Sri Lanka tea price fall squeezes producer margins

May 27, 2008 (LBO) – The fall in tea prices in recent weeks owing to the seasonal increase in supply and lower quality has put producers' margins under pressure, brokers said. It came during the island's Western quality season when teas from the western slopes of the central hills are at their best quality and fetch high prices.

But brokers said the current slump in prices was seasonal and the market is expected to pick up when the next Uva quality season gets underway.

Meanwhile, brokers Asia Siyaka Commodities said the high cost and shortage of tea bag paper may also be hurting the high grown teas.

"Colombo's market for liquoring small leaf teas were kept attractive by our pure Ceylon tea packing exporters operating against major international players," they said in a report.

"The issue many feel is that some of this buying is muted by the paper shortage at a time volumes are high."

"Ex-estate prices continued to slide contrary to expectations of many of the producers."

The brokers said prices at the Mombasa auction in Kenya and at the Jakarta auction in Indonesia have moved up with Kenyan teas making significant gains last week.

"This