Tea: Boom and gloom

The challenges faced by the Sri Lankan tea industry need to be addressed through consultation with all stakeholders

By Jayampathy Molligoda

Ceylon Tea in crisis – gloom

At present, the Sri Lankan tea industry is facing many challenges. The Regional Plantation Companies (RPCs) which account for 35% of the tea production of this country are at crossroads and faced with a severe cash flow crisis. 

Essentially, the three main challenges are:

a.Inadequate and non-remunerative tea prices, 

b.Overall high cost of production mainly due to low land productivity, and 

c.Estate worker daily wage model not linked to productivity and associated social welfare issues of the estate workers. 

The writer is of the view that the solution would be to adopt a “sustainable agricultural model” focusing on triple bottom line: social wellbeing, environmental sustainability and the commercial viability of the companies.

Global tea beverage boom

A study on the global tea market has been recently published by Transparency Market Research (TMR) and accordingly its value in 2014 was around $ 40 billion. It is also expected that the market growth measured in terms of CAGR over the period from 2014 to 2020 would be 3 %. 

Analysts at TMR have projected the market to reach a value of $ 47 billion in 2020. According to the report, rising awareness among the consumers regarding various benefits of consuming tea is the major growth driver of the global tea market. 

“The increasing concern over beauty and skincare is encouraging consumers to switch to green tea, which is expected to open an opportunity-rich market for players in the global tea market,” one internationally-reputed market report stated recently.

Apart from this, the economic advantages and ample opportunities for employment presented by the tea industry is also supporting the global market to a great extent. According to ‘World Tea Expo’, many tea drinkers, especially younger ones are embracing more expensive tea brands, like Teavana, that has unique flavours. 

Howard Telford, Euro Monitor beverage analyst, says that US tea sales are glowing due to the innovative products and flavours, loose-leaf format, various ready to drink options, convenience factor, etc. Unfortunately, hardly any Ceylon Teas are available in those markets due to a number of reasons. This gives the tea industry players in Sri Lanka a window of opportunity to demonstrate their sustainability credentials to capture greater market share globally, especially in the exclusive high-end markets appealing to discerning tea drinkers. 

Hero crop for 2030

The report ‘The Future of Tea – A Hero Crop for 2030,’ launched in 2014, is the result of a year’s research and collaboration between organisations from all parts of the sector, facilitated and managed by Forum for the Future. 

The Tea 2030 partners include four of the seven companies responsible for 90% of the world tea market, Unilever, Tata Global Beverages, James Finlay and Twining’s, plus the Ethical Tea Partnership, Fairtrade International, IDH – the Sustainable Trade Initiative, Rainforest Alliance, S&D Coffee and Tea, and Yorkshire Tea, and they are supported by the International Tea Committee. 

In the report the industry identifies profound challenges facing the industry, including climate change, population growth, and competition for agricultural land and water. The Tea 2030 partners focus their collaboration on three key areas: 

1.    Sustainable production – benefit        ting the environment and communities where tea is grown; 

2.    Market mechanisms – which     deliver greater value to all players in the supply chain; 

3.     Engage consumers. 

Way forward

Coming back to the Sri Lankan tea industry, the challenges faced by us need to be addressed through consultation with all stakeholders. My view is that the solution lies in implementing the recommendations already given by the expert advisors concerning the areas mentioned above. Let us examine one by one.

1. Degradation of tea fields/soil fertility management

In Sri Lanka, the land productivity in the tea sector is reported to be very low compared to other tea growing countries. The major reasons for this situation include factors such as land degradation, poor soil fertility status and adverse climatic conditions. Land degradation is the reduction or loss of the biological or economic productivity and complexity of rain-fed cropland. In Sri Lanka, major contributors to tea land degradation are soil erosion and soil fertility degradation. 

