Storm in a tea cup

* Tea industry facing turbulence:
* Disruption in traditional markets:

by Lalin Fernandopulle

The tea industry is undergoing a turbulent time due to the disruption in most of the traditional Ceylon Tea consuming countries, Chairman, Tea Exporters Association, Rohan Fernando said.

Around 65 percent of our exports go directly and indirectly to sanctioned or high risk markets such as Russia, Syria, Iran, Iraq and Libya.

“These countries have been our traditional large-scale buyers, who have developed a preference for Ceylon Orthodox Tea. We cannot ignore this fast growing segment on the basis of risk. The global economic crisis has further suppressed the buying power of consumers even in developed Western countries and the African continent,” Fernando said.

Overall, credit sale is the norm in the global marketing platform. However, the exception is the Far East comprising Japan, China, Korea, Singapore and Hong Kong. These countries, which are stable and have a lower risk contribute less than 20 percent to our export revenue.

Fernando said that Sri Lanka having enjoyed nearly four years of good prices for Ceylon Tea has reached its peak in competition for tea as a commodity with other tea producing nations.

A noteworthy change in this scenario is Kenyan Tea which surpassed Ceylon Tea prices for the first time in about three years. Despite much statistical data on bulk exports, value-added exports and branded exports, the truth is that nearly 60% of our exports are in bulk form either as industrial blend components or convenient easy to carry 10 kg cartons.

“Of the 40 percent value-added tea exported, a good portion is manufactured for brand owners in other countries leaving approximately 15% to 20% of our exports in real term value-addition under indigenous brands,” Fernando said.

On the positive side, Sri Lanka has established itself as a reliable exporter of consumer-ready products fulfilling a multitude of needs on ethical, hygienic, food safety and diversified tea products.

This is due to the local tea exporting companies investing large sums of money in modern packaging equipment and quality control systems.

Another positive note is the change at the Sri Lanka Tea Board and the Ministry of Plantations recognising the urgent need for deployment of promotion and marketing funds (accumulated up to approximately Rs. 5 billion) for genuine marketing and promotional related campaigns as opposed to wasteful and non-productive expenses.

Although, this move is four years late, there still remains hope among the exporters that the positive attitude by the Sri Lanka Tea Board will bear fruit in the near future. The Russian crisis is a direct result of indirect sanctions imposed on Russia’s oil revenue which has created a big dent in tea export revenue for Sri Lanka.

However, the Ruble which plummeted from 33 for a US dollar to 80 last year has now stabilised at around 50 for a US dollar giving some hope for resurgence in the Russian economy.

It is hoped that the Iran-US talks on nuclear disarmament, will relax some of the sanctions imposed on that country to facilitate free movement of non-sanctioned goods particularly tea for direct transactions.

“The Sri Lanka tea industry or Ceylon Tea has weathered many difficult periods during its 150-year history. What we are facing today is another period of market instability or peaking of the ‘commodity curve’ which we hope will stabilise sooner than expected,” Fernando said. It is also important to note that many Governments have given step-motherly treatment to tea exporters, classifying them as traditional exporters and sometimes even labelling them as a cartel, without taking them into confidence for a mutually beneficial economic model.

It is still possible to look at a model that could develop the industry to reach US$ 5 billion by 2020 subject to having the political will to take long-term decisions which may not be popular. The tea industry has survived over 150 years providing a silent service to the nation in keeping the State coffers primed and providing a magnitude of social service and looking after infrastructure in the plantation areas. This is the industry which has the best potential to be the model for a successful agriculture-based economy.