Tea to brew Rs. 8 b new revenue model

• Stakeholders to meet Minister to discuss issues this week 
• Funds allocated by Govt. for replanting, research and promotions inadequate 
• Tea Board Chairman says stakeholders should chip in to sustain industry 
• Stresses need for local market producers to step up contribution 

By Chathuri Dissanayake 

Taking a daring step, the tea industry is attempting to finance itself by raising Rs. 8 billion annually, diverging from Government-led policies to establish a revenue model for the sector’s needs from its own stakeholders, a top official said yesterday.  

The stakeholders of the industry are to meet with Plantation Minister Navin Dissanayake to discuss the way forward, Sri Lanka Tea Board Chairman Rohan Pethiyagoda told Daily FT. 

Sri Lanka Tea Board Chairman Rohan Pethiyagoda

“The industry needs to come up with a revenue model on its own. I don’t think the Minister wants to dictate that, nor do I. They are a dynamic industry so they should be able to develop the model,” he said. 

The estimated fund requirement for the industry is about Rs. 8 billion, Pethiyagoda said. 

“The industry rakes in revenue of about Rs. 200 billion a year, so this would be about 5% of the revenue. The industry should not look at the Government for the allocations, it should be able to sustain it on its own,” he argued. 

According to him the funding channelled by the Government is not enough to carry out the work needed to develop the industry. Investments have to be made in replanting, research and campaigning, he said, but the allocations from the Government are grossly inadequate to meet the needs in these areas. 

“The industry urgently needs to carry out replanting programs. In the 180,000 hectares of tea plantations the bushes are over 40 years old and have to come to the end of life point, so we need to replant at least at a rate of 5% per annum not at a standard rate of 2.5%.” 

The cost of replanting one hectare is close to Rs. 2 million, which amounts to a total replanting cost of Rs. 9 billion per annum as per the industry requirement, Pethiyagoda said. 

Added to this, the industry also needs to carry out research studies to develop new cultivars suitable for the changes in climate. The Tea Research Institute (TRI) now has the task of developing new weedicides to replace Glyphosate, an issue unique to Sri Lanka. However, according to Pethiyagoda the capital allocation of Rs. 900 million is not sufficient for the demand made from the TRI. 

“There is a need to develop new varieties of tea to face the climate changes; Nuwara Eliya is getting dryer while Ratnapura is getting wetter. So we need to create these conditions, the TRI needs at least six greenhouses for their research and the estimated cost is about Rs. 120 million for each. The funding allocation of the Government for TRI is not enough for this type of capital expenditure needed,” he said. 

The global tea promotion campaign too needs funds for continued campaigning. According to Pethiyagoda, the fund collects Rs. 1 billion a year, which is not adequate for campaigning. 

“This has to be spread across 12 market campaigns which means fund allocations for one market is small. When we take markets like Russia and USA which are very large markets this funding is not adequate to carry out promotional campaigns,” he said. 

Pethiyagoda also highlighted the need for tea producers from the local market to contribute to the industry, highlighting that currently only exporters are taxed heavily despite being exposed to a high level of risk and uncertainty. Exporters are exposed to price drops in global markets due to issues beyond their control such as sanctions imposed on different markets and a financial slowdown in different economies, while at the same time they have to face price escalation at tea auctions due to local weather conditions. 

“But those who produce for the local market don’t face such risks, nor are they taxed as much as the exporters. Local producers and factories only pay the basic rates of tax unlike exporters. This is not sustainable and has to be taken into account when developing the new revenue model,” he said. 

Pethiyagoda stressed that the revenue model should be developed within the industry to ensure sustainability.