• New 20% US tariff gives SL a 5% edge on India but a disadvantage against Kenya and Malawi
• Industry must now compete on quality and branding to offset higher prices and maintain US market share: TEA

While Sri Lankan tea benefits from a 5% advantage over Indian tea with the United States’ (US) tariffs to be levelled on 7 August, African teas from Kenya and Malawi will compete at lower rates with Kenya adhering to a 10% baseline tariff and Malawi a 15% tariff, according to Sri Lanka’s Tea Exporters Association (TEA), responding to The Daily Morning Business.

“Although we will have a 5% advantage over India, we have a 5% disadvantage with Malawi. The 10% tariff gap (with Kenya) could affect our tea bags export to the US as most Kenyan CTC teas are going for tea bag blends,” the association said.

More assuredly, the association added that Sri Lanka is on par with Vietnam, Indonesia and Taiwan, its other tea competitors. “In the past there was no duty on tea imports from all origins.”

In countries competing for a share of the US tea market, India is to be levied the highest with a 25% tariff, Sri Lanka, Vietnam and Taiwan a 20% tariff, Indonesia 19%, Malawi 15% and Kenya 10%.

Ceylon tea at present commands a higher price within the segment due to its premium quality and legacy brand.

“Sri Lankan tea prices are comparatively higher than other tea producing countries, going by at least $ 1-1.5 per kg,” the statement said.

The association added that with the price increase, the already high-priced Ceylon teas are to be priced at higher rates.

“Under the zero duty it was not a big issue but with a 20% duty it could make a significant difference in pricing.”

Furthermore, it added that Ceylon teas may have to compete on product quality, branding and marketing rather than the tariff rate competition.

“So in the future the competition could be on the product quality, branding and marketing, rather than on the tariff line as far as middle and upper segments of the tea market are concerned.”

Reiterating their sentiment on Kenyan teas, the association said: “Kenya is a major supplier of CTC tea to the US compared to orthodox tea by Sri Lanka. Kenya is gradually increasing its orthodox tea production and could be a strong contender for Sri Lanka in the long run with the 10% tariff advantage.”

Referencing the tea orders that were suspended amidst the tariff announcement in April, it said that all suspended orders were cleared when the baseline 10% tariff was introduced for the 90 days period.

Crucially, the association said that if the segment is to remain competitive in the US market in the future, it is to compete on value-addition, such as incorporating certain ingredients and spices, urging the government to raise bans on imports to enable manufacturers to import needed ingredients.

“Tea producers in Sri Lanka have an important role to play if we are to remain a competitive player in the US tea market. Sri Lanka should improve the quality of tea and also concentrate more on value addition to overcome the tariff threat. The government should encourage more value addition in tea by lifting the ban on import of certain ingredients and spices for value addition and re-exports,” the association said.