Higher prices to carry tea to $ 2.1 b target

Monday, 25 August 2014 00:00 - - {{hitsCtrl.values.hits}}

2016 aim possible says SLTB Chief, promotions crucial
Industry experts predict $ 1.8 b mark
11% YOY revenue growth needed for next 3 years but last 6 years annual growth 4%

By Shabiya Ali Ahlam Dismissing reservations on Sri Lanka’s highest foreign exchange earning crop reaching the $ 2.1 billion revenue mark by 2016, the Sri Lanka Tea Board (SLTB) Chief believes higher prices will take the industry to its target. Pointing out that the industry has achieved 48% revenue growth from 2009 to 2013, STLB Chairperson Janaki Kuruppu opined in that context reaching the 2016 is possible if the industry “gets its act together fast”. Acknowledging it is a high target, Kuruppu told the Daily FT: “We cannot achieve this target by producing more. That area we have almost saturated. We can get this only by earning more dollars per kilo since we cannot predict the volumes.” She added all promotional work carried out by the SLTB would increase the value per kilogram so consumers will be willing to pay that extra price. “The promotion needs to convince them to pay a bit higher So the target is achievable but we have to do something totally new, like what we have identified in our 20-pronged marketing plan, for that to happen,” noted Kuruppu.

However, based on the export earnings achieved in the last six years where it has been growing at an annual average of 3.94%, the tea sector will achieve an earning of only $ 1.73 billion by 2016. If it is to reach the set target of $2.1 billion, there needs to be YOY revenue growth of 11% for the next three years. In 2013 the earnings stood at $ 1.54 billion, a 9.63% increase from 2012, where from 2011 to 2012 the sector recorded a negative growth of 5.67%. Sharing the SLTB Chief’s views are John Keells Tea Vice President and CEO Sudath Munasinghe and Forbes & Walker Tea Brokers Director Dilan Polonowita. Expecting 2014 to record export earnings of $ 1.7 billion, Munasinge is certain reaching the 2016 target is on the cards. Opining it is not impossible despite India and Kenya having a bumper harvest, he noted a lot of work has to be done along with increasing focus on exporting value added tea. Polonowita, looking at the progress achieved since 2007, said reaching the $ 2 billion plus earning target is a possibility. Justifying his view, Polonowita told the Daily FT: “We have about 200 million kilos of low grown orthodox teas and that will help achieve high process in the international markets. We have also been increasing our value addition of our products and that will give us the edge in reaching the $ 2.1 billion target by 2016.” However, the majority of the industry expressed chances of fulfilling the set ambitions are slim. Asia Siyaka President and CEO Anil Cooke opined with the current performance rate it is unlikely that the tea industry will reach the set target by 2016. He noted that if it aims at reaching the same, the industry should take measures to increase national production, focus on creating a unique value for certain segments of tea and increase emphasis on value addition. Lanka Commodity Brokers Director and CEO Sarath Sirisena, calling the target an unrealistic one, said: “I would say that even in the best year Sri Lanka will not be able to surpass a production of 350 million kg. Even if we did, reaching that earning within the next three years seems impossible unless some of the major producing countries are hit, resulting in a surge in exports from Sri Lanka.” Colombo Tea Traders’ Association Chairman Jayantha Keregala noted that by 2016 the country will only be able to achieve a maximum of $ 1.8 billion. “While other origins have been on the low end, Sri Lankan tea has been fetching good prices, but you cannot expect this trend to continue. It has all to do with the weather and its impact on production. “With the free port facilitated, then exporters might explore the option of importing other origins, doing the value addition in Sri Lanka and exporting it to international markets. That is an option if we cannot achieve the required production.”

Promotions bottlenecked

The Sri Lanka Tea Board (SLTB) defended delay in a crucial international promotional campaign, insisting current procedures and policies are creating bottlenecks. While the tea regulator had suggested a number of strategies and measures to uplift the industry in the local and international space, it has not been able to execute the same due to delays caused by the stakeholders involved, implied SLTB Chairperson Janaki Kuruppu in an interview with the Daily FT. Acknowledging the support extended by the Ministry, Kuruppu said: “The Ministry has been supporting our proposals if it can be done within existing procedures. For years we have been stuck with certain problems and bottle in the system and we have been told to accept that there is no solution. Hence, if we come up with something new, we hit a block.” Expressing that the SLTB would appreciate the Ministry guiding the institutions on overcoming certain hurdles, she added there are ways to get things done correctly and legally in a fast and efficiently manner within the existing system. Kuruppu further pointed out those relevant stakeholders not understanding the need to change and the need to hire the right talent to achieve high quality outcomes is a key hurdle she faces as Chief. “If we go on with the current mindset we have, we will not be able to achieve those great goals. If we didn’t think we could finish the war or double the per capita income, we would not have achieved what we have today. We will even start attempting only if we start thinking that things can change,” she asserted. Kuruppu called on the private sector to come up with possible solutions. “If the ideas we come up with are not good enough, come up with better ideas and solutions because it is the private sector that benefits a lot from what we do,” she said, while still commending the sector for its contributions. The tea industry having its own share of problems just as any other industry, Kuruppu narrowed the issues down to quality, productivity and lack of innovation. However, although the SLTB has been attempting to solve such issues in its capacity as the regulator, the Chief stressed nothing could be done by force and it should be in the interest of the players in the industry to adhere to the rules to ensure quality. “The industry is private sector-led. When we reject someone’s tea shipment, they want SLTB to be out; when a new factory or new exporter wants to register, they want SLTB in. So most of the complaints you hear from some industry people are very self-motivated,” she said, shedding light on the current competitive status of the industry. Expressing confidence in the potential Ceylon Tea has to make a name for itself in the international market, she said: “The global tea industry has gone to sleep. Coffee is so alive. No one has done much to promote this beverage; it is such a mundane everyday thing where no one really thinks much about it. Ceylon Tea has the opportunity to take that and revolutionise the tea category and own it.”