Closing on $ 5 b tea exports by 2020 doubtful: Industry

By Cheranka Mendis

The tea industry’s export target of achieving revenue of US$ 5 billion from the present US$ 1.5 billion by 2020 is an overly ambitious one that is likely to be impossible to achieve, Colombo Tea Traders Association Chairman Jayantha Keragala said on Friday at the association’s 118th AGM.

Keragala stated that the target set omposed by the Export Development Board (EDB) was “extremely remote, if not impossible” given the present circumstances and the many issues that have lined up, putting restraints on the industry.

He noted that clear strategising had to be devised to achieve such a target and that all stakeholders should keep an open mind, broad perspective and dispassionate attitude in determining the way forward in the best interest of the industry, instead of being inhibited by narrow sectoral perceptions.

Treasury Secretary Dr. P.B. Jayasundera who attended the event as Chief Guest commenting on the remark assured that only open minds generate these results, which would mean tripling tea industry earnings in eight years.

“We cannot do this by doubling our production and we probably may not have the capacity to generate a threefold increase in export volumes. If at all volume can only be increased by 2-3% in this kind of activity,” he said. “If the EDB guy did this right and if you are going to embrace this number, this has to be realised by tripling prices.”

That is, the industry should move from exporting tea at an average price of US$ 4.50 a kilo as done now to pricing it at US$ 15 a kilo. He stated that good marketing and manufacturing, quality producers, those who can find good markets and brand selves separately from other competitors, might be able to achieve this.

“Given the challenges the country faced in the past and the milestones crossed, I am optimistic that Sri Lanka can reach the US$ 5 billion export mark,” asserted Jayasundera.

He assured that based on the success stories seen from companies which have moved to value addition in tea exports, the US$ 15 average price could be achieved, leading to the final target. However, towards this end, it is vital that the plantations be young with professional and performing planters who are ready to adapt different plantation modules.

Keragala, listing out the constraints faced by the industry, noted that a key restraint was in the current package for plantation workers, at Rs. 515 a day, with an increase of Rs. 110 over the previous package negotiated two years earlier.

“Following the progressive breakthrough on the last occasion, the unions resisted any link to productivity in the current package. The average GE per hectare of the industry has remained virtually stagnant and continues to be the lowest of the major tea producing countries in the world.”

With labour being a significant component to the cost of production, this will affect cost adversely, he said. “This has contributed to the dubious honour of Sri Lanka’s tea industry having the highest cost of production in all producing countries.”

Replanting was named as yet another restriction point. Currently only 25% of the annual rate of replanting recommended for long-term sustainability of the industry is being achieved. An overwhelming reason for this is the significant escalation of the cost of initiation which is currently estimated at Rs. 3.2 million per hectare.

While the State does offer a subsidy of 250,000 per hectare for replanting, the availability of funding at reasonable interest rates required was questioned. The interval before returns could be expected on account of the prolonged gestation period of five to six years makes it commercially unviable.

Small holders accounting for 70% of the raw materials used in the production of the end product are also not inclined to replant their ageing tea bushes for the same reason. To a certain degree, the limited land areas without the benefits of the economies of scale would make it impossible for them to sustain themselves during the protracted period of gestation when monthly incomes would be severely impaired.

“Neglect on the part of small holders to undertake replanting as prescribed would eventually seriously impact the national tea production and measures by the State to assist in this regard are pressingly warranted. There is no time to lose. I earnestly appeal that the matter be given consideration urgently,” Keragala announced.

On the other hand, exporters face inequitable competition in the global market place. Despite the sharp currency devaluation in both tea producer and consumer countries, the Sri Lankan Rupee was maintained at a constant rate and the unforeseen political upheavals and sanctions in some regions and economic dilemma faced by many countries have negatively affected exporters.

Due to such issues the country has lost its status as the third largest tea producer in the world and the largest exporter of tea in the world less than a decade ago and has now been relegated to the position of fourth largest producer and third largest exporter.

Keragala said: “Fresh innovative thinking regarding the future is warranted as a matter of urgency to ensure we don’t drop further in precedence. A redeeming feature is that of all tea producing counties in the world, the value of Lankan tea exports earnings are still the highest. It remains to be seen for how much longer we can maintain this.”

With a large portion of local tea being exported to CIS countries and ME regions, the country must now be conscious of its vulnerability, the Chairman warned.

“With regard to the promotion and marketing levy which was introduced from November 2010, Cabinet recently approved the release of the accumulated funds, disbursement of which is to be determined by the Promotion and Marketing Committee of Tea Board.”

Dr. Jayasundera also added that the current arrangement of funding plantation was grossly unsatisfactory. “It is funny banking,” he said. “It has not developed despite two development banks operating in the country. And the plantation sector is not a very preferred sector as far as the banks are concerned.”

With the investment fund account gathering fair amount of capital base, measures could be devised to support long-term lending and enable sufficient gestation periods of at least three years until the new plantation gives return to business.

“We have also initiated discussions with the ADB, of which the mission just concluded for direct long-term funding for plantation sector development.”

To grow, the industry needs to get a high price tea of which average must be on absolute terms. For this the industry needs good cultivation practice, good productivity and technology coming in, skilled labour and different style of collective agreements or no agreements and better human resource management or different model altogether,” Jayasundera said.

Brand promotion targeting new markets must also be looked at. Unless markets are penetrated with specific brands, it is going to be tough to face competition, he said.