- Says tea has become highly politicised, a national burden to the economy
- Disappointed stakeholders allege previous Govt. used Rs. 2 billion of promotional fund for unproductive initiatives
- Warns high controls close doors for foreign investments, opportunities for local firms to expand
- Asks to separate plantation and tea exports into different ministries
- Urges discouraging protection given to tea producers
- Claims Ceylon Tea still has no GI status; competitors take advantage of loopholes in system
- Firms moving out of SL on the rise causing loss of foreign exchange, capital investment, employment opportunities
- Suggests privatising TRI and implementing automated auction
- Targets $ 1.5 billion revenue this year, up from $ 1.3 billion
Tea Exporters Association Immediate Past President Rohan Fernando (third from left) and Chairman Jayantha Karunaratne along with other officials at the media briefing on Friday - Pic by Pradeep Dilrukshana
By Charumini de Silva
Renewing its call for liberalisation, the Tea Exporters’ Association (TEA) last week highlighted multiple issues plaguing the sector and asked the Government for swift assistance on an essential “tweak” to modernise and end the downfall of the 150-year-old industry.
Terming the tea industry a “national burden” on the economy, TEA claimed that the sector was at present highly politicised and noted that it was a key reason for the industry’s downfall. The association also criticised the approach of the authorities in carrying out the Rs. 7 billion global promotional campaign fund, where it has already spent Rs. 2 billion on unproductive initiatives from the higher taxes and fees imposed on them.
Speaking at the 18th Annual General Meeting (AGM), TEA Chairman Jayantha Karunaratne said they have once again lobbied in three areas, including the removal of tea cesses, liberalising the tea industry and the automation of the Colombo tea auction in the upcoming Budget 2018.
Given the authority to liberalise for years, TEA believed Sri Lanka can become a “tea centre” which has the potential to become a $ 5-billion industry.
“Our idea of importing is not to get subsidised but to expand our assortment of teas where volumes and prices will both go up. The worry of the producer is that prices will come down by importing tea.”
With a lot of interest shown by foreign companies, Karunaratne said there was an opportunity for them to invest in Sri Lanka and local companies to expand their business into multi-origin teas.
He said some exporters were unable to cater to certain market segments due to the unavailability of suitable types of tea locally, which has a negative impact on the growth of brands. In most markets, the importance of the origin of tea is gradually phasing out to the strength of brands.
It was pointed out that players outside Sri Lanka could come in a big way and invest here, but were reluctant because of the restrictions in the industry.
“In a way, we are closing the doors for foreign investments, where other countries are benefiting from,” opined Karunaratne.
TEA Immediate Past President Rohan Fernando claimed that high controls and resistance to change had pushed the industry backwards significantly.
Citing the garment industry as the best liberalised economic model of Sri Lanka, which has grown tremendously internationally within a short span of time, he said it was crucial for authorities to take action to streamline the tea industry before it was “too late”.
Karunaratne said they were disappointed in the ad hoc manner in which authorities spent the promotion fund, where exporters pay over Rs. 3 billion by way of various cesses to the Government, which is more than 3% of the total export income.
Although the Minister has agreed to remove all the cesses immediately, it has not been implemented yet as the Minister’s proposal was at the Cabinet level.
Fernando said Ceylon Tea was not advertised using a dual promotion similar to what other countries and products have done. “Ceylon Tea is a part of a brand concept like Scotch Whisky. This is what we want the Government to do with the Rs. 7 billion fund.”
According to him, the previous Government has spent close to Rs. 2 billion of promotional fund money on Katina pinkama, pereheras, shopping centres, cafes and failed projects.
“This was an industry that made money before 1977. It was a 100% private sector driven industry, it made money, paid taxes to the Government and it was not a national burden. Today, the tea industry has become a national burden to the country,” he stressed.
Fernando pointed out that every year millions of rupees were given for plantation, fertiliser subsidies, price guarantees and now they had come to the 150th year. “With these high prices, if they still can’t be independent then there is something wrong with the system. I can only say it is politicised. This is the whole problem.”
