Tea exporters urge:

Make Lanka a global hub

by Gamini WARUSHAMANA

A fundamental shift in the global tea trade is threatening the strong position of the Ceylon Tea in the global market, the Tea Exporters Association warned.

The chairman of the Tea Exporters Association Jayantha Keragala said that this new trend has posed a great threat to the tea industry and Ceylon Tea will lose its global image and will end up as a bulk tea supplier to Dubai if immediate measures are not taken. He urged the policy-makers to pay attention to this matter.

Keragala said that this new trend emerged after the global economic crisis, where the tea prices dropped sharply. Since May the prices have started to pick up again. In June and July prices gained and in August and September the prices recovered to the pre-crisis high level.

However, Russia and Iran the buyers in our main markets requested a price reduction. Meanwhile, most of the major tea brands relocated their operations. Due to this reason 630 tea bag machines in Sri Lanka found it difficult to get orders to meet the capacity, he said.

He said, that there are several factors behind this crisis. The main reason is Dubai emerging as the main hub of the tea trade.

Today Dubai has offered lot of concessions to tea blending and packing industries including free storage facility for 2-3 months, low rent and credit facilities at 3-4% low rate. Therefore, many global brands are now shifting to Dubai. For instance the brand leader Unilever has relocated its entire operations in tea bagging in Jabel Ali, Dubai and this is being used as a role model by many other brands.

They have started to bring tea in bulk form all over the world, Vietnam, India, Sri Lanka and Kenya and add value in Dubai.

The high price of Ceylon Tea is another factor and today major brands have started to blend Ceylon Tea with other origins.

Keragala said that the price difference of high quality Ceylon Tea and Vietnam Tea is around US$ 1-1.5/kg. After the global economic crisis price has become a main concern of the consumers and therefore major brands have started to blend Ceylon tea with tea from other origins and market as Ceylon Tea. This gives many advantages to the brand tea suppliers including, low cost, low tax, low transport cost and resulting high margins.

The other reason is, over time, this century old traditional trade has been changing. The major brands that dominate the global market is in the hands of a few families or few old companies since long years.

However, the new generation of these traders who are educated in Europe or the US have modernised the trading concepts falling in line with new trends.

The creation of tea trade hub in Dubai is a result of that. As a major tea producing country we have failed to realise these new trends and respond positively, he said.

On the other hand the plantation sector should get ready to face these new challenges. The sustainability of the industry should be ensured by addressing the issues such as re-planting and fertiliser usage. Some up country estate companies are shifting from tea to vegetables and other crops.

The production is volatile with the climate changes. Meanwhile Vietnam is emerging as a competitor and Vietnam tea is becoming popular. Sri Lankan planters are now working in these Vietnam estates and they provide the expertise in the industry.

Our export share ($1.2 billion) is around 4% of the global tea exports ($25 billion). We annually export around 320 million kg of tea and of them 45% is value added tea. We add around 25% value in the country and with the new crisis now we have to stop this value addition and export in bulk.

This will affect the employment of thousands. On the other hand now it is becoming attractive for Sri Lankan tea exporters to set up packing and blending facilities in Dubai. If the authorities fail to reverse the trend by radical changes in this industry all our exporters will shift their processing facilities to Dubai. Because we have only 12% of Sri Lankan brands and most of our exports are shipped under dominant global brands, he said. To reverse the trend Keragala proposes to make Sri Lanka the global hub in the tea trade. For this, he said, radical changes have to be introduced which would conflict with our traditional views. We should allow tea imports, blending, value addition and re-export. The plantation sector strongly opposed tea imports but today the situation has completely changed. Sri Lanka should be the global hub in tea trade and we have all qualifications for that. Unless we start this effort today the industry would suffer severely, he said.