Dlimah’s Malik responds to MTI Consulting’s Hilmy

In reference to Daily FT page 1 article on 8 September  titled “Lanka needs to watch out Kenya’s tea hub move” — MTI” the Dilmah tea fame MJF Group Director Marketing Malik Fernando had issued a response to MTI Consulting CEO Hilmy Cader with copy to Daily FT. Here are excerpts:

I refer to your recent release to the newspapers alerting policy makers and the general public that Sri Lanka ought to watch out for Kenya’s tea hub plans. Your interest in the well being of the export segment of the Sri Lankan tea industry is commendable.

You say, “Our associates in Kenya have informed us of a tender by the Tea Board of Kenya to carry out a study of the value-addition feasibility in Kenya and this obviously shows that they intend to set up a tea hub”.

You add, “Although we do not intend to pitch for this consulting tender, it clearly shows their strategic intent.”

By tea hub, I assume you mean importation of lower cost foreign teas for blending and packaging, consistent with your comments at other fora.

As you may know, Kenya has been for decades the auction centre for other East African teas, which share similar characteristics.

Your comment that, “the current economic crisis in the USA and Europe will also drive customers and consumers to look for better value and Kenya stands to benefit from this,” presumably means that Kenya intends to import cheaper foreign teas to be able to offer lower cost, packaged teas, as opposed to Sri Lanka’s single origin, premium positioning developed over the decades.

I would beg to ask you how you arrived at these views about Kenya’s intentions. Cursory research on the internet proves quite the opposite.

The 25 August 2011 article (Kenya: Tea Board eyes processing zones to boost earnings published in Business Daily, Nairobi), refers to the Kenyan Tea Board looking at a processing zone to boost earnings, to address the fact that only 12% of its tea is exported in value added form.

It says that although Kenya exported 15% more tea in volume than Sri Lanka in 2009, Sri Lanka earned 76% more than Kenya due to value addition.

The article says, “Kenya has been unable to market her tea as a premium brand since it is exported in bulk and used for blending with poorer quality tea,” and that the new initiative “was meant to add value to tea and tap higher earnings from exports to more discerning customers.”

The tea hub you tout is the polar opposite of the recent views of the Kenyan Tea Board. You propose a move towards “value” customers and to blend with poorer quality tea, which Kenya seeks to move away from, as stated by Tea Board of Kenya managing director Sicily Kariuki in the article. The article further states “Kenya exported 410,035 tonnes of tea last year valued at Sh91.6 billion, up 33.2 per cent. Export of value added tea has increased to 12 per cent of total volume compared to five per cent two years ago.

This is largely attributed to TBK’s efforts to promote local tea. The government has already audited 31 tea-exporting companies to ensure that they export 100 per cent branded Kenya tea to world markets, especially the new ones in South East Asia.

In another article titled “Tea Board of Kenya picks KEBS for mark of origin implementation” published in www.webaraza.com) dated 3 June says “Tea Board of Kenya picks KEBS for mark of origin implementation setting the stage for the authentication of pure premium Kenyan tea in the local and global markets.

 Tea sector regulator Tea Board of Kenya has appointed the Kenya Bureau of Standards (KeBS) as an implementation, audit and surveillance partner in the ongoing effort to formally implement a globally recognised mark of origin for Kenya tea.”

It further says: “The Kenya Tea mark of origin will be used to identify and promote Kenya Tea and is also geared at supporting the efforts of stakeholders in branding Kenya Tea in the local and international markets.” The Chairman of the Kenya Tea Board is on record as saying: “Kenyan tea is globally reputed to be of the highest quality, flavour and rich colour which are rare brand attributes that we must jealously guard through the Kenya tea mark of origin.”

The article goes on to say “the TBK has for the last two years been developing the mark of origin for Kenya tea in consultation with stakeholders.

The mark will be used on retail packages containing 100% pure Kenya tea. Already, the design for the mark has been registered with Kenya Industrial Property Institute (KIPI) alongside the implementation mechanism while the international registration process is well underway.”

Clearly Kenya is trying to take a leaf from Sri Lanka’s book and export more value added premium 100% pure Kenyan tea.

In fact, they are adopting the identical strategy that Sri Lanka has been following which you propose to move away from.

I don’t see in these Kenya Tea Board statements any reference to importation of cheaper China, Vietnam and other origin teas per the tea import hub you propose for Sri Lanka.

The only hub one can see from the Kenyan Tea Board’s statements is a value adding, premium-positioning hub, not an import hub.

Hence I fail to understand how you arrived at your “obvious” conclusion.

To me it appears mischievous, unethical and intended to mislead. There is also a possible conflict of interest considering your recent assignment for the Sri Lanka Tea Board, whose clearly stated objective is to protect and nurture pure Ceylon tea.

It is also ironic that MTI, having proposed creating a Post Graduate Diploma in Tea Strategy & International Marketing, to address the need to train people away from trading tea and move to market and brand build, you now propose a value product/cheap tea importation strategy which is firmly rooted in trading.

The only “obvious” thing to me is that abandoning the Pure Ceylon Tea premium strategy, when our biggest competitor is about to emulate us, is foolhardy. In light of the above, I would strongly urge you to reconsider and bid for the Kenyan Tea Board tender. If you are able to convince them to make a U‐turn, that would be a singular service to the Sri Lankan tea industry! Having said all this based on publicly available material, if you can send me the “obvious” data by which you come to your conclusion, I would immediately withdraw what I say above and tender a formal apology as to the accuracy of your urgent observations on Kenya’s intentions and the risks they pose to the Sri Lankan tea export industry.