Sri Lanka’s tea industry a model to the world – Athukorala

Address to the 2010 Global Tea and Coffee Convention in Dubai

At the 2010 Global Tea and Coffee Convention staged in the iconic World Cup horse racing venue of the Jumeirah  Meydan  in Dubai, Rohantha Athukorala, who holds multiple director positions in the private and public sector, voiced that Sri Lanka’s tea industry – just like any other agricultural crop – had to manage many variables,

some within the control of the industry whilst some totally outside the realm of authority, but had become a model to the world with strong industry leadership.

One of Sri Lanka’s most sought after business speakers, Athukorala  said that Sri Lanka’s tea industry was a lesson to the world on the unique Private-Public-People (PPP) approach where 300 high quality kilograms of tea are produced, commanding a premium price that no other auction has been able to attract.  

An effective worldwide distribution network makes Pure Ceylon Tea available to around 130 countries globally, catering to over half a billion people annually, a feat that no other country can boast of, said Athukorala, to a packed audience across the value chain from Rwanda, Kenya, Sri Lanka, India, Vietnam, Indonesia and China.

He told the conference, attended by over 500 delegates from across the world, that the certification of Ceylon Tea, being the only country to be globally certified as being ozone friendly, was an indication of the strong commitment of the Sri Lankan tea industry to global warming, which pegs the country as the tea nation of the world.

Athukorala, who chairs the value added Tea Advisory Committee of the Ministry of Trade and Commerce in Sri Lanka, addressing the global delegates on the current state of the tea industry and future trends globally, commented that tea in general was earning a perception of being a smart and natural health drink and had the potential to increase its global share of throat from the current 27 to 30 billion dollars, provided there was no issue on the supply chain.

He pointed out that excluding China’s production last year, the global market was at a shortfall of around 30 million kilograms of tea and this needed to be managed if the tea industry was to be a 30 billion industry globally.

This can only be done if proper agricultural practices are followed around the world with the development of new products globally, he said, adding that the latest was green tea ice cream, which the world had seen in the Japanese market, which was an indication of the closeness to consumers that the industry was striving to achieve.

However, he cautioned the industry of the new trend seen where international supermarket and hypermarket chains are entering emerging markets  targeting the  middle to lower socio economic consumer groups who are in fact upgrading their lifestyle from the general trade to hypermarkets, whereby the retailer becomes a key decision maker in the purchase decision. This is creating a power shift and bargaining power which brand owners must be cognisant of, said Athukorala.

The challenge in this new development is that allocation of shelf space will be based on off take, share of voice on media, share of promotions and credit terms, stock turnover which is a huge shift from traditional relationships that have been practiced over the years, commented Athukorala — which means a new business model needs to be introduced with a strong key account management organisation structure.

A brand owner of today must be ready for a higher entry cost such as paying for shelf space, higher trade margins and lower marketing margins where consumers have a general affinity to retailer – at the expense of the brand owner, said Athukorala, being a brand marketer by profession.

On a broader sense, the speaker asserted that many scientists were researching the various health benefits of tea, including reducing the risks of cancer, whilst specialty teas are a quickly expanding subset of global tea consumption and in fact had outpaced regular tea in countries like Canada whilst in the United States approximately 85% of tea was consumed as iced tea with the competitor being sodas and water; an interesting development on the concept of share of throat, he asserted.

The speaker said that the recessionary and inflationary pressures had led consumers to seek greater value for money but even with the global economic downturn the demand for tea continued, which was a healthy sign given that it had “become a habit that one cannot forego for financial reasons”.

“This is the power of tea in the world stage and it is up to the brand marketers to make it a 30 billion dollar industry within the next two years,” he added.

Globally tea prices have surged as consumption growth has outpaced the increase in production by 3.4%. In some developing markets like Russia, demand has shifted from more fashionable and expensive drinks to traditional, lower-quality tea that has put pressure to develop new business models like the use of multi origin teas.

On the other hand, in developed countries, gourmet tea has been an “affordable luxury” and sales have remained strong. The 2,600 specialty tearooms in the US are growing; but soft drink consumption is still huge despite some resistance due to association with obesity and diabetes resulting in a decline in usage, said Athukorala.

Sharing some thoughts on the broader beverage market, he said water was moving to a new domain, becoming flavoured and fortified with vitamins, whilst sports drinks are marketed to athletes as energy drinks with massive amounts of sugar and caffeine along with guarana, ginseng and taurine. Then, there are drinks as “energy shots” offering concentrated caffeine and other chemicals to provide instant boosts of energy, which are the new forms of competition with which the world of tea is challenged.

Some of the other speakers featured at this year’s conference were Tracy Allen, the CEO of Brewed Behaviour USA, who spoke on ‘Unique Value Propositions in the Tea and Coffee Industry,’ coffee expert Shawn Hamilton and Anthony Butera – the Director-General of the Rwandan Tea Authority – who gave some finer tips of the Rwandan experience on tea tasting; whilst Koren Thurnbern, the Regional Director Kempinsi Hotels for Middle East and Africa, highlighted on building a business and holding on to people. Manish Sharma, Director Promotions of the Tea Board of India in UAE, spoke on Indian tea and what sets it apart globally.