By Chandeepa Wettasinghe
An increasing number of Sri Lankan tea exporters are setting up tea processing facilities outside Sri Lanka, as the government doesn’t have a “backbone” to implement its own policy of creating a tea hub in the country due to influence from protectionist lobbies, the country’s tea exporters said.
“Already, there are about 20 companies having operations outside Sri Lanka, and the numbers are increasing,” Tea Exporters Association (TEA) immediate Past Chairman Rohan Fernando said.
This comes in the backdrop of the claims by the Central Bank Governor Dr. Indrajit Coomaraswamy that local companies are favouring investments overseas, compared to investing in Sri Lanka.
Sri Lanka requires investments in export-oriented industries for growth, due to a small local population.
Fernando said that these tea companies, which have their eyes set on investing abroad, will export Ceylon Tea in bulk from Sri Lanka to their foreign facilities, where the tea will be blended with international leaf to sell a wide range of value-added tea products in foreign markets.
Approximately 80 percent of Ceylon Tea is exported in bulk format. Most bulk tea—nearly 40 percent—is value-added at the import destinations, and other tea hubs in the Middle East.
TEA Vice Chairman Kithsiri Jayawardena said that locally-based tea exporters are at a disadvantage, because they are limited to selling Ceylon Tea, which has become a niche due to a lack of awareness among multiple demographic segments in other countries.
Ceylon tea brands haven’t been able to compete with the diverse range of global tea brands and blends due to the lack of tea promotional activities by the government despite the collection of a Tea Promotional Levy, TEA Chairman Jayantha Karunaratne added.
According to TEA, multiple researches have shown that liberalizing the tea industry by allowing the importation of foreign teas for blending and re-export will increase both the per-kilogramme price and the volume of tea exports from Sri Lanka, but protectionists aren’t willing to accept such evidence.
The 2016 and 2017 budgets had outlined the government’s intentions to create a tea hub by repealing past policies to restrict tea imports. But the policy hasn’t been implemented.
“It’s politicized. That’s the problem. We have told them what to do. Twice in the budget, in succession, it was passed, but they (the government) don’t have the courage, the backbone, to implement what they decide in the budget,” Fernando said.
He noted that the government is afraid of offending protectionist elements in the tea industry, and has requested the liberals and the protectionists to sort it among themselves, despite the numerous research papers submitted to support the viability of a tea hub.
“You don’t need a government in that case. We can make a decision. Why do we need a government? The governments are there to make decisions, policy decisions in the country. If the government passes the ball, saying ‘this is a home-home match, you all decide’, why do we need a government?” Fernando questioned.
He said that if tea exports are facilitated by the Industry and Commerce Ministry instead of the Plantation Industries Ministry, which was envisioned but failed to make it to the final budget draft, the liberalization could have been processed easier.
Fernando noted that many people are comparing tea to apparel, and are questioning why apparel exports are much higher than the tea industry.
“The tea industry is one of the most regulated industries, while the apparel industry is one of the most liberalized,” he said.
Sri Lanka is a highly protected country, regularly ranking worst in global indices in terms of freedom to trade.
Taxes and cess collected from tea exporters are used to further protect these inefficient protectionist elements, Karunaratne added.
“Stop everything (cesses). That’s the government policy too, but they’re collecting more than Rs.3 billion annually in cesses. That’s more than 2-3 percent of total income. That’s given back to support some people. They should stop this waste and inefficiency. They should stand on their own,” he said.
He stressed that industry players shouldn’t be asking for support in a 150 year old industry, which should be efficient by now, and those who can’t operate without support should close down.
Karunaratne added that these businesses are afraid of international companies investing in Sri Lanka and improving the infrastructure and processes in the tea industry if a tea hub is created, due to a fear of going out of business.
In an attempt to change attitudes in the industry, TEA is launching a ‘Tea Tweak 2022’ programme.
Give us the money, we’ll do promotions: TEA
TEA is requesting the government to stop its long-delayed attempts at creating a tea promotional campaign and hand over the Rs.5 billion collected for the purpose to the exporters to set up the campaign on their own.
“We are lobbying to effectively use that money for promotional work, and also, we said the government is very slow in working on it, so let the private sector handle it,” Karunaratne said.
The Rs.7 billion was collected in the fund under the Tea Promotion & Marketing Levy, by charging Rs. 3.50 per kilogramme of tea exported. Karunaratne said that 85 percent of Ceylon Tea exports are by TEA members, and therefore, they contributed most towards the fund.
Fernando said that Rs.2 billion was already spent in an ad-hoc manner on activities, such as local tea cafes, pageants, ‘Katina’ religious events , cricket matches and other failed projects, without doing a proper assessment on the benefit such spending would do to the Ceylon Tea brand.
Former Finance Minister Ravi Karunanayake attempted to have the remaining Rs.5 billion absorbed into the Treasury unsuccessfully, similar to the successful past attempts by former Treasury Secretary Dr. P. B. Jayasundera to absorb a cess collected for a similar purpose into the Treasury.
Successive governments have over the past five years failed to complete a procurement process to select creative agencies to produce and distribute a global advertising and promotional campaign for Ceylon Tea.
Renewed efforts undertaken by the present government, which came into power two years ago, have also failed
Call for TRI privatization
The Tea Research Institute (TRI) should be privatized in order to generate viable research in an efficient manner, TEA stressed.
“Privatize the TRI. In most other countries, such organizations are public-private partnerships,” Karunaratne said.
He said that TRI is allocated insufficient funds, and therefore, researchers are not paid enough to conduct the required research efforts. TRI was allocated just Rs.90 million in 2016.
Karunaratne proposed that if the TRI is privatized, it could charge each firm for utilizing TRI research, and generate sufficient funds to remain independent, without burdening the economy. TEA Vice Chairman Sanjaya Herath said that TRI hasn’t developed advanced tea strains required to innovate the Sri Lankan tea industry. TRI has also failed to provide an alternative for the weed-killing glyphosate chemical, which was banned by the government, resulting in skyrocketing costs of production.
Fernando said that the government should focus on governing, instead of interfering in business and research and development, which the private sector should lead.
There are precedents for the government to hand over the TRI to the private sector, since the Sri Lanka Institute of Nano Technology (SLINTEC) was set up as a public-private partnership, and has been hailed for creating cutting-edge research.