The future should not be an extension of the past
While we celebrate a significant milestone in the history of Ceylon Tea this year, it is timely and critically important for Sri Lanka to consider whether we can afford to carry on managing its affairs and concerns in the same way we have been doing in the past century and a half. I quote from a book written by D.M. Forrest and published for the centenary year of Ceylon Tea, published in 1967. He makes an apt remark 50 years ago:
“It is only when one gets down to eye level, so to speak, that one realises the truly extraordinary thing which the human will has imposed on this great landscape-the fanatical thoroughness in fact with which the pioneers subdued and planted it. Tea grows now (and Coffee grew before) on slopes as inhospitable as Iceland’s, on precipices you would hardly expect a human being to stand, let alone to plant and prune and manure tea bushes and pluck them for 75 years or more! Those engaged on the job take it all for granted and think nothing of planting afresh, where their predecessors seem crazy to have planted it at all. To me it is not more wonderful that men are on the verge of flying to the moon.”
Man set foot on the moon in 1970 not long after that paragraph was written and we have seen great progress in all spheres of human endeavour since then, but the changes in the way we continue to do tea has relatively not undergone any significant change that we can boast of, though we continue to remain optimistic about greater results in our bliss of ignorance and continue doing tea the same old way as before.
The only development we can boast of in our tea plantations is the early breakthrough in gender equality. It is now women who stand where men previously stood on those inhospitable slopes to prune and pluck. The stagnant export earnings year on year would have painted an even more dismal picture had the men who were originally introduced to do the job continued. The high dependency on human hands is the root cause for many of the challenges we are presently facing. The youth are increasingly unwilling to work with their hands any longer.
The need to market rather than trade
The world has seen tremendous changes in the last 50 years in the way tea is cultivated, harvested, marketed and consumed. Rapid developments have taken place as evidenced by the multitude of innovative tea products, e.g. cosmetics, toothpaste, biscuits, confectionary items, etc., which have all been well received by the consumer. These differ from market to market but everywhere without exception the ways in which tea is consumed and marketed are continuously subject to change.
No serious attention has been paid to marketing our tea as opposed to just selling it. The absence of research both in terms of innovation, product development and markets has been conspicuous. In fact there are very few marketing specialists engaged in the tea industry and trade.
We have not really studied the potential of the modern trade channels to capture greater value or unleash the power of brand marketing to gain value up-stream. Local companies need to be positioned and re-structured to take this leap into global marketing. It is beyond the scope of traders either as individuals presently constituted or as export businesses, freely licensed, who largely pack the tea away from our shores in bulk to foreign owned business houses overseas. Those who capture the greatest value of the global tea supply chain upstream have no loyalty to Sri Lanka or to Ceylon Tea any longer.
Marketing tea is no exception to any other product and requires a multidisciplinary approach. Expertise in the techniques of marketing and communication are an indispensable requirement to succeed. If the export of tea is left in the hands of everyone who comes forward to engage in it, then it should no surprise that we earn a weak brand image for ‘Ceylon Tea’. The lack of marketing expertise in the formulation of strategies to derive greater value from our tea should be a matter of great concern.
In the world of tea globally, with rapid advances in technology, research and development, a myriad of tea products have entered the market place. Amongst the younger generations especially and in some developed countries tea has wide acceptance as a ready to drink beverage. The question we need to ask ourselves is, have we kept abreast of these changes and explored and exploited the opportunities which lie out there in the market place after proper study and research?
In fact some of these tea-based drinks do not compete with other teas but with other beverages on vending machines. The majority of consumers of the tea we produce are unaware from where the tea is sourced. Should we believe that our tea is so special having such unique selling propositions, then it is up to us to come up with creative strategies that are able to meet this challenge and transmit the message effectively.
The ground-breaking changes which have occurred which we should take note of is that firstly tea is less and less a sip by sip experience and secondly that quality and taste are not all dependant or achieved at the point of origin only, or at the factory which manufactures the black tea. With laboratory techniques and market research, teas can be tweaked to deliver according to the tastes of the customer by the application of modern technology which is being used widely today.
Only a marginal quantity of the tea we produce should be marketed as Pure Ceylon Tea, so promoting Ceylon Tea globally at this stage is like “putting the cart before the horse” and telling people of the uniqueness of our tea without telling them where they could find it.
