Business

‘Colombo Tea Auction is the fairest platform for all stakeholders, including producers’

Published

4 years ago

2022/07/12

Sahan Weerasooriya

By Tea Exporters Association

The Question of the Auction

Tea has been sold by open auction in Colombo since July 1883, allowing participants to benefit from price discovery in a free and open market. This allows both producers and exporters to transact at the best and fairest price. The Colombo Tea Auction has long held the position of being the largest single-origin tea auction centre in the world. However, the present economic uncertainty in Sri Lanka has given rise and lent an air of authenticity to the false belief that, the benefits of rupee depreciation have not been fairly passed down to the producer. This is a view primarily held by a small group of tea producers and supported by certain policymakers.

This notion is, however, easily refuted by even a cursory examination of recent price trends at the Colombo Tea Auction. Industry experts understand that this is a misconception far removed from the truth. Nevertheless, this notion is gaining traction in certain quarters, with some with vested interests standing to benefit from interfering in what has been a free and fair market for over a hundred years. Therefore, in this article, we will examine this claim and recent trends witnessed at the Colombo Tea Auction, to factually and irrefutably quell any authenticity that these ill-conceived ideas attempt to claim before they have a chance to destroy one of the last remaining bastions of Sri Lanka’s already battered economy.

An Untenable Proposition

The solution proposed by a segment of producers is to change the value currency of the Colombo Tea Auction from LKR to USD. However, such a move will not work to better compensate producers. Such a move would introduce unnecessary and time-consuming red tape, not to mention volatility, into a system that functions very smoothly as it is. It also has the potential of further exacerbating the foreign exchange crisis, as the industry would need to “dollarize” itself, meaning that fewer dollars will be available for import requirements, as they will be in circulation within the local economy.

Furthermore, there is the question of the other members of the supply chain, for example, smallholder tea growers and transporters. What happens if they too demand that they must be paid in USD? Such circumstances would only exacerbate the foreign exchange crisis, as more and more participants demand to be paid only in USD. There will also be other foreseen and unforeseen macro-economic challenges, as a result of such a move, with part of the industry denominating its transactions in USD and other parts in LKR. Furthermore, dollarization may restrict exporters’ ability to pay the fair price at auction, leading to a potential negative impact on the price of tea.

Dollarization has been suggested before in Sri Lanka and has been decided against, for good reason. However, the present crises have lent a certain authenticity to these ideas, which must be refuted at once. Dollarization has been implemented in countries like Kenya, but the move only resulted in small and medium buyers being wiped out, and large multinationals taking control. Sri Lanka’s tea industry largely remains diverse, locally owned and controlled, and such proposed dollarization of the industry could potentially lead to a loss of ownership and control to a homogenous monopoly made up of large foreign companies.

Numbers Do Not Lie

Supported by the sharp depreciation of the LKR against the USD and a shortage of tea in Q1 2022, auction prices soared in the last two months providing, in some cases, even more than the full benefit of the exchange rate movement to the local tea producer and grower. For the first time in history, average tea auction prices for all three elevations exceeded LKR 1,000 per kg in April 2022. Accordingly, the average price of tea sold at auction rose from LKR 708.00 per kg in January 2022 to Rs. 1,324.95 per kg by May 2022, an increase of 88%. At the same time, the Rupee depreciated by only about 75% from LKR 203.00 to LKR 356.00 per dollar. This alone is sufficient to empirically prove and make the case that the present system of tea auctioning is serving both exporters and producers equally and fairly.

However, it is possible to further

demonstrate that the benefits are being passed down to the bottom of the supply chain if we consider the green leaf pricing formula. According to this formula, which is set and maintained by the Sri Lanka Tea Board, the apex governing authority for the industry, green leaf prices are set at a percentage of each factory’s tea sales average, computed based on monthly average tea auction prices. Thus, it is usually the practice that smallholders receive the price paid by the best factory in their area for their green leaf, sometimes even more. As a result, smallholder tea growers are now paid over LKR 200 per kg for green leaf, compared to Rs. 100/- 125/ per kg in the months before the rapid depreciation of the Rupee. These gains have also allowed many factories to provide increased compensation or relief packages to their staff, including labourers and other ancillary members of the supply chain.

