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Sunday, April 4, 1999 Published at 22:45 GMT 23:45 UK

World: South Asia

Help for Sri Lanka's tea industry

The price of Sri Lankan tea has fallen by 25% since last year

Sri Lanka is setting up special loans to rescue the country's tea industry, which is near bankruptcy.

With the cost of production exceeding the average auction price, many factories have been unable to pay the farmers who grow the crop. Most Sri Lankan tea - better known by the country's previous name Ceylon - is produced by 500,000 small-time growers who sell the green leaves to larger factories.

Factory owners say that the government has now agreed to give them loans at a "concessionary rate" so they can buy the green leaf.

Each factory is to be offered up to $100,000 to meet the urgent need for capital. The loans will have to be paid off within two years.

Interest rates have not been worked out so far, but they are expected to be lower than market rates.

'Too little, too late'

A spokesman for the Association of Tea Factory Owners said the offer was too little and too late. However, he said they would take it anyway because growers need to be paid before the traditional Sinhala and Tamil New Year on 13 and 14 April.

Malinga Guharatne: "There is no ready cash"
Tea factory owners say that it is only a revival of tea sales that can really lift tea prices.

The association also wants the government to ease restrictions on the factories, so that market forces can determine the price of tea bought from the growers.

The government has been regulating the factory owners by insisting on a formula to pay the growers, but the system was unrealistic, the spokesman said.

Rouble crisis

Tea prices have fallen sharply because the Russians, who used to be the main buyers of the commodity, are drinking less because of the rouble crisis.

Prices rose last year because the Russians bought heavily from Colombo's weekly tea auctions.

But with the collapse of the rouble, they stopped buying in bulk and tea prices began to plummet.

Sri Lanka is the world's largest exporter of tea. Nearly two-thirds of last year's production came from small growers.

Tea council

There are plans to establish a tea council for the industry in South Asia later this year. The council would enable producers in India, Bangladesh and Sri Lanka to pool their resources for research and development, trade bargaining and global marketing.

The Indian industry has been hit by the imposition of additional excise duties, and by a severe drought in the country's tea producing areas. The latter is thought to have cut production in the first four months of the year by 50%.

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