million kilograms of tea sold for as much as 445.72 rupees a kilogram, the board said on its Web site. That compares with an average of 419.25 rupees a kilogram in August.

Exports

Record tea prices in Kenya and India may gain another 15 percent over the next year due to the shortage, McLeod Russel said. Lanka, the second-biggest supplier of black tea, may not earn more than $1 billion from exports because of lower output, Hettiarachchi said. Shipments peaked at $1.27 billion in 2008.

Price gains cant drive up revenue without export volumes, he said. We may see demand pick up with winter buying from Russia.

Shipments in the first half totaled 139 million kilograms, 11 percent less than the 156 million kilograms a year earlier, according to the tea board. Export earnings dropped 9.4 percent in the January-to-June period. Production in the eight months ended August was 182 million kilograms, 19 percent less than a year earlier, the board said.