Tea hub concept remains on the table Minister Dissanayake
Plantation company framework needs change:
Minister of Plantation Industries Navin Dissanayake in an interview
with the Business Observer talks about the present situation in the tea
industry and the measures his Ministry is taking to safeguard the
interests of the plantation sector.
Minister of Plantation Industries Navin Dissanayake
Q: Tea industry representatives say the present weather in the
country would be a major issue and production would come down
drastically. What are your observations?
A: I think tea production this year would be negatively
affected by about 5% to 10%. We will get a report very soon of the
actual forecast of production for this year. Weather patterns are beyond
However, as a government we take every possible measure to support
the industry. For instance, the fertilizer subsidy proposed by Budget
2016, is now being finally approved.
We will launch the fertilizer subsidy for the tea and rubber
smallholders and coconut cultivators next week.
Q: What does Sri Lanka’s tea industry need to do, to sell tea
at a higher price?
A: Tea prices have stabilized at the auctions. About three
months ago we made a Cabinet decision to intervene in the auction if tea
prices came down rapidly. That is by getting the Sri Lanka Tea Board to
buy tea at the auction as a measure to hold tea prices.
However, the prices did not fall to that level. But we now have a
mechanism to deal with it in case of a drastic fall in prices. In 2008,
when the Iraq war erupted, tea prices fell drastically and the Tea Board
bought tea from the auction as a measure to hold prices.
There are arguments - not to do it and to do it. We are being
extremely cautious in our approach - whether we should intervene or not.
To improve the present situation we need to cut down our production
costs, maintain quality and go for new markets as we have clearly lost
some of the Middle Eastern markets such as Syria that has affected our
tea prices. We will concentrate on the global branding campaign to be
launched this year and focus on new markets such as China and Iran.
Q: What are the main issues you hope to tackle over the next
A: My main concern is ensuring good prices for all the crops.
However, rubber prices are difficult to deal with because rubber prices
are tied to petroleum prices; with petroleum prices down, rubber prices
are at an all-time low. I think we can hold coconut and tea prices.
We have to expand production. Today, we are looking at expanding
coconut growing areas in the North and the East. For tea, maintaining
quality is the key.
There are complaints about low quality tea. The Tea Board which comes
under my ministry’s purview will act vigorously against producers using
adulterated material and lowering the quality of our tea.
The Tea Board is very transparent and we will not allow any corrupt
activities. The Tea Commissioner has been given specific instructions
about raids and investigations on adulterated tea production. We will
not tolerate any attempt to tarnish the image of our ‘quality’ tea.
Q: The global Ceylon Tea promotional campaign is years late.
What’s the reason for such a long delay and when will it get off the
ground and in which markets?
A: It is about six years late now. However, the campaign will
be launched in September. We have USD 60 million for this project and
have already submitted a Cabinet paper.
This is a priority now and the Tea Board has already selected the
concept targeted at the new generation, quality and the freshness of our
tea. Ogilvy which won the contract for the campaign is now working on
this project; the television shoot (for the ad) is happening. The Tea
Board is working on the mechanism to place the advertisements. We have
done market research to choose the markets for the campaign and some of
the countries include China, Iran, South America, Australia and Japan.
Q: You recently said controversial subjects are also on the
table. What is the government’s position on liberalizing tea imports for
blending and re-export as demanded by some tea exporters?
A: I meant specifically about creating a tea hub. It’s a
controversial subject. Some exporters and traders want to blend tea. The
proposal to blend imported tea in Sri Lanka has a lot of attractive
pluses, while there are also negatives.
The first negative factor is - how will it affect the overall price
that we get at the international market if the hub or blending is
allowed. If it affects the price of USD 4 a kilo we get at present, then
producers will be affected.
We do not want a downward movement in prices. Therefore, the argument
is between high quality tea getting USD 4 and increasing the amount of,
not the tea that is produced, but tea exported from Sri Lanka by
blending (about 500 million kg).
If that reduces the price to about two dollars like in Kenya then the
producers won’t be able to sustain themselves and move forward because
their cost of production is very high and the whole industry might
I don’t want to take any risk. But I will closely study this. Earlier
when the word blending was mentioned, it was thrown out - but under our
government – the concept of a tea hub – and the concept of blending is
very much on the table. If I can bring in safeguards to reduce risks to
make sure everybody is happy with it then I can certainly implement it.
