Tea hub concept remains on the table Minister Dissanayake

Plantation company framework needs change:

Chandanee Jayatilleke

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.

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 our control.

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 six months?

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 crash.

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 more tea.

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 value-addition process.

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 commercialized?

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