Tea tales

2012 unlikely to match up to 2011 tea revenue; stakeholders’ voice uncertaintya

By Cheranka Mendis

The tea industry which brought in revenue of approximately US$ 675 million within the first six months of this year – US$ 50 million below the revenue collected in the same period in 2011 – is likely to fall short of the total earnings of US$ 1.5 billion recorded last year.

While the rupee depreciation was the main cause of the woes for tea exporters, sanctions imposed on Iran, internal crisis in other Middle Eastern countries, mainly Syria and the Euro crisis has had a telling effect on exporters.

To keep the home fires burning, exporters have entered into risky contracts with importers in the troubled economies and are now looking at the Government to support their proposal of a ‘tea nation’ or ‘tea hub’ and are awaiting the flag-off of the Ceylon Tea promotion campaign.

Handing over the reins of Tea Exporters Association (TEA) to Rohan Fernando, Chairman of HVA, at the association’s 13th AGM, Immediate Past Chairman of TEA Niraj De Mel on Friday noted that the industry must now gear up to face testing times with competition rising, trends of tea consumption changing and trouble in the world economy.

“From Q2 last year, so far it has not been an easy run for the industry,” De Mel said. “Given the numbers we have received so far it is highly unlikely that we will touch last year’s figure in revenue.”

The current scenario

Even though 60% of Sri Lanka’s tea exports are to some extent sent in value added form, during the first six months of the year local tea bag exports fell by two million kilos against the same period last year. He noted that measures that were put in place to dissuade bulk tea exports have worked contrary to the norm, creating ripples in the industry.

“We also believe that the depreciation of the rupee came a trifle too late. Unfortunately the timing of the rupee’s depreciation against the US$ did not give the desired returns to the producers and growers due to the cost increases which more or less negated the gains in rupee terms,” he added.

The only good thing that happened, even though briefly, was the return of Egypt and Pakistan, countries thought to have left Sri Lanka for good. This was due to the higher prices called for Kenyan teas as against Ceylon Tea. The current global shortage has however made Ceylon Tea more expensive and these countries have gone back.

Changing times

De Mel admitted that it was now time for the industry to come to terms with the fact that consumer tea drinking habits have changed over the years and more rapidly in the last decade.

“There is a perception that there will be takers for what Sri Lanka produces. Then there is the misconception that as we produce the best, we must get the premium for our tea. We have come away from the lavish spoons of leaf tea brewed in a pot of boiling water to a two gram bag in a cup or mug to ready to drink or ice tea in bottles. What would it be tomorrow?”

Even though Ceylon Tea, the largest producer of orthodox tea, has survived so far when CTC teas are considered better suited for tea bags, the question remains as to how much longer the country can survive against competition.

The changes in the predominantly orthodox tea drinking Middle East in the last five years in addition to the changes taking place in Russia are warning signs for local tea exporters.

“We need to look at where the demand is concentrated today both in Colombo and globally. It is now at the lower end of the scale,” De Mel said. “The time has come to tailor-make what the consumer wants.” To do this the industry needs to take stock of their strengths, accept weaknesses and capitalise on the opportunities.

What the Government should know

International market needs are diverse, he cautioned. To meet the needs, there is no cohesive plan in the industry as at now. “Policymakers talk to stakeholders individually, but never together; naturally therefore there is no vision or strategy for this age-old industry.”

He also acknowledged that long before policy makers began to note the need for branding and value addition, most of tea exporters were putting in huge investments made on advertising, promotion and tea bagging machinery with no assistance from the State, particularly in the last five to seven years.

“Government officials and bankers have also advised us to look for new markets without relying on countries facing political turmoil,” he said. “In the backdrop of fierce competition, particularly from newer tea growing nations, looking for new markets is something we do all the time. It is easy to dump the existing ones but difficult to find new ones. Moreover, replacing existing volumes overnight through new markets is a daunting task.”

Ceylon Tea promotion campaign

De Mel assured that a staggering Rs. 2 billion had been collected since November 2010 for the Ceylon Tea promotion campaign. He stated that members had actively engaged in the deliberations to formulate the criteria for selecting an agency over the last one-and-a-half years, which is now at its concluding stages. “We are awaiting approval from the cabinet appointed sub-committee.”

“As far as I remember there has never been such a large sum available for promotion of Ceylon Tea,” he said. “It is our hope that the chosen agency will do justice to ensure that the desired objectives are met and that Ceylon Tea returns to its original position to being the preferred beverage worldwide.”

Tea hub concept

Following the ambitious target set by the EDB for exports to reach US$ 20 billion by 2020, the tea sector has been driven to aim for a US$ 5 billion by 2020. The question however is whether the country will have sufficient tea to reach the target, hence the proposal of tea nation or tea hub concept.

“The objective is to harness the potential of Sri Lankan tea exporters to go after a bigger share of the world tea market through indigenous brands.”

He noted that the proposal is currently with the subcommittee appointed by the Sri Lanka Tea Board Chairperson under the instruction of the Plantation Minister.

Listen to TEA

However, tea exporters are the interface with the international tea market and as such are best equipped to advice how the country should gear itself to the many challenges and changes taking place out there, De Mel commented, “not those who have suddenly got a fresh infusion of patriotism and know nothing about tea and marketing who join the large number of critics”.

“I wish to emphasise that the survival of the members to a large extent depends on the sustainability of the Sri Lanka’s tea industry. Therefore as a responsible stakeholder, TEA will continue to put forward proposals that have the potential to bring long-term benefits to the industry.”

The vision is to make multinationals from Sri Lankan indigenous brand owners.