A nation savouring small gains
An important message was delivered to Sri Lanka’s policymakers and bastions in the tea industry by five experts who participated in a live TV discussion on the subject recently (available at: https://www.youtube.com/watch?v=iyUT_YEG5mU ; https://www.youtube.com/watch?v=mL3mYE5rXIw&t=221s and https://www.youtube.com/watch?v=k3p415x4C1w). The message was that the industry was going through a crisis, it needed a long-term vision and it was time for everyone to give up their pet ideology based on ‘thinking local and acting global’. What was observed was that everyone was savouring ‘small gains’ in the form of temporary increases in prices which were nothing but bubbles that almost immediately burst.
Going for political expedience instead of searching for permanent solutions
But the industry had been moving downward for decades now. The political authority in the country, instead of searching for permanent solutions, was thinking in terms of short-term political expedience. Their thinking was confined only to local issues, whereas the industry was facing problems due to global developments. The impact on the tea industry due to global issues could be tackled only by thinking globally. Though the experts under reference did not say so explicitly, what was needed by the industry was to shift its focus to ‘think global and act global’.
The obsessive love for a non-existent Ceylon Tea in the world market
Sri Lanka’s tea authorities had always followed a ‘thinking local’ ideology when it came to addressing its issues. In May 2012, the then powerful Treasury Secretary, Dr. P.B. Jayasundera, made the proclamation that Sri Lanka should stop the importation of tea altogether from abroad for blending purposes, for it would tarnish the reputation which the country had earned for centuries as the best tea producer of the world.
He made this proclamation in the backdrop of continued agitations by a section of tea exporters that Sri Lanka should liberalise tea imports to take advantage of supplying blended tea to the world market and earn more foreign exchange to the country.
The rationale of Jayasundera’s thinking was questioned by this writer in an article published in this series in May 2012 (available at: http://www.ft.lk/article/87588/Storm-in-Sri-Lanka-s-teacup--A-more-pragmatic-approach-is-key).
Jayasundera, through this local thinking, was apparently attempting to please a political lobbying group which had been opposed to such a move without thinking the future of the industry. Since then, almost all the tea authorities in the country had been confining themselves to local issues rather than seeking to address global issues facing the industry.
When tea is considered from this wider angle, it boils down to a problem of long-term strategising, marketing, inventions and innovations. It is in these four areas where Sri Lanka has failed. The country, while boasting of producing the best tea in the world called the ‘Ceylon Tea’, has not moved even a single step forward from where the industry was left by British planters
Tea should be looked at as a beverage and a raw material
Tea is looked at in Sri Lanka in a narrow view that it is a plantation crop connected to factory manufacturing and exports. So far, Sri Lankans have not begun to look at tea as a global beverage and a raw material for the perfume and pharmaceutical industry. As a global beverage, the issue is marketing. As a raw material for perfume and pharma industry, the issue is research, development and commercialisation of inventions, also known as innovation. This is a wider angle from which tea has to be looked at today.
Tea marketing in Sri Lanka is still where it was left by British planters
When tea is considered from this wider angle, it boils down to a problem of long-term strategising, marketing, inventions and innovations. It is in these four areas where Sri Lanka has failed. The country, while boasting of producing the best tea in the world called the ‘Ceylon Tea’, has not moved even a single step forward from where the industry was left by British planters.
It has continued to grow tea, manufacture orthodox black tea and sell to consumers in some selected countries either in the form of ‘bulk tea’ or tea in ‘tea bags’. Hence, when the market prices depress due to oversupply, adverse regional political turmoil or global economic recessions, the tea growers back at home are forced to undergo enormous economic hardships. If the period is long, many of them become bankrupt. This is specifically true with low country tea small-holders who at present produce about 70% of the country’s tea output. Their woes are then capitalised by interested political parties which create a narrow political issue out of a major economic calamity faced by the country.
Tea’s economic woes
Tea in Sri Lanka is facing an economic catastrophe today. Tea output has grown by less than 1% annually over the period from 2007-2015; in 2016, it has fallen even to 293 million kg, below the level of 317 million kg that it had achieved in 2005. In fact, tea output has been continuously falling since 2013. The drought in the first half of 2017 has caused the output to remain at a very low level and it is unlikely that it would recover in the second half of the year.
