Financial Times

New direction for the tea industry
By Sunil Karunanayake
Our regular columnist on corporate and macro-economic issues stresses the importance of the tea industry complying with new European food safety standards in order to remain competitive in the global market place.

Despite the increasing significance of industrial exports, the tea industry continues to maintain its position as a leading player in the global tea trade and a highly networked agro industry from corporate blue chips to rural small growers. Tea sector’s contribution to poverty reduction through employment is invaluable. Recent trends to ensure food safety and food hygiene assuring the final customer necessitates Sri Lanka to enhance quality and food safety features to meet the challenges.

The regulation (EC) 852/2004 of the European Parliament and of the council of April 29, 2004 on the hygiene of food stuffs seeks to ensure the hygiene of foodstuffs at all stages of the production process, from primary production up to and including sale to the final consumer. Food Business Operators (FBO) are required to apply the principles of the system of hazard analysis and critical control points (HACCP) introduced by the United Nations Food and Agriculture Organisation. These regulations are expected to come in to force by early 2006 thus bringing the exports to EU under a strict quality regime.

It is reliably understood that EU will be less stringent on the implementation date for primary production, nevertheless they recommend that the industry continue to upgrade towards HACCP by using appropriate hygiene practices even at the small plantation level. Formal certification is any how a powerful tool in the market place.

Success of a HACCP programme revolves around motivating employees and training and educating them in food safety principles. This brings an enormous challenge for the local tea industry covering all segments of the supply chain. Some factories and few exporters have already met these compliance levels but the majority are yet not focused.

New legislations in developed countries shift the responsibility of maintaining quality standards to the manufacturer as well as to other supply chain partners. An effective food safety management system will be built upon Good Agricultural Practices (GA),Good Manufacturing Practices (GMP) and Good Hygienic Practices(GHP).Compliance will be rewarded with competitive advantage in a global market.

In 2004 there was quite a concern in the Sri Lankan garment trade on the impending withdrawal of the quota system and the anticipated fierce competition. Quite rightly the private trade and the government jointly took a series of measures to protect Sri Lanka’s position in this challenging environment.

These initiatives no doubt have paid rich dividends and according to the latest Central Bank information the 2005 exports of textiles and garments has grown by 8.2 per cent to US$1326 million accounting for 33% of the export growth in the first half of 2005.As a further boost to the industry government recently initiated a credit guarantee scheme through the Central Bank to facilitate the commercial bank lending to the garment sector to upgrade their infrastructure and modernization to comply with quality standards.

The task ahead for the tea sector is even tougher as the country has over 600 tea manufacturing units (factories) of which most are relatively old in comparison to the garment factories. More than half of these factories belong to the non corporate sector and a majority of them needs heavy inputs to meet the required upgrading.

The inequality of the resource base of these manufacturers as well as other supply chain partners necessarily demands government assistance in funding the initial phases. This should not be difficult given the significant revenue government receives from the tea export cess. Food science is now gaining priority and the recently developed resources of the universities of Sri Jayawardenapura and Peradeniya could be utilized to assist the tea sector.

Tea Association of Sri Lanka (TASL) in 2003 initiated a programme with donor funding to launch a quality certification programme which resulted in a significant improvement in the products and such products also attracted premium prices. TASL is continuing their drive for quality improvement with training programmes for managers as well as factory personnel of tea manufacturing units.

Seven programmes have already been held this year. Tea Board too has set up an award scheme for tea factories based on the Japanese “5-S” system. However the adequacy of these measures to the immediate need is questionable.

For long the authorities have considered tea revenue as a constant assured steady flow of income and the fiscal environment too has been less conducive. Quality and food safety demands are a global phenomenon and before long other major buyers such as CIS and the Arab countries are likely to follow with stringent quality requirements. The European legislation is a wake up call to all stakeholders of the tea sector. (The writer could be reached at - suvink@eureka.lk)

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