Thus, teas are fetching prices far beyond fair value in many instances, giving a false impression that exporters are unfairly benefitting from the exchange rate volatility. The reality is, however, that the system of the open auction for tea in Sri Lanka, an established practice for over a century, is functioning well and exactly as it was designed to, fairly and openly distributing capital throughout the system, ensuring fair compensation to all members of the supply chain.

It is also necessary to bear in mind that tea exporters themselves have many costs over and above the tea itself. These include freight, packaging materials, tea flavours, agents’ commissions for foreign agents/distributors and marketing, all usually made in foreign currency, and none of these costs are passed on to growers or producers. With the present dollar shortage, most exporters are now required to make these payments in advance, even before receiving export proceeds, whereas these payments were made on credit terms in the past.

Understanding Reality & Gearing for the Future

Examining the figures and facts of the matter, it is impossible to draw any rational or reasonable conclusion other than that, the present system of tea auctions in Sri Lanka is working well and does not need any kind of meddling from any party, particularly policymakers. Much of the present economic disaster in Sri Lanka is a result of such meddling, so let us ask ourselves whether we would like to see one of the last remaining economic opportunities in Sri Lanka being destroyed for the benefit of a few.

If producers wish to benefit more than they already are from the currency depreciation, then Sri Lanka must look at increasing its annual tea production from 300 million kg to around 350 million kg, over the next 3 to 5 years, to meet global demand and benefit from increased revenues. This additional 50 million kg of produce could grow the nation’s export earnings by approximately USD 300 million each year.

Recent exchange rate movements have made Ceylon Tea and other products more attractive to overseas buyers and have even increased demand. However, Sri Lanka cannot benefit from this increased demand, without increasing production, and it certainly will not benefit in any way from parties with vested interests meddling with a system that has functioned well, created wealth and lifted generations out of poverty for over a century.

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Business

PEOTV secures media rights for FIFA World Cup

Published

7 hours ago

2026/06/6

Priyan

SLT-MOBITEL PEOTV, Sri Lanka’s pioneering Internet Protocol Television (IPTV) service provider and leading digital entertainment platform, announced a landmark partnership with Fédération Internationale de Football Association (FIFA), securing the exclusive media broadcasting rights for the FIFA World Cup 2026™ in Sri Lanka.

The strategic partnership marks one of the most significant sports media acquisitions in the country’s broadcasting landscape, granting SLT-MOBITEL PEOTV exclusive rights to deliver every match of the FIFA World Cup 2026™ to audiences across Sri Lanka. Through PEOTV, PEO MOBILE, and digital platforms, football fans nationwide will have unparalleled access to the world’s most prestigious sporting event, ensuring they experience every moment of the tournament live, from the opening match to the final championship.

The acquisition of FIFA World Cup 2026™ rights represents another significant milestone in SLT-MOBITEL PEOTV’s continued investment in premium sports broadcasting. Over the years, PEOTV has built a strong reputation for delivering major international sporting events, offering customers reliable, high-quality coverage and enhanced viewing experiences through advanced IPTV technology. Viewers will enjoy the tournament in true High Definition (HD), delivering exceptional picture quality and an immersive viewing experience. Whether watching from home through PEOTV, on the move via PEO MOBILE, or through digital access points, fans can follow every defining goal and unforgettable celebration throughout the competition.

The FIFA World Cup 2026™ is set to make history as the largest edition of the tournament ever staged, with 104 matches featuring 48 nations competing across Canada, Mexico, and the United States. Expected to captivate billions of viewers worldwide, the tournament represents the pinnacle of international football and stands among the most celebrated sporting events on the global calendar.

Business

Ceylon Chamber expresses concern over new US labour-related tariffs and calls for urgent engagement

Published

12 hours ago

2026/06/6

Thilina Walpola

The Ceylon Chamber of Commerce is concerned by the announcement of new labour-related tariffs by the United States on several countries, including a proposed 12.5% tariff on exports from Sri Lanka. This development comes at a time when Sri Lanka was continuing discussions with the US following the suspension of the previously announced reciprocal tariffs and was seeking to secure a more favourable trading arrangement.

