Revenue loss Rs 24 b:

Tea exporters meet producers

Sri Lanka's tea exports in the first nine months of 2015 have dropped by 15 million kg compared to last year but the production shortage was only one million kg. The tea export revenue l SUNDAY, NOVEMBER 15, 2015 oss was Rs. 24 billion. Kenyan tea production has dropped by 50 million kg and Indian tea production declined by 10 million kg during the first nine months of 2015, creating a shortage of CTC tea in the world market.

This was revealed at the meeting the Ex-Co of the Tea Exporters Association (TEA) had with tea producers last week to discuss the current situation.

Chairman, TEA, Rohan Fernando said producers and exporters are in the same situation due to the current tea market crisis and that all should get together. As an Association, TEA was keen to have a discussion with stakeholders, especially with producers in the greater interests of the country and the industry.

He said that the tea industry has experienced similar difficulties in the past too but the current situation is different as it is confined to our main export markets. Regular meetings with stakeholders during good and bad times are necessary to make the relationship strong by understanding each other's difficulties and finding remedies that would not be viewed as one sided.

The committee discussed a possible oversupply situation of orthodox tea in the global market due to current low demand from Russia and Middle East. Sri Lanka's tea exports in the first nine months of 2015 have dropped by 15 million kg compared to last year but the production shortage was only one million kg.

CTC tea

Tea export revenue loss was Rs. 24 billion. On the other hand, Kenyan tea production has dropped by 50 million kg and Indian production declined by 10 million kg during the first nine months of 2015, creating a shortage of CTC tea in the world market.

Good quality teas attract relatively better prices whereas the problems are mainly with poor quality teas resulting in a lower average price. If tea smallholders maintain quality standards it will help to increase the NSA even with lower volumes.

Foreign buyers are reluctant to place orders in anticipation of further price drops, as they maintain adequate stocks. The producer members were hopeful that the market improvement witnessed in the last three sales would continue for some time.

Strengthening the tea auction process for better price realization was also discussed.

Anil Perera of the Sri Lanka Tea Factory Owner's Association (SLTFOA) said that it is difficult to eliminate the packing of small lots as there are many small factories that cannot manufacture large volumes of tea.

He said that factories do try to produce different tea grades at the request of exporters which is another reason for increase in lot numbers. Chairman, TEA stressed that factories should produce only according to the Ceylon Tea Traders Association (CTTA) tea grade nomenclature and deviating from this practice could affect them badly when the prices are on the downward trend.

Fernando outlined the rigorous process exporters have to go through to put a brand on the shelf in a foreign country due to strict food safety regulations imposed by importing countries. Even a country such as Nigeria takes a long time to approve a product.

Hence, Government authorities responsible for ensuring the export of quality tea should strictly monitor the tea manufacturing process and the relevant quality parameters at the point of export to facilitate the efforts of brand exporters.

The main factor for the manufacture of low quality tea was the large number of tea factories. With an annual tea production of around 340 million kg, the country has 714 factories whereas Kenya has approximately 115 factories for the production of around 400 million kg of tea.

In Sri Lanka, the installed factory capacity far exceeds the available green leaf. Apart from historical reasons the ad hoc policies of the Government are the reason for the large number of tea factories far in excess of need.

Due to this, factories compete for the limited availability of green leaf and absorb low quality leaf resulting in the poor quality of the final product. The three Associations call on the Government not to issue any new permits for setting up tea factories at least for the next three years and also for the Tea Board to control the expansion of existing factories.

The Government decision to withdraw the Rs. 80 subsidy for green leaf suppliers was welcomed as they believed the scheme was politically motivated and led to malpractices and discouraged the producers of good tea.

Deal

Chairman, Planters Association (PA), Roshan Rajadurai said that government assistance was needed to strike a deal with trade unions on the wage issue based on productivity. At present, the RPCs spend about Rs. 1,100 per worker per day although the wages are not linked to productivity and had become a huge burden on the companies.

The labour cost component account for 70% of COP of teas manufactured by RPCs compared to a lower percentage in other tea producing countries. Both TEA and SLTFOA agreed with the PA on this issue. All were unanimous that Government and Trade Unions should seriously consider a wage model linked to productivity for long-term survival of the tea industry.

Rajadurai also said that government has banned glyphosate, an herbicide which is essential for the tea industry without introducing any alternative products. As a result, they now use labour for weeding, further increasing the cost of production and also creating other problems such as soil erosion.

The migration of labour from plantation to other sectors is another area worrying the industry. Mechanization of plucking will be the long term solution.

A member of TEA, said that international blends can be done about US$ 2 (per kg) cheaper than Sri Lanka tea. Since 95% of Sri Lanka tea is meant for exports, the producers should look at the cost of production (COP) from a foreign buyers point view and not from a local perspective.

Sri Lankan producers should also look at COP of other tea producing countries as it has to compete with them. There is no short term solution for cost reduction and hence RPCs have to convince the workers to agree to a model for improving productivity and sharing revenue.

The Planters Association has called on the government to extend the existing Collective Agreement on wages for a further year due to the cash flow problem. The RPCs are unable to continue the business without any cash infusion from the government as a concessionary loan as the banks are reluctant to offer further loan facilities.

- TEA media release