Govt. mulls altering tea subsidy model

2 October 2015 02:55 am - 0 - {{hitsCtrl.values.hits}}

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By Chandeepa Wettasinghe
The government has stopped the subsidies provided to tea smallholders, and is evaluating a changed subsidy scheme for the final 3 months of the year, the Plantation Industries Minister said.

“The subsidies to the tea smallholders ended in September. My proposal is that the subsidies be continued at a lower scale for the next 3 months,” Minister Naveen Dissanayake said.

He noted that subsidies are short-term measures which compromise free markets, but stressed that without some subsidies, social problems may arise.
The interim budget this January had allocated Rs.5 billion to the tea subsidy and Rs.3.6 billion to rubber.

Ministry data showed Rs.5.4 billion spent on tea and just Rs.1.6 billion on rubber subsidies from February to end-September. Supply disruption caused by bad weather may have resulted in the lack of spending on rubber subsidy.

Dissanayake noted that the tea subsidies, which had run up to about Rs.1 billion a month at times depending on favourable weather, will be reduced to a maximum of Rs.700 million a month.

“So we will reduce the subsidies by Rs.300 million a month, and with that Rs.1 billion saved in the 3 months, artificially increase the prices of the Colombo Tea Auction,” Dissanayake said.

According to him, a Cabinet Paper will be forwarded recommending Sri Lanka Tea Board buying tea at an average Rs.400 per kilo against the current average of Rs.380 to prop up the prices, and once the tea market has recovered, sell the same tea back to the auction with a profit.

“This was done in 2008 and 2009 during the war as well. Even though it was artificial, buying at a higher price kept the industry going. We have talked with the industry stakeholders, and they have urged us to do this,” he said.

Dissanayake noted that the current slump is natural in the cyclic commodity market, which will boom inevitably.

“I have a feeling it will boom in the next 2 months after the American sanctions on Iran are lifted,” he added.

Meanwhile, he said that even if the subsidies are continued at a lower scale in the short term, it will not be at a guaranteed flat rate of Rs.80 per kilo.
“We will do this in blocks. The highest quality tea will be given Rs.80, the mid-range tea will be given Rs.50-60 and the lowest quality will be given Rs.40, because right now, those who are producing the lowest quality tea are further compromising their quality because they get Rs.80,” he said.

Despite the subsidies, many smallholders were reported to have sold off or attempting to sell their plantations and factories, which the brokering and exporting community welcomed as an elimination of lower quality producers.

Meanwhile, Dissanayake stressed that all government intervention in the tea market will be evaluated thoroughly with stakeholder consultation prior to implementation. “We’re talking a lot with the industry. We realise we’re spending the taxpayer’s money, and we don’t like to spend public funds unnecessarily. We will only give subsidies when needed. Whether we will continue them is being debated,” he said.
He added that the rubber subsidy will be continued for the foreseeable future.

Tea promotion fund: “Not happy with tender procedure”- Naveen

Plantation Industries Minister Naveen Dissanayake said that the US$50 million tea promotional fund would be utilized for its intended purpose by end-October with changes to one of the ad agencies.

“We are going to start promoting use of the US$50 million fund. We will start that by end-October,” he said.

However, Dissanayake said that he has detected discrepancies in the tender process.

“The digital content marketing went to an Indian company. I’m not happy with that tender process. There were others who pitched better. We will do a new Cabinet Paper for it,” he said.

He said that the traditional marketing campaign went to Phoenix Ogilvy.

Why the campaign was divided between traditional and digital aspects is not clear. Marketing principles call for an integrated approach among all marketing actions. Splitting the campaign would lead to creative differences and setbacks in communication between the companies.

Meanwhile, Dissanayake said that the government will pool the resources of the tourism, tea and gems sectors at foreign events on a one-by-one basis to increase the effectiveness of country promotion.

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Govt. mulls altering tea subsidy model

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