Why the 150-year party for Ceylon Tea?

 The estate workers were not involved in last week’s tea party, nor for that matter were the tea planters who burned the midnight oil to make this turnaround a success story which does not hold in good stead for the industry – Pic by Shehan Gunasekara

The largest tea party that was staged last week to celebrate 150 years sure secured share of voice in Sri Lanka, in the backdrop of the garbage war and dengue epidemic that has hit all media in Sri Lanka and now moving to international media like BBC and CNN. 

Then again the frank opinion expressed by the outspoken Chairman of Sri Lanka Tea Board the week before created a buzz in the country as to what was there to celebrate in the 150-year history of this great industry. The cry from the industry is from a supply and demand side of the business. 

On the supply side the key question asked is why a unilateral policy decision was taken to stop glyphosate that was used to control the fast-growing weeds in a plantation. With no suitable substitute being found, weed control has become a key issue in the estates. When certain areas get overgrown with weeds, pluckers conveniently skip such areas. Within weeks, tea bushes in the affected area get covered by weeds and even perish. Weeds also compete for soil nutrients, water and sun light depriving tea plants their due share hence some planters are stating that there is a loss of 30% in harvest due to this issue. 

The other issue highlighted was on the demand side that the Rs. 5 billion promotional fund that has not been rolled out into the global marketing campaign even after years of private-public engagement of the promotional and marketing committee. The Chairman of the Tea Board as stated that unless timely action is taken the monies will be consumed by the Treasury, which is a very sad situation given the 150-year celebration of Ceylon Tea this year.

Tea – the strongest equity for SL

Let’s accept it, Ceylon Tea is the strongest brand for Sri Lanka globally. Tourism has been Googled on the internet by only 23 million people in 2016 but over a 60 million people have consumed a cup of Ceylon Tea globally generating 1.5 billion dollars to the country. Let’s also not forget that almost a million people are employed in the industry providing over four million family members an income for living. In fact globally, Sri Lanka is considered a model to the world in the world of tea that extends across the value chain, from growing to production and from physical distribution to the most admired auction system in the world.

1st tea beverage – ozone friendly 

From a demand perspective, the initiative of Ceylon Tea becoming the first tea beverage to be certified globally as being ozone friendly status as per the Kyoto protocol sure spruces the industry to be the benchmark of driving the new age economy of Sri Lanka. However the shine of the tea industry has been taken off as the unique Private-Public Partnership to launch the global marketing drive for the last five years has failed to take off due to red tape and process issues that finally reflects the poor leadership of the industry to make this campaign comes alive.

God’s worry, why tea party?

The reason why many are criticising the ‘World’s Largest Tea Party’ to celebrate 150 years is because way back in 1960, Sri Lanka commanded a production share of 20.8% globally and an export share of 35.1%. Today in 2017 we are done to at 8.8% share on global production and only an 18.8% export share. 

What is more alarming is that the top 10 destinations of Ceylon Tea in the 1960s, 1985 and in 2010 we can see how Sri Lanka has failed to build brand equity and hold on to its consumers over time. Every 15 years we are challenged with the task to find new markets and develop a new relationship with consumers which is the most costly exercise that one is challenged in a business.

In 1960 the top five markets were UK, Australia, USA, Iraq and South Africa. In 1985 the top five were replaced with Egypt, Iraq, Syria, Saudi Arabia and UK falling to no. 5 position at 13.4 million kilograms of tea from the 69.1 million kilograms it did way back in 1960. By the year 2010 the top five countries are Russia, UAE, Iran, Syria and Turkey which just explains the crunch issue that we are up against. 

Five years after in 2016 we see again similar situation in some markets like UAE which are key markets for Ceylon Tea. This may be due to the formation of economic blocs or due to trade agreements or by different tariff adjustments coming to play but the fact remains that if we had a strong marketing campaign for Ceylon Tea, we could have mitigated this impact and protected the consumer share of throat in these markets.

Niche marketing strategy? 

Whilst the numbers may be alarming, to be honest these numbers are acceptable given that Sri Lanka’s supply capability is at 300-325 million kilograms of tea per annum and world supply has propelled to around four metric tons, hence the only business option that Sri Lanka can pursue is a niche strategy so we can also command a premium pricing which can offset the high cost model in which we operate. 

But this require very strong policy decisions, on which sadly Sri Lanka has failed miserably in the last couple of years. Many were optimistic when the Yahapalana Government came to being in January 2015 but sadly things have further deteriorated despite the cutting-edge policy decisions that were expected.

Privatisation a reason to celebrate?

If we go back to the history of the corporate tea sector of Sri Lanka, we see that in the 1970s, large extents of plantation lands were acquired by the Government of Sri Lanka and vested under State institutions, the Janatha Estate Development Board (JEDB) and the Sri Lanka State Plantations Corporation (SLSPC) under the Land Reform Act No. 1 of 1972.

However, with the increasing inefficiency of the two corporations that were Government-owned, the JEDB and SLSPC sought Government assistance to offset the mounting operational losses that had increased to almost Rs. 1.5 billion per annum for both corporations by 1992. In the face of mounting financial losses suffered by the two corporations, the Government appointed a task force which recommended the entrustment of the management of the plantations to the private sector. The Government initiated privatisation of the sector in 1992, which led the Sri Lankan tea industry to witness one of the most significant structural changes in the industry’s history. Incidentally the tea industry was the first to undergo the privatisation process in the country.

With the new management architecture in place, it resulted in the best tea plantation managers being absorbed by the private sector corporations, during the post-privatisation period. The RPCs turned around the Rs. 1.5 billion loss-making venture into profitability, which signalled that the privatisation process had worked and to my mind this will call for a celebration in the 150th year of Ceylon Tea in Sri Lanka. However, sadly the estate workers were not involved in last week’s tea party, nor for that matter were the tea planters who burned the midnight oil to make this turnaround a success story which does not hold in good stead for the industry.

RPC business model working?

In 1992 when the State opted to privatise the management of State plantations, 23 Regional Plantation Companies (RPCs) were set up, of which 20 RPCs were leased out to 12 management companies during the period 1992/1993, resulting in the conversion of 461 estates managed by the JEDB and SLSPC to 20 RPCs under the Companies Act No. 17 of 1982.

In the administrative structure of the RPCs, 100% ownership was retained by the Government, whilst the respective RPCs were initially assigned lease-hold rights of between 12-29 estates for a period of 99 years for a nominal lease rental and thereafter adjusted the same to 53 years. This was the birth of the new operating model of the corporate tea sector of Sri Lanka. However almost 30 years post the privatisation of the management there are allegations and counter allegations of the private sector not following the spirit of the agreement whilst research reveals that the Government is not making consumer-oriented timely policy decisions that has resulted in the current issues in the RPCs.

What next?

Hence, it is clear that unless some serious policy decisions are taken not only from the demand side whilst perusing interesting concepts like the tea hub, Ceylon Tea is heading to rough waters on the supply chain end.

In my view rather than celebrating with tea parties a more long term perspective could have been taken with a structured evaluation process of the industry in a private-public partnership approach. The findings focused and cutting edge decisions taken on the supply and demand end would have been the best gift that Sri Lanka could have given Ceylon Tea.

(The author can be contacted on [email protected]. The thoughts are strictly personal views and do not reflect the organisations he serves in Sri Lanka or globally.)