Financial Times

New EU rule threatens Lankan tea exports
The government and Ceylon tea industry have begun lobbying the European Union to extend the deadline for new food safety rules that come into effect in six months, as most factories are yet to meet the new standards and face the prospect of having their teas shut out of key European markets.
Many companies initiated moves to upgrade their factories when the EU announced the new rules but have fallen behind schedule as soaring energy and wage costs and new taxes began to bite into their bottom line, reducing funds available for investing in costly upgrades.

New EU food hygiene legislation, to be implemented from January 1, 2006, includes provision for the application of HACCP-based procedures throughout the food production chain.

“Our tea factories would have to be compliant for our exporters to buy at the Colombo auctions because importers would insist only HACCP certified teas could be bought,” Tea Board chairman Niraj de Mel said. The new system is known as Hazard Analysis and Critical Control Point, or HACCP (pronounced hassip) and it focuses on preventing hazards that could cause food-borne illnesses by applying science-based controls, from raw material to finished products. Traditionally, industry and regulators have depended on spot-checks of manufacturing conditions and random sampling of final products to ensure safe food. This approach, however, tends to be reactive, rather than preventive, and can be less efficient than the proposed new system.
Over 550 Ceylon tea factories have still to initiate any action towards attaining HACCP standards, according to the Colombo Tea Traders’ Association annual report released last week.

It said 85 factories have initiated the process but will not meet the deadline of January 1, 2006. Only 20 factories have initiated the process and should attain HACCP certification by December 31, 2005 while nine factories have already obtained ISO, HACCP and chemical testing certification.

The EU in 2003 decreed that all food products that come in to the EU markets should be HACCP compliant. That rule is now in force having come into effect on January 1 this year.

The same EU rule said that suppliers from overseas to EU importers, of food products that eventually end up on the shelves of retailers in European markets, should also be HACCP compliant from January 1, 2006. “This means tea suppliers will have to fall in line,” de Mel explained.

De Mel, along with tea industry leaders, plans to meet EU officials in Colombo this week to explain the industry’s difficulties in meeting the EU deadline and asking for more time.Industry analysts said the EU might have to extend the deadline as other major tea producers and exporters like India, Kenya and Indonesia all agree that the time line is too short for their factories to comply with the new standards.The Tea Association of Sri Lanka, the industry apex body, initiated a quality certification programme for factories to upgrade their equipment and processes to meet the new standards when they were announced.

“There was a good response from about 30 percent of the estates at that time,” de Mel said. “If everyone had done so at that time we would be in better position to meet the new requirements. “Unfortunately, they began to look at rising costs and put the new initiative on hold, instead of looking at it as a marketing tool to stay ahead and get better prices.”

De Mel noted that producers need support to comply with the new rules as the estates and factories have had to grapple with soaring energy costs as well as other cost increases that had not been anticipated, making it difficult for them to allocate funds for the factory upgrades.

“The other side of the story is that our people have a huge cost issue.”Last year the government imposed an economic service charge which affected both producers and tea exporters. Producers also had to grant a wage hike to plantation workers.

Then in January 2005, tea factories which enjoyed Value-Added Tax (VAT) refunds, were exempted from VAT, sending their cost of production up by Rs 4-6 per kilo. “Also, energy costs are soaring by the day,” de Mel added. “Electricity and fuel are basic requirements for tea manufacture.”

Although tea prices are higher than last year, production costs had soared, narrowing the gap between prices and costs, leaving little leeway for companies to do factory modernisation to meet the new EU requirements. De Mel said that although only around 10-12 percent of Ceylon tea exports are shipped to the EU, there were still important markets like Germany, which could be affected by the new rules.Furthermore, there was the possibility that other European nations not in the EU like Russia, the biggest buyer of Ceylon tea, could adopt similar standards, and likewise the Middle East countries, another big market.“If that happens we could face a huge issue,” de Mel said.

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