If Sri Lanka cannot produce more tea, it cannot export more since its local consumption has been at around 30 million kg per annum based on an annual per capita consumption of about 1.5 kg. The industry has been complacent about small gains in the form of temporary increases in prices. When tea output fell in 2016, according the Central Bank Annual Report for 2016, the Colombo Auction prices have increased from Rs. 401 a kilo in 2015 to Rs. 473 a kilo in 2016.
But at the same time, the cost of production too has increased from Rs 459 a kilo to Rs 469 a kilo. Thus, the producer margins are falling; however, the exporters have been rescued to some extent by an increase in the rupee value of export prices due mainly to a depreciation of the currency. Having to rescue an industry by depreciating a currency forever is not a good sign for an economy.
Rising costs in a background of low yields
Sri Lanka’s tea suffers from both the high cost of production and low yields. No commodity can compete in the world market unless it reduces its average cost. That reduction comes from increasing the yield levels. According to the Food and Agricultural Organisation or FAO of the United Nations, Sri Lanka’s tea yield standing at 1,532 kg per hectare is only marginally higher than the world average of 1518 kg per hectare (available at: http://www.factfish.com/statistic/tea%2C%20yield ).
Thus, Sri Lanka is ranked at 26th position in terms of the global tea yields. This has to be compared with high yield countries such as Malaysia (with a yield of 6,778 kg or Number one position), Kenya (2,177 kg or 13th position) India (2,143 kg or 14th position) or Tanzania (1,573 kg or 24th position). Accordingly, in a background of high costs and low yields, any fall in the international price of tea will make Sri Lanka sick because it has no back-up resources to go through the crisis. Since price changes occur frequently in cycles, Sri Lanka’s tea industry, though it is the second highest foreign exchange earner after garments, is driven to a high level of vulnerability.
The need for raising industry earnings
Sri Lanka cannot increase its tea yield levels overnight. However, it can increase industry earnings by diversifying its use. The diversification can be in the beverage sector itself as a novel drink, on the one hand, and into non-beverage industry sector as an ingredient for producing pharmaceuticals, cosmetics and perfumes, on the other. Both require investments in better marketing and continued research and development.
A tea culture to make tea indispensible in the late 19th century
Tea was promoted by British planters and tea traders by using ingenious marketing methods. When Ceylon Tea began to face competition from other tea producing countries in late 19th century, it was presented to British and European tea drinkers as a uniquely branded product. A separate tea culture was developed with British and European aristocracy meeting frequently over a cup of tea and discussing many topics of interest. Thus, tea was associated with exchange of new ideas and British and European aristocracy could not do without it.
Tea being projected as a panacea for all illnesses
It was the aspiration of the nouveau riche to become a part of this high society tea culture. Tea was presented to them as ‘a brain tonic’, ‘delicious drink’, ‘panacea for all illnesses’ or ‘a drink that improved one’s digestion’.
In the late 19th century, there was another marketing campaign to popularise tea among the working class as well. Since they did not have the wherewithal to buy tea, arrangements were made for them to buy once-brewed tea from aristocrats at bargained prices (available at: http://www.panix.com/~kendra/tea/tea_to_england.html).
Unlike coffee, tea leaves could be reused to brew tea again and again; though it reduced the taste in subsequent brewing, the working class people compensated for the loss of taste by allowing the reused tea leaves to be brewed longer. Thus, through a weaker taste cup of tea, even the working class people were introduced to tea drinking.
The ultimate result of these ingenious marketing campaigns was to promote tea as a universal beverage. Thus, Ceylon got the market for its tea without labouring anything on its part and remained passive in targeting new consumers.