For example, if you want to set up a hub, it will have to be
somewhere near the Colombo or the Hambantota port We should ensure that
the tea doesn’t go out and blended tea does not enter our markets. The
whole idea of blending has to be properly monitored and regulated. There
should be a mechanism to monitor before you allow anything happen.
However much policing we do, if peoples’ intention is bad they can
always smuggle the tea out to the market.
We do not want that kind of situation. If we are going to pitch Sri
Lanka tea at a different level, then I think we should study the global
beverage market; the new generation is more into iced, health conscious
and flavoured teas.
We are a bulk exporter. That status is being threatened, so we have
to adapt and change to suit market conditions. If we don’t do that then
we will be unable to sustain ourselves.
Q: Sri Lanka is one of the largest tea exporters and Colombo
was once the world’s biggest tea auction centre. Today Dubai, which does
not grow tea, is the largest tea trading hub in the world. Should Sri
Lanka try to be a hub like Dubai and how?
A: Dubai is a tea hub - so are London and Frankfurt. What they
do is to bring different teas, blend and market it effectively. But what
our producers say is if we allow that to happen in Sri Lanka, our own
flavours and prices will get affected badly.
They do not want that to happen. If we were not a tea producing
country then blending could have been done here as we are ideally
located to be a hub. But as a producer we have our concerns as well.
On the other hand, if the whole industry – the exporters, traders,
plantation companies and tea smallholders – come together and express
their willingness, I can do it. But as of now there is no uniformity;
there is no clear thinking on the proposal. We need uniform policies.
We, the government, are the regulator and the implementer of policies.
At present, the Tea Board is engaging with all the stakeholders and from
the reports I get the stakeholders are happy with what the Tea Board is
doing. But ‘the tea hub concept’ is such a controversial subject we
can’t take any sides.
Q: What is the current status of the talks on a new collective
wage agreement with the trade unions? Are unions agreeable to an
out-grower, revenue-sharing model as proposed by regional plantations
companies (RPCs)? When will it be implemented?
A: The discussions are handled by Minister John Seneviratne.
We have also given our observations that there has to be a reasonable
wage increase given to plantation workers. There should be some kind of
resolution very soon.
Meanwhile, RPCs want the next collective agreement to be based on
productivity which is what I think we need. I am happy to note that I
have initiated discussions with the RPCs and the trade unions to have a
new out-grower model - so that the plantation workers can be given legal
rights over the land - the land will belong to them, and they will pluck
I personally think the current model we have for plantation companies
is very outdated and we must have a new model in place very soon.
Q: Should regional plantations companies do more direct sales,
bypassing the Colombo auctions?
A: RPCs should do more sales. When I was the Deputy Minister
we allowed it. But the auction system works well – there is no reason to
subvert the auction. Yet, if you get a good buyer they should do it.
Q: What about the other crops? What plans do you have for
developing other sectors?
A: The coconut industry is doing well - there’s a lot of
potential for developing this sector - 80% of the coconut we produce are
consumed within Sri Lanka and only a 20% is exported or goes through a
We must increase our coconut production and export more - or get our
local consumers to save coconut for exports. We need to look at new
areas within the industry and attract more investments.
Q: The benefits of research and development in all plantations
sectors are quite limited. How could we get the private sector to get
involved in R and D and make the agriculture sectors more
A: I have four research institutes under my ministry- Coconut
Research Institute, Rubber Research Institute, Tea Research Institute
and the Sugar Research Institute.I fully agree that we have constraints
in developing R and D as we are under-funded. We have budgetary
constraints. I have presented a Cabinet paper to get foreign assistance
– to upgrade facilities, to look after our scientists.
They sacrifice a lot by contributing to the industry’s growth. But
they need a lot of support. The private sector is willing to contribute
and develop the industries.
They should play a more vibrant role in society, supporting science
and technology to grow. Sugar plantations are not under this ministry
now although the Sugar Research Institute is under my purview. It is a
peculiar situation. I have spoken to the PM to give at least to give one
sugar plantation so that I can do more work