Cheap tea imports for blending will ruin Ceylon Tea brand and endanger industry, warns top producer
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File picture of a tea plantation
The import of cheaper teas to Sri Lanka for blending purposes will not only destroy the Ceylon Tea brand but also endanger the entire industry and its two million dependents, warns tea industry veteran Merril J. Fernando.
In a response to Plantations Minister Navin Dissanayake’s interview in the Business Times last week on various tea developments, he recalled how he urged then President J.R. Jayewardene against a similar move in 1979. In a letter to the Business Times, Mr. Fernando said:
“The Minister’s statement to your newspaper provides good news as well as very disturbing news. As a veteran in the tea industry, backed by very substantial investments in all of its segments, I have a fair knowledge of every aspect of the industry. In this background, I consider it my sacred duty to explain my feelings about the Minister’s statement.
1.           Re-introduction of the Fertiliser Subsidy
Re-introduction of the fertiliser subsidy for RPCs is most welcome to all RPCs. It will make a significant contribution to the industry.
2.           Bringing back Glyphosate
The prospect of bringing back glyphosate will inspire a sign of relief to RPCs. They must be encouraged not to rely entirely on weedicides and to shift their reliance to a more sustainable system of weeding which would progressively reduce reliance on glyphosate.
All RPCs would join me in commending the Minister for these initiative for whilst chemical inputs like glyphosate cannot be a long or medium term solution, their elimination needs to be planned and managed over a period of time.
As a part of our commitment to ensuring environmental sustainability of our plantations, Dilmah Conservation has assisted Kahawatte Plantations in testing, refining and developing bio char, as an ecologically friendly and safe alternative to artificial fertilisers. Bio char additionally strengthens the plant, making them better able to resist pests and fungi, as well as produce better quality teas. We believe that bio chair and similar methods are the final solution and we offer our research and methodology to our colleagues in the industry for the benefit of Ceylon Tea.
The Minister’s search for other organic fertilisers is commendable. When they become available, their use will strengthen the Ceylon Tea brand and as a result prices will improve further.
3.           Revision of Lease Agreement
The Minister’s observations on the extension of RPC leases are important, however, it is vital to assess progress of each RPC in greater detail. For example, compare the assets entrusted to RPCs initially and where they are today. A complete inventory of assets at both points is essential. Obtain full details of agricultural practices maintained, improvements to production and importantly, all information about lands, buildings leased out and how that income benefitted RPCs.
I agree with the Minister that applying pressure on RPCs at this time will not present an answer to their problems. This is the appropriate time to establish a cordial working relationship between a competent government body and RPCs. This can be achieved by an ongoing dialogue among Government, Planters Association, Smallholders Association, Factory Owners Association, large exporters of tea including, value added tea.
4.           Monitoring Scheme
A stringent mechanism to monitor the work of RPCs is an urgent necessity. People competent to monitor plantations are ex senior planters, who carry a wealth of experience and knowledge badly needed in the industry today. I feel that some reputed planters now, living in retirement, will accept an advisory role in developing the industry.
5.           Palm –Oil production
As a commodity palm oil is subject to the uncertainty of a market that is tainted by growers who are damaging the environment in expanding cultivation and also to volatility and control influenced by major players. My priority, in respect of crop diversification, is an aggressive programme to develop spices, for which Sri Lanka is famous, and command a ready market at lucrative prices. Planting of cinnamon, cardamom, nutmeg, cloves, pepper, vanilla, on vacant lands should be encouraged and incentivised. Ceylon cocoa is famous for its quality and therefore, unproductive land around Matale region should be utilised for the crop. Diversification should receive priority for these crops where parallel development of value addition strategies and infrastructure will produce a significant benefit to the national economy and reinforce Sri Lanka’s uniqueness in the spice industry. Spices will also provide an additional source of income to RPCs while enhancing export revenue.
6.           Blending Ceylon Tea
In my opinion, the good intentions of the Minister will be destroyed by his partiality towards promoting a CEYLON TEA HUB. I have personally opposed free importation of tea since 1979, when the late Minister Lalith Athulathmudali came up with this idea, having visited a tea blending and trading centre in Holland. He was vociferous in implementing his wish. I explained to him at length the potential implications of such a venture and followed up with another meeting with him and the late President J.R. Jayewardene on this subject.
They accepted my position and did not wish to risk any harm to the tea industry. Since then, I find myself continually defending and protecting Ceylon Tea for the nation. Amidst the reality that every kilogramme of Ceylon Tea, whilst the most expensive in the world, is sold, the only motivation for importing tea for blending is to reduce the cost of tea, and in that process, substitute tea from cheaper origins for quality Ceylon Tea. Most of the vociferous advocates of a tea hub are traders, whose only interest is their bottom line. With the future of the Ceylon Tea industry being so obviously aligned with quality and value addition, it is clear that proponents of blending Ceylon and other teas for export have no other interest in the sustainability of the industry and, wish to exploit producers by selling cheaper. As any marketer with an understanding of the beverage market will explain, price is a temporary tool and a bottomless downward spiral in competition with other producers.