Campaign to make Coca-Cola the number one beverage in the world
But the competitors to tea ‘as a beverage’ were active all the time in reaching out to new consumers. One such competitor was the soft drink manufacturer, Coca-Cola, which was penetrating the global market almost with an aggressive tone. It had a long term vision to promote Coca Cola as the world’s number one drink. In 1986, the Chairman and CEO of the Coca-Cola Company, Roberto Goizueta, made a historic speech before Coca-Cola sales representatives (available at: https://www.youtube.com/watch?v=tpF_-BbaV1g).
He said: “Right now at this point in time in the United States, people consume more soft drinks than any other liquid, including ordinary tap-water. We’ll take full advantage of our opportunities. Someday, not too many years into our second century, we’ll see the same wave catching on markets after markets on to eventually the number one beverage on earth will not be ‘coffee or tea or wine or beer’. It will be soft drinks – our soft drink”. So, the Coca-Cola Company took note of the declining consumer tastes for traditional liquids which was naturally happening and reoriented its strategic vision to cut a notch for itself in the new opportunity set that was offering to it in the market.
A long-term marketing vision is needed for tea
Having such a long-term vision is a must for any commodity producer. Sri Lankan tea manufacturers and exporters were all the time happy about living in the nostalgic past of ‘Ceylon Tea World’ – an icon for which they would even fight unto their death – while the market was slipping away from them gradually quite unknown to them.
Changing taste buds of youngsters
The new marketing strategy adopted by Coca-Cola should be an eye opener for Ceylon tea. It is losing the market among the young people not only in the wider world but also back at home. It still offers tea as a beverage in its traditional form: tea shops would brew tea in hot water, add sugar and milk and serve tea as a hot drink. Even on a very hot day, this is the way tea is served and therefore it is not a beverage for all seasons. It may be an acceptable form of serving to old tea addicts but not for the young people.
In Thailand and many hot cities in East Asia, when one asks for tea at a restaurant or from the vendor of a sideway soft drink cart, he is asked the option whether it is hot or cold. Tea is then served according to the choice of the consumer which is mostly cold tea on a hot day. But that tea is not pure Ceylon tea; it is a blended tea that gives a specific aroma and taste.
Selling Ceylon tea to a dying generation
Hence, when the old generation dies out, so will Ceylon tea which has failed to cultivate a new generation of fans. That is why tea is losing ground in the world markets with frequent fluctuations in prices. When the prices fluctuate, so will the incomes of the tea growers back at home.
As such, it is essentially a marketing issue for Ceylon tea when it is presented to the market as a beverage. It calls for innovative marketing tactics targeting the young generations so that they could be served chilled and bottled tea to their taste. At events where young people gather such as sports events, it is this bottled tea that would have a competitive edge over its main rivals.
Tea as an ingredient in pharma, cosmetic and perfume industries
It is time now that tea should be taken out as a comforting beverage. Its health properties have been carefully documented by W.W.T. Modder and A.M.T. Amarakoon in their 2002 book titled ‘Tea and Health’. They have, in terms of reported scientific research, reconfirmed the 19th century rule of thumb marketing slogan used by British tea traders that it was a ‘panacea for all ailments’.
But further research has to be done in order to use tea extracts in pharmaceutical developments. Further, India has successfully used tea for the development of 150 varieties of perfumes as reported by fragrantica.com website (available at: http://www.fragrantica.com/notes/Tea-106.html).
Promote research on and development and marketing of tea
In this game, Sri Lanka may have missed the bus to India but scientific research into perfume and cosmetic industry does not have a limit on the new opportunities available. What is necessary is to have a long term strategic vision for Sri Lanka’s tea industry.
That vision should offer tea as an innovative beverage, on the one hand, and use tea extracts in pharmaceutical, cosmetic and perfume industries, on the other. Both these new horizons need further research and development in biotechnology. That ‘need’ can be filled by research outfits like Industrial Technology Institute or ITI with its state of the art facilities in its new abode at Malabe and research facilities at local universities and higher learning institutions affiliated to foreign universities.
Tea is a global beverage facing global challenges. Hence, Sri Lanka’s tea authorities should start thinking global and acting global, a deviation from their current thinking local and acting global strategy.
(W.A. Wijewardena, a former Deputy Governor of the Central Bank of Sri Lanka, could be reached at [email protected]).