It would be unrealistic to expect positive outcomes commensurate with what is proposed to be expended on the much-awaited global campaign. The appropriate target we should aim at this stage are organisations and companies in the businesses of buying tea and not the consumers whom we cannot claim to be close to.
Changes in ownership
and management and lessons learnt
In our own country vast developments have taken place in the structure of the industry in the last half century. These have been more for political reasons rather than market driven. The relinquishing of British interests in the seventies following a policy of land reforms, nationalisation of sterling and public owned estates from the mid-seventies, the lessons learnt of State-owned management right up to 1992 and the resultant calls on the General Treasury to frequently bail out the Government owned plantations out of financial crisis during those periods should have left indelible footprints and learnt lessons in the history of our experience with managing our tea assets.
The conversion to private management first, later evolving to extended leases of land under Regional Plantation Companies to a great extent put a stop to the drain on the Government budget but we still do not appear to have the sustainable model to go forward. Fortuitously, we have refrained from making a grievous error even with the extreme socialist policies e.g. land reform which prevailed in the 1970s, to fragment the tea lands into acreages which would have rendered them uneconomical beyond redemption.
Though we need to address the stakeholder needs of the worker and introduce an inclusive model which will not only improve productivity and yields but also restore social equity to a long suffering people, the dangers of fragmentation cannot be overemphasised. In China around the same period, nearly every family in the tea growing regions of China were vested with two and a half acres of land each, a decision which the PRC cannot ever consider reversing now as it is a socially sensitive matter.
With fragmented tea lands, to reorganise tea for export out of China is proving extremely challenging as reorganising the industry to meet international standards sans traceability is near impossible. So they have shelved the issue. The contribution tea makes to GDP in China is marginal, a mere 0.2% now. Though China was the country which introduced tea to the world from times immemorial, the exportable surplus of tea is not a factor for the country with the size of the growing domestic market for tea and it is noteworthy that despite China’s gift of tea to the world it has yet to establish an internationally acceptable brand of tea of its own. The focus on high tech manufacturing and services of a host of sophisticated products in China has relegated tea into the background.
Our situation comparatively is quite different where a large proportion of our workforce is still dependant on tea as a means of livelihood. A peopolised model of broad-based ownership of shares in the RPCs with freehold rights simultaneously granted to the companies or an extended lease to the existing period may be more appropriate to ensure sustainability.
Absence of stakeholder consensus
And now in this sesquicentennial year of Ceylon Tea we read that the main stakeholders in the industry have widely opposing views and do not have a regular dialogue with each other on these matters of great collective importance to their future. Those responsible for policy making are therefore in a conundrum to make any progress by taking far reaching decisions on their own responsibility in the absence of a degree of agreement amongst the stakeholders. There has been a prolonged stalemate and a lack of consensus on how we move forward which has resulted in delays with consequential losses.
The auction system
The market for Ceylon Tea despite its good name has long remained a buyers’ market the way we offer it to the world with increasing exportable surpluses. Tea being subject to seasonal variations and offering a multiplicity of types and grades does not lend itself to bulk disposal or a “futures market”. This Mincing Lane model of a regular public auction at which almost all of our tea is sold by sample has continued uninterrupted and unabated since the British introduced it in 1883. At that time 95% of the tea produced in Ceylon was for London and Arthur Moris when ordered by the Governor to report on the suitability of growing tea in Sri Lanka in the 1860s wrote; “If Ceylon is to compete it can only be with an article made with the approval of London tea tasters and purchasers.”
Tea export business continues as B2B business
For want of a better method of selling tea, though the influence of London tea tasters have long since diminished almost to the point of extinction, the producer still opts to dispose his teas resorting to this time-tested mechanism in which a Colombo-based shipper buys at the auctions largely to supply another business overseas (B2B- business) which demand reflects the requirements of the consumers in that market only indirectly and demand is really represented at the auctions by the overseas buying companies tea tasters’ selection and their R&D counterparts who have no loyalty to tea of a particular origin.
Demand at the weekly Colombo Auctions is represented by a wide cross section of markets spread across the globe and not dominated by a single country or any group of countries any longer. While this global spread of demand has sustained the auction system the supply side is determined by the crops which in turn are largely dependent on the weather.
