Sept 10, 2010 (LBO) - Sri Lanka should consider liberalising tea imports to encourage blending and value addition while plantations companies could use the current stock market bull run to raise funds, a report said.
RAM Ratings (Lanka) said that while since the early days, Sri Lankan tea has been considered among the best in the world, enabling it to command higher prices than its global peers, the island was losing its competitive position.
Sri Lanka has retained its status as one of the world’s top two tea exporters, albeit having relinquished its position as the largest global exporter of tea to Kenya in 2007.
"While still considered a producer of superior-quality tea, it is evident that Sri Lanka’s competitive position in the global tea arena has been slipping," the rating agency said in a report on the tea industry.
"Heightened competitive pressures in the global market, coupled with several internal supply issues, have eroded the country’s competitiveness."
Sri Lanka’s cost of production remains among the highest in the world, a result of lower labour productivity and relatively inferior yields.
Inadequate focus on replanting and fertilising due to financial constraints has dampened yields in comparison to the country's global peers.
Continued focus on orthodox and bulk tea could further affect the country’s competitive position as global consumption patterns increasingly tilt towards more convenient forms of this beverage, RAM Ratings said.
It suggested a cohesive policy to promote the production of value-added tea through multi-origin blending is required.
"Partial liberalisation of imports should be considered while protecting the domestic industry," RAM Ratings said.
"Concurrently, lifting yields via adequate investments in re-planting, in-filling and fertilising as well as the use of high-yielding seeds are necessary to optimise local productivity levels."
RAM Ratings also said the current stock market boom was a good time for listed regional plantations companies to raise badly needed funds.
Most plantation companies generally face financial constraints due to the reluctance of banks to provide loans to the relatively volatile sector, it said.
"Given the current buoyancy of the equity market, however, it is opportune for such companies to start tapping the stock market."
source - www.lbo.lk
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