Dawn of a new era for Ceylon Tea promotion

Massive investment of Rs. 5 billion

The regulations gazetted recently under the Tea Board Law make it mandatory for tea exporters to contribute sum a sum of Rs.3.50 on every kilogram of tea exported from 1 November 2010.

This contribution will be utilised exclusively for tea promotion and marketing operations. This export levy is estimated to generate a fund of Rs. 5 billion (US$ 50 million) over the project period of five years.

By far, this is the biggest investment to be made by Sri Lanka on tea promotion since the tea industry was established in the 1870s. It is also the largest funding outlay on tea promotion by any other tea producing country in the world.

The concept of this new fund is creativity out of the box. It is a unique and novel experiment. The project was developed by Mahinda Samarasinghe, Minister of Plantation Industries and Susantha Ratnayake, Chairman, Sri Lanka Tea Board after extensive consultation and concurrence with all stakeholders of the tea industry.

As the contribution to the fund is made by the private sector, the programmes to be financed from the fund will be driven by the private sector. Likewise, the results of the implementation of the programmes will be monitored and evaluated by the stake holders of the tea industry. The Government’s role will be limited to that of a facilitator and custodian of the fund. This is a model of public-private sector partnership.



Major areas of investment

There are two major areas for investment on tea promotion, namely:

Uni-national promotion

Uni-national campaigns have been undertaken by Sri Lanka in various forms and phases for more than half a century since the days of the defunct Ceylon Tea Propaganda Board. The thrust of the campaign is to promote the demand for and consumption of Ceylon tea in the world markets. The results achieved in the past have been overall positive.

Undoubtedly, the popularity of Ceylon Tea in the world market has been founded and fostered by the efforts of the overseas Tea Promotion Bureaux. This has to be acknowledged. Equally, it has to be reckoned that there have been some costly blunders too.

The Tea Restaurants that were operated in several overseas markets in the 1950s to 1980s had been a drain on Tea Board funds without any compensatory benefit. Similarly, the continuation of the operation of Tea Board Offices in Pakistan, Cairo and UK when we did not have the product needed by these markets (CTC tea) had also proved to be another costly mistake.

The lessons learnt by past mistakes should guide in the formulation of future programmes. There should be professional inputs so that the pitfalls of the past could be avoided and the strategies needed for the future could be identified for implementation. There should be demonstrable return on the investment.

Brand promotion

Brand promotion is focused on the brand name and symbol attached to the product. Historically, tea was sold unbranded and dispensed directly from the tea chests. This form of retail sales of tea has been replaced by marketing the product under brand names.

Branding has now grown so strong that today hardly any product is sold un-branded. Branding provides the highest margin to Sri Lanka in the domestic value-addition operations.

Over the years, we have witnessed to our dismay, the inexorable trend that marketing a product by country of origin is receding and giving way to marketing it by brand identification. Branding has become the marketing tool of the future.



Should the new fund be deployed on uni-national or brand promotion ?

The prudent approach is to deploy the funds in equal proportions on both uni-national and brand promotion. Both should go hand in hand, supplementing each other. If a consumer is persuaded to buy Ceylon Tea due to uni-national campaign launched in a market, the product should be freely available in the market to enable him to pick up the brand containing Ceylon teas from his super market shelf.

Promotion and marketing operation cannot be carried out in a vacuum. To advertise Ceylon Tea without the product being available in the retail outlet is a waste of funds.



Loans instead of handouts for brand promotion

Hitherto, the Tea Board allocated funds to tea exporters as outright grants based on the performance of the brand. The amounts allocated for brand promotion have been negligible due to budgetary constraints. The recipients were few.

The time has come to move away from handouts. Instead, a loan scheme on concessionary rate of interest should be formulated to support brand promotion. The broad outline of the loan scheme could be as follows:

1 All exporters, big and small, should have access to the loan funds.

2 The loan scheme should be operated by designated banks. The Tea Board is not equipped to handle loan disbursements and recoveries.

3 The loan application should be routed through the Tea Board which will provide the bank with details of the applicants export and brand performances.

4 A fixed rate of interest of, say 8 percent, per annum could be paid by the Tea Board to the bank as a contribution towards the interest payment. The balance interest should be borne by the exporter.

5 The loan could have a grace period of three years to commence repayment of the capital and a further period of five years to complete the repayment of the loan.

6 The bank should be given absolute discretion regarding the granting of loan and the rate of interest to be levied from the borrower. These would depend on the credit worthiness of the applicant and or the security provided by him

7 A statement of the disbursements made from the loan for tea promotion should be submitted by the exporter, with copy to the Tea Board. This should be certified by the auditor. This would ensure that the loan has been expended on tea promotion.

If the scheme is properly implemented without bureaucratic bottlenecks and bank delays, it would go a long way to support the marketing of Sri Lankan owned brands containing Pure Ceylon Tea in the world market.



Evaluation of the results

The success or failure of the new tea promotion drive will be judged not on the amounts disbursed from the fund but on the results delivered. To build the confidence and trust of the stakeholders who are funding the scheme, there should be total transparency, accountability and financial propriety in all the transactions.

More importantly, there should be regular evaluations by independent persons to ascertain the benefits derived, to justify the continuance of this export tax.



(T. Sambasivam was a long-standing Deputy Director General at the Sri Lanka Tea Board whilst he also worked previously as an Accountant at the Ministry of Finance. Currently, he is a Group Consultant to a leading tea firm in Sri Lanka.)