What’s brewing in our tea cup?

By Cheranka Mendis

The tea industry, now established as a billion dollar industry in export earnings, a target which seemed elusive for many years, has had an outstanding recovery in 2010 from the despondent performance of the preceding year and is looking forward to better times ahead.

Sri Lanka, which occupies the third position behind Kenya and China amongst global tea exporters exceeded, Rs. 155 billion in earnings in 2010, equivalent of approximately US$ 1.4 billion, which surpassed the earnings of all others to the credit of the local industry.

With better brewing expected in the future, former Chairman of Colombo Tea Traders Association (CTTA) Avindra De Silva speaking at the association’s 117th Annual General Meeting held last week noted that if the industry was to achieve the level of export earnings which has been projected in terms of the country’s economy, swift and tangible steps would have to be taken. Ceylon tea also accounts for 300,000 metric tonnes in a total global export volume of 1.7 million metric tonnes of tea.

 Success of 2010

 The year 2010, which saw the trade bouncing back to life after a dismal period the previous year, came about due to no small steps by any individual parties but a collective effort of all stakeholders, De Silva said.

“If the smallholders had not paid greater attention to the standard of the green leaf they supplied for the manufacture of over 75% of the country’s tea production, if the processing factories had not developed and upgraded their facilities and adopted the best manufacturing practices and if the Regional Plantation Companies had not shown the high degree of professionalism and sensitivity to the needs of their large work forces, the success would not have come our way,” De Silva said.

If the brokers as the intermediaries between the producers and the exporters had not fulfilled their role efficiently and striven to generate the optimum prices in the auction, the exporters would not have been able to realise these exceptional results, he asserted. He also observed that exporters played an important role during the rebound period.

“Due to their concerted efforts in efficient marketing in the face of fierce competition from other key producing countries and the progressive conversion to tea bag consumption globally, the exporters were successful in selling Ceylon tea in increasing volumes to consumers around the world.” The exporters’ perseverance and fortitude sustained the market share for the orthodox black variety of Ceylon tea against the inroads being made by CTC, tea bags and green tea, through imports of essential and speciality varieties for re-exports in value-added form.

“Notwithstanding the support they received from all the other sectors of the industry, this is a tribute to the branding and value-addition initiatives of the exporters over the years.”

 Unity is not a possibility

 De Silva, admitting that the industry was oftentimes criticised by the legislators, bureaucrats and other parties on the lack of unity and consensus among industry holders, stated that despite attempts, reaching consensus on a consolidated vision is not an achievable goal.

“The criticising has been the cause of much agonising amongst those responsible for strategising and policy advocacy in the industry. We therefore set about designing a vision for the holistic development of the industry to meet future challenges. However, the more we delved into it, the more we realised how disparate the concerns, the aspirations and the objectives were of the various stakeholders,” he said.

“Each had its own distinctiveness, which precluded any realistic prospects for synergism. Whilst the various sectors interact closely with and depend on each other for their existence, it was apparent that reaching consensus on a consolidated vision was not an achievable goal.”

 What’s to come?

Even though record achievements were registered in 2010 in production, yields, auction and export prices, export volumes, value addition and consequently export earnings, De Silva claimed that prospects for 2011 were not as encouraging as they should be.

“Although 2010 was good year, a distressing factor is that cost of production also reached its highest-ever level by a percentage rate higher than all the other accomplishments,” he pointed out. “Taking into consideration the recently-negotiated wage package with the plantation unions, which sadly reversed the breakthrough achieved on the last occasion, linking an element of productivity to the wages, and the enhanced electricity tariffs introduced in the last budget, apart from the impact of the inflationary tendencies on all other costs, the prospects in this respect for the current year are certainly not encouraging.” However, the industry has potential to grow and develop particularly with the continued development in brand marketing supported by the well-established infrastructure for value addition. This will lead the industry towards progressive expansion of exports in value-added form and other innovations.