The vast majority of ultimate consumers on the other hand have rarely the opportunity to exercise a choice in regard to the place from which the tea originates. They buy based on a brand name and the messages they receive in the promotional and advertising media in relation to the brand name where the origin may in rare instances be denoted if at all, as a sub brand at best.
So buyers (not consumers) and weather dependant crop determine price
When the crops are plentiful the prices at the auctions are not favourable to the producer who quite often has to sell below costs of production. The producer is then at the door of the Government seeking relief. Because tea gradually deteriorates with age the government regulator does not employ methods to hold buffer stocks to control supply when the harvest is plentiful. The reverse side of the coin is that when auction price levels are on an upward trend as presently experienced, the Colombo buyers are threatened with loss of business under pressure from their overseas counterparts seeking to source teas from other origins.
Imports for exports
The buyers have been making a strong case for liberalising the importation of teas of other origins transforming Colombo into a hub for the business of value addition which will inure to the credit of our own economy rather than to any other. They argue that in any event our tea suffers this fate outside our shores and we have no control over those operations. Producers on the other hand argue that this measure would impact on demand for locally produced tea at the auctions. Opposing arguments have not been fully met and no compromise has been arrived at.
There are a few bold and visionary entrepreneurs who claim that they have built their businesses using the Ceylon Tea image. These owners of Ceylon Tea brands who market their tea successfully using the slogan “Ceylon Tea” only as a sub brand strenuously argue that opening our borders to carry out blending and packing operations to compete in the large generic but branded markets of the world would tarnish the good name of Ceylon Tea.
A response to these purists and adherents embracing the classical view of a bygone era and still exclusively committed to Ceylon Tea would be, that while each of the few of them only account for utilising less than 3% of Sri Lanka’s production each, as a maximum percentage, how does Sri Lanka control the vast quantities of bulk leaving our shores ending up as packs sub branded as “Ceylon Tea” without restriction or limits being placed in the markets they are being sold in. Can we in this background justifiably claim that Ceylon Tea still enjoys that pristine position? Market Research findings run contrary to this claim.
Missing links in Ceylon Tea supply chain and the unknown consumer
Value and price for nearly all the tea produced in the country is determined by the weekly demand and supply as reflected at the auctions. The system does not take into account two main criteria 1) The requirements and tastes of the consumer who ultimately pays for the tea we produce and drinks it 2) The value available in the links of the global supply chain outside our shores right up to the consumer.
The B2C model of business is again conspicuous by its absence. The links outside our shores are much more lucrative than the values retained by the links of the supply chain within our control. This is where we miss out and where the central focus of the discussion on solutions to our predicament should really be, to secure greater earnings from tea for Sri Lanka.
Some thoughts and personal views
Having prefaced this article with the declaration that “the future should not be an extension of the past” and outlining the areas which in my view need to be addressed, I feel obliged to proffer what I consider to be some of the steps that may be taken to re-chart our course for the future of this industry.
Receiving higher values to sustain the industry
Until we find a better mechanism to replace the auction system in place, we are left with no alternative but to use the principles of supply and demand which largely determine price, to enhance the value we can derive for the bulk of the tea we produce by selling at the auctions.
In our recent experience we saw that a reduction in the quantities (approx. 10%) offered for sale had a very favourable effect on prices fetched. This phenomenon which prevailed was not attributed to any managerial or regulatory intervention but due mainly to the vagaries of weather patterns and restrictions placed in the application of weedicides.
In an industry that is still regulated and producers are dependent on prices fetched at the auctions there is a strong case for an independent state controlled authority to intervene in the supply side and hold back teas of poorer quality when auction quantities are excessive and are likely to have an unfavourable impact on prices. This measure has been employed in the past and to my recollection at least on two separate periods in the last 50 years. My impression on why the mechanism did not deliver the expected results at that time was not because the concept was flawed but due to poor execution and implementation.
This may be an outlet for much of the substandard tea being produced and ease the supply side at the auctions. Another alternative to control supply to convert a portion of our tea to concentrates (base tea) for release at appropriate times. Application of technology is an indispensable requirement for this measure.
