An overview of the tea industry and associated problems

Lalith Hettiarachchi

(Continued from last week)

A systematic replanting scheme has to be in place if yield levels have at least to be kept same if not improved.

The industry norm of replanting is said to be 2% to 3% annually but our rate is deplorably low varying between .7% and .3%, which, is obviously far below the norm. Presently it is believed that estates in high and medium elevations would require a capital injection of something like Rupees 1.2 million and estates in low elevations Rupees .8 million for replanting a hectare. Planters in general allege that they cannot afford to spend this amount of money due to their heavy financial burdens as at present.

The estate sector, more especially the former RPCs are reeling under financial difficulties. Most of the estates are heavily committed to the Banks to a point that they have no chance of going to the Banks for more facilities. The Banks themselves on the other hand are claiming that their exposure to the estate sector is so much that they cannot stretch any further as far as commitment to the sector is concerned even if funds are available.

Governmental assistance

Naturally the tea plantation Sector is looking up to the Government for assistance by way of grants, subsidies, assistance through donor funds, interest subsidies or such schemes to keep up the momentum of replanting. The setting up of the "Revolving Fund" has helped the Tea Smallholder sector to a certain extent. But the extension of this Revolving Fund scheme to the corporate sector, although in the air, has still not come to the stage of implementation.

Factory modernisation is another area, which has to be seriously looked at by the Government. Whether one likes it or not some pieces of machinery in some of the tea factories are ancient devices and contraptions, which have lived their profitable life.

They are still giving good service thanks to the repairs done from time to time. However the efficiency of these pieces of machinery, their effectiveness and whether they stand to the modern day demands and requirements is suspect.

Fertilisers, weed killers, pesticides and insecticides have to be used in any agricultural product for better and improved yield. So is it in the case of tea. But the side effects of the use of these are the concern of not only the environmentalists but also of the health conscious consumers of products that use such chemicals.

It is not a secret that a certain percentage of these chemicals find their way to the end product. Minimum Residue Levels (MRL) of chemicals under the Global Pesticide Initiative for most products including tea have now been established so that they cannot harm the consumers.

Although such tea importing countries like USA, EU and Japan, who are wary about producers conforming to these levels, lay down these standards, ironically these are the very countries that produce and sell these generic pesticides considered so harmful to the consumers of products, which have residue levels beyond a point. It is therefore in the best interest of the tea industry that we observe these levels strictly if we are to have the trade going.

With the present day requirement of complying with Hazard Analysis Critical Control Point (HACCP) Certification standards imposed by the European Union, and the impending possibility of similar standards being imposed by other tea importing countries, factory modernisation has assumed so much importance and urgency.

But not many in the tea sector can afford the high cost of such modernisation without some sort of government assistance. Considering the impact to the economy by way of getting a few more Dollar cents for each kilogram of tea, assistance to the industry in this area can be justified on the basis of a macro level cost benefit analysis.

What is lacking

Research on the tea industry has to be directed towards meeting certain minimum standards, which we have to maintain at least to stay where we are in the market. Technology, in the fields of research and certification has improved by leaps and bounds and if we do not keep pace with such developments we will be left behind.

Needless to say that cost of modern machinery and equipment developed on new technologies is very high. However adequate budgetary allocations on research have to be made in order to sustain the momentum of the required research to support the industry. In the same way skills training in the field of research is a priority.

Value addition has become a catchword in any export. It is more relevant to tea when one looks at the unbelievable difference between the bulk tea prices and the prices of tea sold in the supermarkets, especially in the West. The question one often asks is why we cannot add value to our tea and get better prices? Though the question is so simple, the answer is not so simple as one expects it to be.

On the one hand there are the multinational giants controlling the tea trade. On the other hand there is an industry short of funds for any research, improvements or innovations. So the natural tendency of the industry is to sell the product in bulk at the auction and be happy with it.

Where we stand to gain

The list of "middlemen" (a necessary evil) between the producer and the consumer is a long one and therefore when the tea comes to the consumer, the producer's price gets multiplied 5 to 10 times or even more. Although commendable attempts are being made by at least a few entrepreneurs in the direction of adding value to tea, much is to be desired.

Of particular importance are innovative attempts towards diversification by way of production of CTC, green tea, bio tea, tea bags, instant tea, flavoured tea and canned tea, apart from packeted tea. Innovative ideas regarding tea pills with a health tag too are in the air. It is encouraging that any effort to add value for tea attracted government attention and at least partial support from time to time.

