Tea was once Sri Lanka’s main export commodity, much before garments came on the scene and migrant worker remittances made its mark.
In fact, foreign remittances has hit the top spot for the third year in succession with the Central Bank (CB) saying in the 2011 annual report released this week that remittances rose by 25 % to US$ 5.1 billion, from $4.1 billion in 2010. Unfortunately, the dependency on remittances as a strong input to tackle the trade deficit fell last year.
According to official figures, foreign remittances, as a percentage of the trade deficit, fell to 53% in 2011 against 83% in 2010 due to an increasing deficit last year. Figures show that the trade deficit widened sharply by100 % to US$10 billion in 2011 from $4.88 billion the previous year.
However while foreign remittances have grown over the years - though the migrant worker industry sector gets far less concessions than tea or garments – the tea sector is seen sliding unless immediate recovery measures are not taken.
The fall in the Rupee has also led to a drop in tea values dollar terms, though generating more local currency. At the March 27/28th Colombo tea auction, the weekly low grown average was Rs 424.13 ($3.23), up from the corresponding figure in 2011 of Rs 394.74 ($3.55) but still lower in dollar terms.
In the past six to eight months, the tea sector has been hit by the political turmoil in the Middle East. Countries like Iran, Syria, Iraq, Libya and the UAE are Sri Lanka’s biggest buyers. Trade with Iran is the worst affected owing to the US-led sanctions being imposed.
In this turbulent environment, comes the news that tea smallholders are struggling to survive and their contribution, approximately 76% of all-island production, is seen falling sharply.
The smallholder sector (see story overleaf) is warning that unsustainability may result in this sector crashing in the next four to five years.
What are the issues facing smallholders?
- Re-investment in land development is costly
4Replanting costs are high and uneconomical. Most of the smallholders own less than one acre and replanting means no income for three to five years until the new tea bushes grow.
- Cost of production has risen due to high wage costs and other input costs.
- Yields have dropped due to less fertilizer use.
- Few in the next generation of smallholder families are keen to resort to tea farming as a vocation.
Current production trends are worrying. Tea output from smallholdings fell to 182.2 million kg from 235.9 million kg in 2008. In 2009 it was 221.4 million and 2010, 183.1 million.
Everything points to falling production trends if no action is taken to tackle this problem.
Private tea factory owners are also complaining of rising costs saying the increase especially labour wages, fuel, electricity and wood, have led to a rise in manufacturing costs.
The CB report said tea production last year fell marginally by 0.8 % to 328.6 million kg and blamed it on a combination of excessive rain and dry weather. This may be true but if the government ignores other realities facing smallholders, this sector will be heading the way of the 1970s paddy farmer whose children have moved away from this sector.
Statistics, they say, don’t lie. In this context, the numbers last year are not encouraging at all for a vital cog in the economy.
The total acreage under cultivation remained static at 222,000 hectares in 2011 and 2010 but the extent that was bearing fell (marginally however) to 185,000 hectares from 186,000 in 2010.
Cost of production rose to Rs 350 per kg from Rs 314.17 in 2010. Replanting fell to 1,202 hectares last year from 1,399 in 2010.
Another important factor is that tea as a percentage of the GDP fell to 1.3 % against 1.6 % in 2010.
The issues facing the tea industry, particularly smallholders who represent the majority of the sector, are similar to the trends seen when the paddy sector – as a profitable and economic crop – began to falter.
While tea smallholders find it difficult to encourage their children to continue the business, labour in plantation companies is facing the same problem – children of tea workers opting to do other work that has a better dignity of labour – in many ways just like the trends seen in rice farming in the 1980s.
Additionally, the recent monetary and fiscal policy measures – tax hikes, fuel price increase and devaluation – have been a ‘shock’ injection to the economy but which has both its pluses and minuses.
While continuing a high trade deficit, defending the dollar at the expense of foreign reserves and allowing large-scale imports were becoming unsustainable and leading to an over-heated economy, the ‘instant’ remedy on the other hand has also had a negative effect.
Halting the burgeoning trade deficit through these measures were unavoidable, but economists question as to whether ‘tiny’ shocks (phased-out measures) would have been a better option than ‘large’ shock treatment (once-and-for remedy), which has increased the hardships to a large segment of the people, particularly fixed wage earners and small businesses.
These developments come just as the government is pushing to reduce dependence on imports and increase reliance on local industry and production.
For this to happen, the authorities need to stick to the basics first: ensure tea and other export crops are sustainable; strengthen smallholders and ensure they don’t cave in to rising costs; make the sector an attractive proposition to the younger generation and finally, help create a new, productive and efficient tea model that can be sustained for the next 100 years.