Factory owners, small holders, RPCs and generally speaking a majority of the “producers” are convinced that tea being imported to be blended with our tea to end up as branded products overseas to compete in the generic markets for tea will adversely impact on the prices for their produce. However, if the principles of supply and demand are not disputed taking out a quantum of the tea produced to a demarcated zone for processing and value addition for export will only enhance the price levels at the auctions giving producers a better deal than they get now when crops reach peak levels. Other regulations to protect and prevent tarnishing the image of Ceylon Tea would be more feasible than when the operation takes place outside our borders where we have zero control.
In the ultimate analysis, higher values from tea will only accrue to us if we go beyond our shores, travel up the value stream and market our teas rather than just selling it via an auction system merely connected to a Colombo based export arm. Traders must transform themselves to marketeers.
Creation of the marketing businesses of tea
The global marketing of tea requires companies broad based in ownership with access to the size of funds required and managed by personnel with multidisciplinary management and marketing skills. Funds are required for product innovation, research and development, marketing and promotion, distribution and selling and a host of activities to secure and grow market shares.
My personal view is that not all who wish to can play in this league. When we examine all the financial assistance being made available to us for the development of the tea sector what stands out like a sore finger is the lack of support to develop the marketing of tea globally. All the schemes by these generous hand outs are for activities within the boundaries of our country related to production and supply though where the potential really lies to improve our situation is outside.
Financial institutions, e.g. development banks, exim banks, capable of facilitating these bold levels of entrepreneurship are still not visible though they have been much spoken of.
Promoting Ceylon Tea
as a brand
The Ceylon Tea Brand was created by the British. The Empire Tea Bureau in the UK was established after the war in 1945 with its aim, in a time of food rationing in the UK, being to offer a better tea service for the public. The origins of propagating Ceylon Tea can be traced back to this period when the Bureau transformed itself into a Ceylon Tea Centre in 1946. In fact the author D.M. Forest of the book ‘One Hundred Years of Ceylon Tea’ was employed as a journalist for the purpose of writing up Ceylon Tea soon after the war.
We must be fully conscious now that until around the mid-sixties the British had the largest interest and were the biggest beneficiaries of Ceylon Tea promotion during that period. Nearly all the tea that was grown in Asia with the exception of China had predominantly British interests up to the 1960s and competition between countries of origin was less pronounced. Tea was promoted commonly by all the tea growing countries together contributing to a common fund.
That situation took a dramatic turn with Ceylonisation and now we are left with very marginal interest from the UK consumer who has been gradually converted almost 100% to consumption of tea in bags which contain little or no tea from Sri Lanka. Ceylon Tea earned an edge for itself due to its unique character attributed to nature’s contribution to enhance the flavoury qualities of its tea in season in those days. Now technology has given us solutions so that we need no longer entirely dependent on weather and natures ways to make good tea.
In my view the challenge is to formulate a marketing strategy for Ceylon Tea which should take precedence over and above the much talked about promotional and advertising campaign which should really come later. Expecting to generate results by embarking on the latter before the former and not properly determining the target audience to talk to before the product is accessible to those who are targeted does not appear to be logical or sensible. In fact it could be wasteful as promotion and advertising is appropriate only when products are available to consumers and the success of a campaign is really measured by the increase of revenue attributed to the spend.
In view of the length of the article I felt it necessary to highlight the main points I have tried to convey for those who may not have the time to spare to read through it all.
The need to manage supply and demand and not leave supply entirely to the vagaries of nature and the weather.
The importance of marketing tea rather than trading in it.
The need for marketing expertise and specialists to be engaged.
The high dependency on human hands and its correlation to productivity.
To transform workers to stakeholders.
The application of available technology across the supply chain.
Focus on innovation, market research and R&D.
Recognise that tea is in competition with other beverages.
No longer a “sip by sip”. Fast turning into a “glug glug” (RTD)
Exploding the myth that all Ceylon Tea is supreme.
Teas from Sri Lanka still very much B2B business.
The folly of targeting consumers by advertisement and promotion before the product is available to purchase.
Absence of dialogue between stakeholders.
(The writer has been working in business for 50 years and has long been associated with the tea trade. The views expressed here are his own and not attributed to any organisation he serves. He can be contacted on email@example.com and would welcome feedback.)