Tea exports a low hanging fruit?

Sri Lanka is currently facing a major challenge in meeting up to a rise in oil imports without a significant export growth causing heavy strain on the current account.

Minister of Export Development and International Trade Prof G.L. Pieris at the Exporters’ Association AGM recently emphasizing on the “concept of export or perish” called for concentration on value addition, just a week after Minister of Plantation Industries D. M. Jayaratne too echoed the need to give priority to value addition in tea.

The outgoing Chairman of the Exporters Association Mohan Mendis made a passionate plea to intensify global demand for our exports. Well these comments from two senior ministers and a leading private sector professional no doubt underscored the importance of value addition. The big question is how to get there?

For Sri Lanka with a limited export base choices are limited. Garments and textiles are highly import based and a foot loose industry owing to heavy competition in the open market particularly from China and India and backward integration still being in a developing stage. Emerging exports such as computer software and the services are still at infancy levels.

This leaves garments and agricultural exports together with migrant remittances as potential growth areas.

Sri Lanka a pioneer tea producer and the world’s leading exporter is blessed with appropriate climatic conditions, abundance of skills and good support services such as ports, brokering and competitive freight rates providing the necessary ingredients to be a world champion.

It is no secret that Sri Lanka’s tea professionals are now leading figures in the big names of the global tea circuit. A Colombo Auction price at an average of USD 2+ reflects the increasing demand. The Soviet Republic and Arabian Gulf countries are our major customers and by way of recycling petro dollars prices continue to be steady providing reasonable return to the producers.

However we still export a large percentage of our teas (60%) in non value added form and contribute to the overseas blenders.
While local brands such as Dilmah, Al Ghazalean and Milesna have now built up their pure Sri Lankan brands, scope exists for more Sri Lankan brands to compete in the global market. A fair amount of value added exports are also categorized as DoB (Dealers own Brands) packed and exported from Sri Lanka.

The question is how to develop more Sri Lankan brands and enhance export revenues to meet the national needs. Tea offers a good opportunity to boost Sri Lanka’s export earnings. At present tea export earnings approximate to $0.8 billion out of a total export earnings of $6.8 billion. One definite option is to assist and encourage the exporters to venture into developing their own brands. Brand development and international marketing; demand advanced skills backed by significant financial resources and the government assistance is more than necessary. A series of incentives introduced way back in 1982 such as duty rebates, EDISS scheme, import duty relief and import of tea for blending and re export was instrumental in the up surge of the value added exports. However this momentum is not seen today. The Tea Board cess now averaging around $10 million per annum is funded by the producer and rightfully a fair proportion of this should be channeled towards brand development. When Dilmah commenced their epic journey in the early eighties, dominance in the Australian market may have been only a dream, but today their efforts are well rewarded.

Forbes & Walker in their annual review forecasts good time for Sri Lankan teas. What’s needed is to make use of these opportunities to better times. Given the heavy influence of Middle East and CIS two key tea buyers from Sri Lanka we could expect greater demand from this region. The distinct possibility of depreciation of the rupee is another positive factor for competitiveness.

It is up to the government and other key industry stakeholders to team up and enhance the Sri Lankan brand strength in the global market.

This is a plausible option of developing a sustainable resource to overcome the persistent macro economic deficiency in the current account.

Though somewhat late in the day it is still not too late for effective public-private sector partnership to move the tea sector to greater heights that it’s capable of.

Given the long gestation periods to expect rewards from investments in brands these measures are an immediate priority for the economic survival.