Fiscal policies by successive Ministers of Finance have extended such support. The cess from tea exports is ploughed back (even though partially and not adequate) for development and promotional efforts, generic and brand.

An analysis of the last six month's export sales would reveal that 11% of the total volume of export in value added form and specialty teas (not taking into account the export of tea in packet form) has given 22% of the total export sales revenue.

While 63% of the export sales have been in the form of bulk tea, revenue for this 63% has stood at only 53% of the total export sales revenue. On the other hand tea sold in packet form, which stood at 26% of the total export volume has fetched export sales revenue of only 26% of the total export revenue.

The whole exercise thus shows that while sale of tea in packet form has been giving a profit which is marginally better, tea bags, instant tea, green tea, and other teas taken together have given a export revenue which is double that from bulk tea. But unfortunately the quantity exported as value added tea is 10 to 12 percent (excluding tea exported in packet form) leaving much to be desired.

This is not a situation to be left alone. It shows that there is a strong case for value addition in whatever form rather than sticking to a path of least resistance and selling tea in bulk and even in packet form.

Suggestions for the future

Tea promotion is both complex and costly. In a world where so many other competing beverages are on the shelves, and where consumer tastes are so very different and constantly changing, the promotional effort becomes more demanding. In addition colossal amounts of money is being spent by the multinationals who have patent rights to these beverages to further improve their market share of the products both by product development and promotional efforts.

In addition most supermarkets have their own brands, which they promote. This naturally therefore shows that more and more budgetary allocations are required for promotion to keep pace with the other countries in the industry.

Especially in a situation where the world has become more and more health conscious, tea has a definite advantage as a known health drink. That is how especially in the West all kinds of herbal concoctions are sold as "herbal tea." This is a clear case where producers of such concoctions use the image of tea to sell a "non-tea" product.

Therefore one has to take meaningful and effective steps to highlight the health aspect of tea as against these "herbal teas" with the support of internationally reputed professionals and professional institutions to disseminate this message to tea drinkers and prospective tea drinkers. We hope that efforts taken in this direction by international tea related institutions will be further pursued in forthcoming gatherings.

In Sri Lanka fortunately for the industry we insist on the ISO 3720 standard for tea exports. But on the contrary not many producers do insist on this in other tea producing countries. However much is the effort to monitor tea production and sales by authorities, there is still a gray area where a substantial amount of manufactured tea in Sri Lanka gets classified as "refuse tea."

But ultimately this "refuse tea" gets access to either the local market or sold/exported for different other uses. It is not a secret that some of it is consumed locally or gets smuggled out occasionally and finds its way into the international market to be sold and consumed as tea and perhaps even as "Ceylon Tea." By any standard this is disastrous to the industry in general and to our image in particular.

In the meantime some outgoing small "businessmen" are using certain time tested manual methods of "improving" the quality of these "refuse teas" before passing it to the consumers. The authorities naturally turn a blind eye to these operations as they deservedly get classified as self-employment projects.

Perhaps (I repeat perhaps) there can be merit in looking at the possibility of examining whether such "quality improvement" can be examined and tested in a laboratory so that such "qualitatively improved" tea can lend itself to certification.

Provided an acceptable process of quality improvement can be established, such tea can fetch better prices even at the auctions as they can legally enter the auction floor. Although the very idea sounds rather revolutionary from a conservative point of view, in case the idea is pursued further these manual "quality improvement methods" may very well be further developed to semi mechanised or semi-automated methods to get "value addition" to these "refuse teas." This however can be a project for the researchers.

Some of the tea producing countries have been toying with the idea of forming a strong "International Organisation" on the lines of the OPEC in order to be able to dictate prices. Even if such an organisation is formed, how effective it can be would depend on how strong the product called tea is, compared to other beverages. But opinion is divided on the issue.

However there appears to be a strong case for restricting new plantations in order to have stability in prices. The case for lower costs of production is very strong. Whether by productivity improvement or innovative manufacturing processes or energy conservation/alternative energy resources COP has to be lowered. Value addition and quality improvement have to be taken seriously to get better prices.

Whether one likes it or not tea producers have to comply with HACCP certification and also adhere to MRL standards. The estate sector, like many other sectors, still expects to be supported by the state.