Tensions in Gulf strain Ceylon Tea – By Arundathie Abeysinghe
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Industry experts caution that rising tensions in Gulf region could impact Ceylon Tea. Issues in the Red Sea have already impacted the industry with longer delivery time and higher freight costs. This situation can also drastically affect the prices and livelihoods of people in the plantation sector who depend on tea export. With over 50 percent of the island nation’s tea exports heading to the Middle East, the industry is especially vulnerable to any disruptions in the region.
Sri Lanka Tea Board (SLTB) has stated that official figures of the current situation have not been shared by those in the tea industry, although, the industry stakeholders have informed that the situation could adversely affect tea exports. Closure of airspace in the region could also adversely affect tea exports.
According to senior industry experts “similar to the current situation, in 2017, Sri Lanka’s tea exports to Iran declined by around 19 percent to 27.4 million kgs due the US reimposing sanctions. The spillover effect of the embargo on Iran was felt in Iraq as well which has been a large market for Ceylon Tea. The Middle East and Russia account for approximately 70% of Sri Lanka annual tea export volume. Hence, rising tensions in the Gulf region could adversely affect Ceylon Tea.”
“Due to constant political and civil conflicts including international sanctions, some countries in the Middle East are comparatively high-risk markets and recent development in the region has also affected the re-export business in UAE. With all shipping routes in that direction the war scenario is likely to cause, shipping lines may impose surcharges that will result in higher freight rates adding to the woes of high costs. This is also a crucial period for the island nation as this is when the winter buying is taking place.”
Senior officials of SLTB were of the view that “although, developments in the Middle East have indirect yet significant impacts on tea exporters, no major issues have been officially reported, yet. If there are potential trade sanctions, it may affect the industry adversely, similar to the situation in 2017.”
It is important to keep sea routes open to ensure the smooth movement of goods and sustain prices as rising escalations in the Gulf region could strain tea prices and pose significant hazards to the industry.
This year, Sri Lanka commenced Iran-Sri Lanka “tea for oil” deal whereby exports of tea are expected to pay off the long overdue oil bills.
As Palestine is a leading buyer of Ceylon Tea, it is likely to be affected as their ports within Gaza will be inaccessible as they will have to channel the exports through Jordan via the West Bank over land. Although, shipping lines have not notified of any surcharges, it is likely that when a war breaks out the freight cost will increase on the insurance.
Meanwhile, there are several issues facing the industry at present, despite the availability of fertilizer. Smallholders are finding it hard to purchase fertilizer as prices have increased considerably. Smallholders’ production contributes approximately 70 per cent of tea exports.