 Industry standards

De Silva acknowledged that in 2010 CTTA decided to develop an industry standard to establish a distinct identity for ‘Ceylon Tea’. In the face of growing demands of consumer countries for compliance with varied regimes, the need for such an initiative was key, he said. “Vital aspects of these regimes such as the Rain Forest Protocol and the ETP principles will be captured where practicable to make this standard inclusive.”

The final outcome of the standard is intended to be launched at the International Tea Convention, in order to attract wider international exposure. The Industry Standard for Ceylon Tea will form one segment of the Convention Programme, judiciously merged into the programme to complement the main theme, he said.

 Promotion of Ceylon tea

On the subject of promotion of Ceylon tea, De Silva said that the sector had not received the due recognition over the past years with the industry being denied access to funds collected through the cess for promotional initiatives.

“As a result of the introduction of a Promotion and Marketing Levy in November 2010, the implementation of which was not viewed with great favour by the trade at the time, a sense of optimism and expectancy in the future is envisioned. Judicious investment of adequate funds in brand marketing and other promotional endeavours, with emphasis on value addition, is critical to hold prices at an equitable level and for the sustainability of the industry in the long term.”

As beneficial as ‘Ceylon tea’ may have been as a brand in the past, it cannot sustain itself on its own in the global market place, in the face of growing intensity in competition and the ever-changing expectations of consumers, De Silva outlined. “We have to be sensitive to consumer preferences and aggressively equip ourselves for the further development of brand marketing. This would also mean keeping an open mind to the importation of mainstream and speciality varieties of other origins and their re-export in value-added form. In doing so, there can be no compromise in maintaining high quality standards right through the supply chain, from finer plucking in the field up to the finished product at the point of export.”

With love from Russia?

Russia’s on-shore packaging industry, which is expected to continue to moderate its value-added imports, will pose a threat to the local industry. Sri Lanka must therefore develop the right kind of strategies to identify and penetrate new markets with Sri Lankan-owned brands to ensure that the volume of value-added exports is at least maintained and the value of our exports is not on a decline.

De Silva also warned that the repercussions of the recent tumult in the West Asian and North African regions which are currently impacting the industry are likely to build up. This could have progressively negative effects in various spheres of the tea industry. “We have to brace ourselves for this and be prepared with pre-emptive measures.”

 Gaps in the system

De Silva was also quick to point out that the existing system had a few deficiencies which could in the future place the industry at a serious advantage. The unavailability of accurate statistics takes top priority among the loopholes in the industry. The industry, which has access to information via Customs, was recently informed that the data for 2010 was not available.

“This is a significant setback for the entire industry. The importance of the availability of accurate statistics in real time on both production and exports and all the analytical connotations that may be surmised from them is vital to every sector of the industry,” he said.

Proper information provides the opportunity to evaluate performance and project future strategies in a judicious manner instead of depending on hypothetical deductions based on trends of previous years and on intuition.  “The tea industry is too volatile for that type of analysis. I appeal to all relevant State institutions to develop facilities which would be able to provide the industry with such vital information, speedily and accurately,” he requested.

 Brownie points for the industry

Commenting on the plus side of the sector, De Silva acknowledged that the Colombo Tea Auction was the world’s largest single-origin tea auction and that it was widely acknowledged as a model auction by the global tea industry for its professionalism, efficiency, transparency and optimal competitiveness.  

“The CTTA has been associated with the Colombo Tea Auction and its management, continuously, for the past 117 years and has been responsible, in the main, for the development and the regular reviewing and updating of the by-laws under which it is conducted.”  As an ongoing initiative, the CTTA Committee effects ad hoc modifications to specific by-laws in isolation to meet particular exigencies. “However, periodically a group of senior and experienced members of the trade drawn from all relevant stakeholder sectors are appointed to review the by-laws in their entirety to ensure that their interconnected implications which may have got progressively distorted as a result of restrictive analysis are reinforced and restored.”

Currently such a team has completed its assignment and its recommendations are being vetted by legal counsel. He stated that the next step was for the recommendations to be studied by the committee and then submitted for ratification by the Ceylon Chamber of Commerce.

- Pix by Indraratne Balasuriya