‘CEYLON’ IS GOOD FOR TEA
Sri Lankan tea exports sank to a seven-year low last year – what were the sensitivities behind this?
The 2016 volume was about 11 percent below that of 2015 for three interrelated reasons: the drought, lack of weedicides and reduced usage of fertiliser. But although the quantity of tea declined last year, demand remained aggressive while prices have skyrocketed at the Colombo Tea Auction.
How are high prices affecting the industry?
While factories – especially those manufacturing great teas – have enjoyed a windfall, exporters (value-added exporters in particular) have been compelled to sacrifice margins. So the average Freight On Board (FOB) value in 2016 was roughly the same as in 2015.
An overheated auction means value-added exporters must buy tea at high prices and sell at prices determined by international market conditions. They get squeezed and many are struggling.
Bulk importers too may switch to buying cheaper teas from competitors. So price volatility is not a positive unless it’s linked to value.
This year has also been a reminder that climate change is a major challenge with which the government has yet to come to grips.
What are the hindrances to sustaining performance?
Typically, weak players perish during economic downturns but this strengthens the industry as a whole. Yet, with 500,000 smallholders such a market-oriented view is controversial.
Over 80 percent of the production cost is labour. Sri Lankan plantation workers harvest only about a third as much as their Kenyan counterparts. Our productivity is among the lowest in the world. But the political power of unions is such that they successfully resist productivity-related wage formulas – and tragically, this is to the detriment of their own members.
And what are the prevailing labour trends?
There’s a major shift in workers from agriculture to the industry and service sectors. As our economy transitions from ‘less-developed’ to ‘middle-income,’ this is both desirable and inevitable.
Our challenge is to improve productivity. Japan and China have much higher incomes, and yet sustain thriving tea industries. It can be done but the government and unions must see the light first. The answer lies in fewer workers producing more value and the rest moving on to other sectors of the economy.
How can the tea be improved?
Sri Lanka produces around 300 million kilogrammes (kg) of tea annually while Japan’s output is only 90 million kg. But Japan earns almost three times as much from tea as we do.
It’s about value; not volume. Our challenge is to produce great teas and market them to the world, and this should be underpinned by strong local appreciation.
On what new markets should we focus?
China is currently displaying great potential with an annual growth in demand of 20-30 percent. The US also appears to be promising.
Major chains such as The Coffee Bean & Tea Leaf now offer Ceylon Tea in thousands of outlets. Even premier airlines like Emirates and Qatar Airways proudly serve Ceylon Tea on board.
And how can Sri Lanka better promote its tea?
Ceylon Tea packed in Sri Lanka carries the world-famous lion logo while bulk teas packed abroad carry the ‘Ceylon’ label only. We promote both the lion logo and Ceylon Tea as ‘national brands.’
This promotion is funded by a levy that raises around Rs. 1 billion annually. But utilising this effectively is a major challenge because of government bureaucracy – the tender procedure is completely at odds with effective marketing practices.
While the promotional spend is presently far too small, in my view it could be more effectively managed and expended by an industry body like the Colombo Tea Traders’ Association rather than the government.
As for the government, it would do well to provide constitutional recognition to the name ‘Ceylon,’ which has been abandoned for the past 45 years.
There is incredible value in the name ‘Ceylon’ and it’s a shame it was discarded for reasons of cheap nationalism. It is better to build on our colonial heritage – as Singapore has done with the Raffles brand – rather than attempting to erase it.
Recognising ‘Ceylon’ as a foreign-language name for Sri Lanka – as is the case with ‘Bharat’ for India – is an urgent need.
What is your mantra for success at work?
Firstly, don’t sleep too much; and secondly, when you come to work, leave your testosterone at home.
Yourself in one word…?