INSTABILITY IN AGRICULTURAL EXPORTS: DETERMINANTS OF INSTABILITY OF SRI LANKAN TEA EXPORTS

Abstract

Developing countries exports fluctuate more because it comprises mainly of agricultural
products which have an unstable supply. Unstable exports tend to destabilize the income of
these countries as long as export earnings constitute a significant proportion of GNP, which has
serious economic and social implications. This study analyzed the export instability of tea from
Sri Lanka to look into the causes for instability in the quantity, price and export earnings from
tea exports. The study used secondary data of the Sri Lankan tea exports for the period 1961 to
2012. It is concluded that export instability is mainly due to geographical concentration of
exports, exchange rate, and the quantity of tea produced. Instability of tea export prices was
significantly affected by the geographical index, while changes in the average export value of
tea were influenced largely by the changes in the mean export prices and mean quantity of tea
exports. Instability in quantity of tea exports, earnings and prices implies the need to take
stabilization measures such as trade or commodity agreements. Tea export earnings and export
quantity fluctuations can be mitigated by increasing the volume of exports to more export
destinations or new markets.