Tea smallholders are to be blamed for the falling auction prices as they offload low-quality teas and pull down the average tea prices at the Colombo tea auction, according to an industry expert.
Up to now, most quarters of the tea industry, as well as the government, had placed the blame on the fall of oil prices, since around 80 percent of Ceylon tea exports are to the oil producing nations, while also blaming the current social and political unrest in these regions.
However, Sri Lanka Tea Exporters’ Association (TEA) Chairman Rohan Fernando said that blaming the global economy is a cover-up.
“Blaming the low prices on the falling global markets is masking the problem. If you look at the higher-quality teas, they are getting top prices. The problem is that low-quality teas are being auctioned,” Fernando told Mirror Business.
He noted that since the average auction price is determined by dividing the total revenue by the total volume, it gives the appearance that the prices of Ceylon tea are falling.
“But 50 to 60 percent of the teas at the auction are not pure Ceylon tea. If you want to sell good tea, you need to adhere to the basics. The basics of the pure Ceylon tea industry since time immemorial are to pluck two tender leaves and the bud by hand,” he added.
Fernando said that most of the leaves supplied to the tea smallholder factories are not plucked according to such a policy.
“What they mostly get are very coarse leaves and they end up making low-quality tea,” he said.
However, the Sri Lanka Tea Factory Owners’ Association (SLTFOA), the apex body for tea smallholder factories, too complained recently that most leaves have been of poor quality, which they said had worsened due to the smallholder price guarantee.
The tea smallholders make up around 65 to 68 percent of tea production in Sri Lanka and account for a large voter base, which many said was the reason the government extended the Rs.80 per kilogramme price guarantee to the smallholders in the January interim Budget.
The price guarantee was revoked in September citing the complete utilization of the allocated funds, immediately after the new Cabinet was sworn in after the elections in August, despite the government earlier claiming that the funds allocated would be sufficient till December.
Instead of empowering quality smallholders, the subsidy inspired rogue tea factories to bribe the tea inspectors to get the full guaranteed price for sub-standard tea. Honest factories processing somewhat better quality teas—with around 60 percent quality leaf—were not given the full Rs.80.
The situation is also exacerbated due to the excessive number of factories—over 400—present in smallholder areas, which would motivate the owners to process coarse leaves to maintain revenue.
In spite of such a situation, the government is now planning to intervene in the Colombo tea auctions through the Tea Board to buy tea at higher prices using Rs.3 billion, in lieu of the subsidy.
While intervening at the auctions would ensure an equal trickledown effect to all stakeholders, it would still support the low-quality tea suppliers.
“Some people are trying to compare French wine with Ceylon tea. We can’t do that without ensuring that we return to the basics and introduce new techniques and labour-saving technology. If we continue with socialist policies like this, we can only cater to the mass market,” Fernando said. (CW)