The imposition of an additional tariff on Sri Lankan exports risks undermining the competitiveness of key export sectors compared to other countries, which are at a lower rate of 10%. At a time when Sri Lanka is working to accelerate export growth, attract investment, and create employment opportunities, any increase in trade barriers presents a significant challenge. At present, key goods exports such as Apparel and Tea are down by 7% and 6% respectively in the first four months of 2026.

Sri Lanka has built a strong reputation as a responsible sourcing destination, with many industries adhering to high labour, environmental, and governance standards. The country has also made substantial progress in strengthening regulatory frameworks and promoting ethical business practices.

The Ceylon Chamber therefore requests the relevant authorities to engage proactively and at the highest levels with the United States to better understand the basis for the tariff and to present Sri Lanka’s case. Every effort should be made to secure a reduction in the proposed tariff and, ultimately, to seek its removal altogether. It is important that Sri Lanka seeks to return to the lower tariff band while continuing discussions towards achieving a more competitive and predictable trading environment.

Given the importance of the US market to Sri Lankan exports, timely engagement and clear communication on the way forward will be critical in providing confidence to exporters and investors. The Ceylon Chamber stands ready to support these efforts and work collaboratively with all stakeholders to safeguard Sri Lanka’s export competitiveness and long-term economic interests.

Business

Rupee weakens sharply against dollar as energy cost concerns resurface

Published

12 hours ago

2026/06/6

Thilina Walpola

The Sri Lankan rupee came under renewed pressure recently, depreciating significantly against the US dollar across several commercial banks, with the greenback’s selling rate reaching as high as Rs. 340 in some instances, triggering concerns among businesses, industrialists and consumers over the potential impact on inflation, electricity tariffs and the broader economy.

The latest depreciation marks one of the sharpest daily movements in recent months and comes at a time when Sri Lanka is striving to consolidate economic gains achieved through painful fiscal and monetary reforms.

Banking and financial sector sources said increased demand for foreign exchange, coupled with market uncertainty and rising import requirements, had contributed to the weakening of the local currency.

The development is expected to increase the cost of imports across a range of sectors, including fuel, pharmaceuticals, food items, industrial raw materials and machinery.

Economists note that while exporters may benefit from higher rupee returns on foreign currency earnings, the wider economy is likely to face increased cost pressures.

“The exchange rate affects virtually every sector of the economy. Any sustained depreciation inevitably filters through to consumer prices and business operating costs, a senior financial analyst said.

Particular concern is being expressed within the energy sector, where electricity generation costs remain closely linked to movements in the exchange rate.

Sri Lanka continues to rely heavily on imported fuel and energy-related inputs, all of which are purchased in foreign currency. A weaker rupee therefore translates directly into higher generation costs for the power sector.

Energy economists warn that if the depreciation trend continues, the financial burden on the electricity sector could increase substantially, potentially paving the way for future tariff revisions.

The issue has gained added significance amid ongoing discussions on Sri Lanka’s long-term energy transition and commitments to reduce dependence on coal-fired power generation.

Several energy experts argue that the country is entering a delicate phase where policymakers must carefully balance environmental objectives with affordability and energy security.

According to industry observers, the gradual move away from coal-based electricity generation—supported by international climate financing frameworks and policy reforms associated with multilateral lending programmes—could increase the country’s exposure to imported fuel costs unless sufficient low-cost alternatives are developed in time.

They point out that coal has historically provided relatively inexpensive baseload power to the national grid. While renewable energy sources such as solar and wind are essential components of Sri Lanka’s future energy strategy, experts note that large-scale storage systems and backup generation capacity remain costly and technologically demanding.

As a result, any future reduction in coal-based generation without corresponding investments in affordable alternatives could place additional pressure on electricity prices.

The latest weakening of the rupee further compounds these concerns.

“Every depreciation of the rupee increases the local currency cost of imported fuel, spare parts, equipment and energy-sector obligations. Ultimately, those costs have to be absorbed either by the utility provider, the Treasury or consumers, an energy sector specialist observed.

Industrialists have meanwhile warned that rising electricity costs could affect competitiveness, particularly among export-oriented manufacturers that are already operating under challenging global market conditions.

By Ifham Nizam