He said despite telling the Government what they should do twice in the Budget, which was also passed two times consecutively, the authorities have failed to implement them.
“They don’t have the courage and the backbone to implement what they decided in the Budget. If the Government passes the ball and says it is a home and home match, then why do you need a Government? You don’t need a Government in that case. We can make decisions. Why should we go to the Government? Governments are there to make policy decisions for the betterment of the country.”
Fernando said if politics was removed from the tea industry, it would be one of the “finest” industries this country could look forward to in order to make it into an export-driven economy.
He was also critical about identifying the plantation and tea industry as separate sectors.
“You must understand that the plantation industry and tea export industry are different. Unless they realise these are two industries and put them under the External Trade Ministry and Plantation Ministry, we can never resolve this issue because we are looking at the export industry from a tea bush perspective.”
Karunaratne asserted the protection given to tea producers did not expose them to real competition, noting that under the circumstances, some producers may not make any serious effort to improve the tea quality, reduce the cost of production and improve management efficiency.
“They don’t want to change. They will continue to lose and collect those handouts because it is a better business,” he emphasised.
It was highlighted that Sri Lankan tea brands which exclusively market the Pure Ceylon Tea concept account for less than 10% of the country’s annual tea export volume and their growth in terms of volume remained static.
Karunaratne said these brands were unable to drive the tea industry to achieve the expected growth due to the comparatively low volumes. The world market share of single origin tea was insignificant and it was unlikely that this share would increase.
“You cannot consider their argument because they do so to protect their brand. Some people don’t want international companies to come into Sri Lanka as they feel they are the only people that need to remain in this country,” he quipped.
TEA Vice Chairman Sanjaya Herath pointed that despite being a 150-year-old industry Ceylon Tea still it had no geographical indication (GI) status.
“We don’t have the GI status for Ceylon Tea. Dubai, India and Vietnam are using Ceylon Tea in their products and as a Government and as an industry we cannot do anything about it. Only now are we trying to get GI status for Ceylon Tea and Ceylon Cinnamon.”
TEA Vice Chairman Kithsiri Jayawardane said a number of international and local tea firms have already moved out of Sri Lanka due to the current policies, where the country has lost a substantial amount of foreign exchange, capital investment and employment opportunities.
He added that more Sri Lankan tea brands will consider shifting their operations to places like Dubai under the current system. The liberal trade policies adopted in Germany and Dubai have helped these countries to capture a substantial share of world tea exports without producing any tea.
Fernando said those who were opposing liberalisation must tell the country how they can be self-sufficient. They must say so by not allowing imports to come and how not to be a national burden. By the time authorities and the industry realise this, it will be “too late” to get them back to the country.
Karunaratne said that although the prices at the Colombo tea auction were comparatively higher than other auction centres, which have benefited tea producers, exporters find it difficult to compete with other international brands, which are offered at more competitive prices.
“The producers and owners are very happy as their current prices are over Rs. 600 per kilogram at the auction level, which is 55% more than the prices they earned a year ago. But the exporters’ challenge now is to increase shelf prices at the international market as it hasn’t improved as against the cost of exporters have escalated by over 55%,” he pointed out.
However, the industry expects to achieve revenue of $ 1.5 billion this year compared to $ 1.2 billion in 2016 as they venture into new markets like China and the US.
It was noted that despite allocating Rs.140 million from the previous Budget and the industry calling for an automated tea auction to speed up the process and obtain accurate data, the authorities have failed to deliver a system to date.
“In 2015, we had a system in place but there were some weaknesses especially with the ownership. At present it takes about two to three days at the Colombo tea auction. It’s a long process and a waste of labour. We need to cut down the time taken for the selling of teas,” Fernando added.
The stakeholders also suggested privatising the Tea Research Institute (TRI) noting that research was best done by the private sector with the backing of the Government.