STRUCTURAL BREAKS AND MARKET DYNAMICS IN THE SRI LANKAN TEA INDUSTRY: A CHANGEPOINT-BASED ANALYTICAL APPROACH

Abstract

This study reveals the structural and forecastable dynamics of tea prices in Sri Lanka following significant macroeconomic shifts. Focusing on Gross Sales Averages (GSA) for Low Grown (LG) Elevation, High Grown (HG) Elevation, and Western High Grown (WHG) Elevation teas, the paper applies changepoint analysis to identify structural breaks in price patterns and uses average-based forecasting models to predict. Forecasted accuracy is around 10%, mostly less than 5%. The study further explores the effect of the global tea market on the Sri Lankan Tea market with sold quantities at Colombo auctions, supported by production data and cost of production (COP) benchmarks. The changepoint was found in April 2022 for LG and HG, while the changepoint was found in June 2022 for WHG, which explained the Ruppe depreciation. The paper provides actionable insights for stakeholders navigating post-shock price behaviour and informs auction planning, export strategies, and production policies. Global tea consumption is projected to reach 6,300 million kilograms in 2025, with a Compound Annual Growth rate (CAGR) of 1.14% from 2019 to 2022. Additionally, based on a CAGR of 1.01% from 2018 to 2021, global tea exports are anticipated to reach 2,000 million kilograms by 2025.