Tea exports to strengthen the trade balance

Sunil Karunanayake

At a post annual report discussion held at the Central bank in 2011 director of economic research of the Central Bank In her presentation stated that Government intends setting up tea blending operations in Sri Lanka to boost exports and the likely site could be from Trincomalee.

This seemed good news for the Sri Lanka tea trade for providing way for import of teas from other origins to be reblended in Sri Lanka for re-export with imitations of tea crop. Though this is already taking place in limited scale at present scope for these operations are vast. In 1982 then Minister of Trade took the initiative to amend the legislations and proceeded to pursue import of tea for reblending and export

Ever since James Taylor planted the Tea Plant in Looecondera Estate, tea has continued to be a significant source of foreign exchange earnings. At present tea export fetches nearly US$ 2 million ranking immediately below Garments. Despite Government take over’s, insurrection led destructive efforts tea has remained as the leading agricultural export. Now that the Government has set themselves a US$ 20 billion target for export earnings by year 2012, it is ambitious realistic and needs to be pursued.

Country’s tea exports and production remain around 300 m for a number of years, limitation of land, labour shortages trade union action has been the key factors contributing to this scenario. Way back in 1982 then Minister of Trade seeing this situation pursued his efforts to promote Sri Lanka as tea blending centre and necessary legislation was introduced. The scheme worked moderately with the active participation of the newly established export development board and the Sri Lanka tea board. This scheme was not much welcomed by certain sections of producers who were apprehensive to the fact such imported teas would eat in to their share in exports. As a matter of fact low grown tea producers sensed import of tea as a threat. In 1994 authorities clamped down the import of orthodox teas from other origins, this however did dampen the country’s tea blending activity.

Today tea blending, using teas of different origins is taking place at a brisk pace in leading centres like Rotterdam, CIS, and Dubai and any more. Multi origin blending is now a key activity among the leading packers in the world. It is no secret that many Sri Lankan entrepreneurs have set up off shore reblending in certain strategic locations. What is critically important is for the tea board to strictly monitor tea imports to prevent unauthorised leakages.

Given the current macro economic imbalances and the need to build up reserves to develop stability country must necessarily enhance exports as well as foreign direct investments to face the future with confidence; hence development of exports takes is undoubtedly a priority.

Packaging and blending was predominantly handled by blenders/packers in leading locations like Europe. In the latter part of the 20 century these multinationals for economic advantages moved their tea packing to the Asian/Arabian region where consumption of tea is high. Having evaluated three possible locations for blending and packaging they decided to establish a Tea blending and packaging unit in Jebel Ali Dubai. This process facilitated tea supplies to be moved to consuming nations in the east such as Saudi Arabia and so on.

Sri Lanka too was a beneficiary from Dubai operation in a small way as some volumes were packed in the Unilever’s Lipton plant at Mabole. It is no secret that number of Sri Lanka packers exported volumes of Ceylon tea blended with teas of other origins within the regulatory conditions. Other origin teas are being used to lower the blend costs. Given these facts it can be clearly stated that the fear for tea hubs as unfounded. Exporters believe that cheap imported filler teas could substitute as a component in a local tea blend. Ceylon teas are of premium value hence for a blend using an element of cheap fillers is understandable. As a matter of fact most leading global packers in this way ensure that consistency of blends is maintained irrespective of the packing location.

The bigger problems rest with producers that are now dominated by 22 regional plantation companies. As elaborated by the planters association today’s production costs have far outweighed the auction prices in addition to large plantation community being resident in estates with many facilities such as housing, medical, healthcare and so on, being provided by the employers with no additional cost. This problem is much less in low grown plantations as majority of the workers not being resident in the estate. Despite prices not improving the wages are increased in a disproportionate manner owing to the existing collective agreement provisions. It is of critical importance to look in to the burning issues of the plantation sector that will go a long way in boosting the quality and price of tea exports. This will also enable overall tea export values to be enhanced in keeping with Government’s expectation of achieving US$ 20 billion export earnings for 2013.

The author Sunil Karunanayake is a fellow of the Institute of Chartered Accountants SL CIMA UK and, CGMA (USA) and a MBA of the Post graduate Institute of Management of University of Sri Jayewardenepura. He is the author of book ‘Business and corporate affairs’ that was released recently.