It is therefore, important to adopt a “sustainable agricultural model” focusing on ecological balance. Tea Research Institute of Sri Lanka (TRI) has declared the year 2015 as “Soil Fertility Management Year”. Time is opportune to seriously address soil fertility management aspects and adopt best agricultural practices recommended by TRI considering the vulnerable situation of the tea estate land managed by the RPCs. Let us look at this important issue on a fresh and open mind and implement TRI recommendations. 

2. High wages in relation to low labour productivity

There has been wage increases from time to time to estate workers without due recognition of the low labour productivity mainly due to high bargaining power of the trade unions. It is therefore important to study the far reaching implications on the socio/political and economic aspects in arriving at plantation worker wage models, which is a “complex adaptive system”. 

The three stake holders, namely, the Government, RPCs and the trade unions, could reach a consensus and facilitate implementing the ‘Ramani Gunatilleke Report’ (which was initiated by RPCs/EFC five years back) on new approaches to estate worker wage models. It was recommended that current daily wages be changed to productivity linked (piece rate) wage models. 

According to her report, the wage negotiations need to be decentralised based on either agro climatic level or even “an enterprise bargaining” level. It may not be possible to convince the workers and the trade unions to migrate into a revenue share model, without having an intermediate arrangement based on a hybrid model -green leaf rate coupled with a guaranteed minimum daily rate. 

The RPCs could propose slightly different wage models based on ago-climatic variations and site specific issues and the unions could look at these as a basis for negotiation in order to arrive at a reasonable, yet commercially viable model. Let us hope that the stakeholders follow the “expert recommendations”.

3. Inadequate and non-remunerative tea prices

Tea is a beverage. Tea blending takes place at many trade/blending centres all over the world with Ceylon Teas being blended with Indian, East-African, Vietnam teas, etc. It would be interesting to find out as to what percentage of unblended teas of ‘Ceylon origin’ are finally reaching the ultimate consumer. 

Vietnam is already in the Trans-Pacific Partnership (TPP) countries, along with Japan, Australia, US, etc. and the preferential tariff rates will apply to the tea industry players in Vietnam. Japanese Prime Minister Shinzo Abe said recently that TPP (agreement already entered into by the countries on 4 February) is the structure where Japan and the US can lead in economic rule-making. The problem with Ceylon Tea is that it’s too expensive and our tea exporters are finding it difficult to compete with multinational players who source other origin teas worldwide.

The tea producers need to adopt an integrated quality and productivity drive and ensure teas are sold at the auction based on the specifications, quality as per the typed samples and the needs of the potential buyers. Sri Lankan tea trade and producers must demonstrate their sustainability credentials to differentiate pure Ceylon Tea products. This will enable the exporters to use their marketing skills to capture greater market access and increase the global market share.

Conclusion

The challenge would be how to convert the tea estates in Sri Lanka into socially and environmentally sustainable yet commercially viable business units (triple bottom line) in a broader perspective to create greater business value. 

The way forward would be to have a shared understanding among the three stakeholders, namely the Government, trade unions and the plantation companies (RPCs), and reaching a consensus on implementing a ‘sustainable agri-business management’ model as described above. This is because there seems to be some confusion and misunderstanding among the stakeholders on the government declared policy framework. The overall goals and objectives of the tea plantations in general, are twofold.

a.Increasing the export earnings (at present the third highest foreign exchange earner)

b.Provider of employment (already one of the largest employment generator)

My own view is these dual objectives are contradictory in nature and therefore, there is an incongruity in terms of achieving the end objectives simultaneously. It goes without saying that the export competitiveness cannot be attained whilst simultaneously providing employment to every resident person in the plantations. This is because the estate managers need to focus on gainful deployment of the workforce in order to achieve higher productivity. 

The ‘cost-leadership’ strategy becomes one of the necessary prerequisites to achieve export competitiveness, especially in view of the current global trends in the beverage industry. However the companies could focus more on the social wellbeing of the estate workers in consultation with the trade unions so that the producers could offer sustainability credentials to the discerning tea buyers. Already few companies such as Bogawantalawa Tea Estates, Ceylon Tea Services and Tea Tang, to name a few, are adopting this strategy and achieving positive results.