I am now accused of having a vested interest in preventing a Ceylon Tea hub. Of course, I have vested interests in protecting our tea industry. My family has very significant investments in – tea plantations, which are recognised for their excellent performance; tea brokering in Forbes & Walker Ltd and an enviable record in establishing the only fully
Sri Lankan owned-globally respected brand name. These enterprises represent the top end of performance and quality. In protecting these interests, we protect CEYLON TEA.
Marketing DILMAH CEYLON tea as No. 1 quality in the world, Ceylon Tea Services Plc, a listed company is delivering very generous returns to investors. An investment of Rs. 10,000 in Ceylon Tea Services Plc originally, delivered Rs. 7 million in dividends up to 2015 and the Rs. 10,000 investment reached Rs. 17 million in the stock market in June this year. MJF Group’s average export price is Rs. 1,500 per kilo.
As a strategy, selling cheap has failed, not only in tea but in every other category. The benefits are invariably temporary. The cry for making Ceylon Tea cheaper by blending with cheaper tea from other origins is clearly motivated by the self-interest of some traders, totally disregarding the interests of Ceylon Tea and the national economy.
These numbers establish that (COP) cost of production of a kilo of Ceylon Tea is, by far, and equally our selling prices are also e highest amongst all producing countries. Equally, our selling prices are the highest. Nevertheless, the industry is in dire straits. Sitting in this comfortable market position, what will a tea hub do? It will bring disaster to our industry by fatally damaging the Ceylon Tea brand that next year celebrates its 150th anniversary.
The hub is intended to make Ceylon Tea / Ceylon Tea blends cheaper, therefore every kilo of tea imported into the country will be substantially below our COP (cost of production) and cheaper blends will be exported. Cheaper blends will reduce our FOB earnings and the gap between our COP and selling prices will widen. That is the point when the foolishness of a tea hub will be realised and the facility withdrawn. Sadly, all possible damage to Ceylon Tea would have occurred by then. Believers in Pure Ceylon tea, who pay handsome prices for it will then lose trust in the tea that comes from Sri Lanka, knowing that it has become a mixture of tea from different countries. Whatever short term gains the traders make with their cheaper blends, will be unprofitable and eventually lost as the countries from which they import tea compete with us.
More importantly the fate of any brand is determined by consumers and if the trust and awareness of that have been built over 150 years is dismantled by permitting Ceylon Tea to be mixed with tea from other origins, the consequences will be irrevocable. A century and a half of promoting Ceylon Tea, and the association between Sri Lanka and quality tea would require no more than a few months to destroy a brand that takes decades to build but – especially in the digital age – only weeks to destroy.
You would then not find a single person in the country who supported the hub. Only the Minister and the government of the day will be driven to accept responsibility. In the early 1980s free importation of tea for re-export was permitted. There were such flagrant abuses that the government was forced to change the policy and correct their error. We cannot afford to face another similar eventuality.
The social, political and economic consequences of permitting importation of tea from any other origin, necessarily therefore cheaper than Ceylon Tea, would extend to disruption of the livelihoods of over two million dependents, including smallholders, workers on RPCs and the ancillary industries and local economies in areas of Sri Lanka where tea plantations dominate. The outcomes are almost certain to require considerably greater state intervention in financially supporting affected industries and communities, than the perceived benefit from permitting international brands to take advantage of the image of Ceylon Tea. Political instability that would be the natural outcome of the social and economic disruption that is a clear result of this, would only add to the melee.
7.           Promoting Ceylon Tea
There are more ‘Ceylon Tea’ brands around the world, than those exported from Sri Lanka. A good example is Russia. Some of our exporters built brands for Russian traders over the years. I pointed out to the government and the trade repeatedly, that they will use our exporters to pack Russian brands on attractive contract packing rates and will sooner or later, establish production facilities in Russia and reduce Ceylon tea content in their packs having built those brands exploiting Ceylon tea. I was highlighting this fear from 1990 for some years however no one took any notice of it.
They will then add a token presence of Ceylon Tea to their packs and reply on cheaper tea to lower their prices while continuing to exploit consumer perception of Ceylon Tea as the world’s finest. The most harmful aspect of this business is that all the blended tea packs in Russia and elsewhere are sold as Ceylon Tea. Further damage is inflicted on Ceylon Tea by those Russian brands now also appearing on supermarket shelves throughout Europe, West Asia and Asia Pacific. This is the reward we receive for co-operating with those companies.
On the 150th anniversary of one of the world’s great agricultural endeavours, we should celebrate Ceylon Tea and build on the achievements of the past, not dismantle them with damaging consequences for all including proponents of import of tea for blending and re-export.
The following figures will make you wonder why some traders are crying for a tea hub.
