Sri Lanka Plans to Broaden Tea Industry Strategy

Tea workers near Nuwara Eliya. (Getty Images/Oliver Strewe)
Revenue was flat, and tea production in 2019 returned to 2016 levels, and all but three of Sri Lanka’s 17 public tea estates reported losses. The situation prompted Sri Lanka to draft a 10-year “Road Map 2030” master plan to “refocus the entire tea value chain.”

Sri Lanka is currently reviewing the entire length of the country’s tea value chain seeking to restore profitability with environmental sustainability, according to Sri Lanka Tea Board Chairman Jayampathy Molligoda.

“We are to look at teaas a beverage in the global market, worth $38 billion as compared with ournarrow perception of the tea industry as a perennial crop, generating only $1.45billion per year," Molligoda said.

Productiondeclined to 2016 levels last year, and export revenues were flat at $1 billion.All but three of Sri Lanka’s 17 public tea estates reported a loss in the sixmonths ending September 2019. The decline in volume to 301 million kilogramsfrom 303 million kilograms in 2018 was weather-related as drought conditionslowered yields in all three of Sri Lanka's tea-producing regions.

Lower yieldsare compounded by the fact that globally black tea production is up. CTC pricesare soft as warehouses remain packed with tea. Yields will ebb and flowpresenting seasonal setbacks, but modernizing the supply chain is a pressingissue, according to industry leaders.

In January, Sri Lanka's Ministryof Plantation Industries and Export Agriculture initiated discussions on a 10-year master planknown as "Road Map 2030." The public-private initiative intends to"rapidly modernize the island country's tea sector through technologicalintervention,” according to the Daily Mirror.

Sri Lankaexports 97% of its tea, earning $1 billion in foreign exchange dollars annually,but production volumes are down and export revenue flat for the past four years.Last year's revenue at 17 Regional Plantations Companies (RPC) fell 3.6% toSLRs28.47 billion ($156.5 million) for the six months ending September, costingthe government SLRs400 million ($2.2 million) per month to pay wages, accordingto Economy Next. Private sector executives and governmentofficials agree that change is necessary. Exporting larger and largerquantities of tea, even at relatively high commodity prices, is not generating enoughreturn on Sri Lanka’s massive investment. The transition from commoditysupplier to better quality and full-service value addition will take time.

Privatestakeholders, includingassociations of tea planters, tea factory owners, tea traders, and teasmallholders,are working on a separate five-year development plan that takes intoconsideration various challenges such as global tea market trends andcompetitor capabilities when formulating the master plan.

Tea is vital to the Sri Lankan economy, and a major export. It was first grown during the 19th century after disease had destroyed the country's coffee plantations. (Getty Images/Martin Puddy)

In January, thetea board set an export goal of $1.3 billion for 2020 on a volume of 340million kilograms. SLTB Chairman Molligoda acknowledged that adding 40 millionkilograms is ambitious but added, "I am positive that the targets can beachieved with quality in mind."

The onset of anEl Nino event, expected in November, will reduce tea yields. The year is off toa slow start. In January, Sri Lanka harvested 21.9 million kilograms, down from 23.2 million kilograms in 2019. Prices at the Colomboauction, meanwhile, fell from SLRs637.75 ($4.16) per kilogram in January toSLRs588.8 ($3.17) per kilogram in January 2020.

Molligoda describedthe situation as an "integrated productivity and quality problem."

 Auction prices fall if the plucked leaves areof lower quality, he explained. "We have noticed a gradual decline in thequality of the green leaf. The good leaf count, which has come down, needs toincrease subsequently."

“If the quality ofraw material continues to deteriorate, we are in trouble,” Molligoda said.

ShiftingExport Partners

In an unusualturn, China, the world's largest tea exporter, is now one of Sri Lanka's mostimportant tea markets, importing large quantities of Ceylon tea at pricesrivaling industry-leading rates.

Sri Lankashipped 11.8 million kilograms of tea to China last year. This amount is doublethe 5.3 million kilograms exported five years ago, according to Asia SiyakaCommodities, Sri Lanka’s leading tea broker.

"Chinahas emerged as Sri Lanka's fastest-growing "new market" with interestin traditional Orthodox black tea and high-end packaging common amongst theincreasing number of Chinese tourists visiting Sri Lanka," writes Asia SiyakaCEO Anil Cooke. SriLanka now supplies 29% of the 35 million kilograms that China imports,according to a report published by Xinhua News Service.

Due to U.S. sanctions that restrict trade in dollars, Iran turned to Sri Lanka and India to quench its thirst for tea. Iraq now ranks first among Sri Lanka's tea trading partners, which include Turkey, Russia, China, the UAE, and Saudi Arabia.

Sources:Colombo Page, Infosurhoy, Economy Next