What ails tea industry and what can be done to boost tea export revenue?

5 March 2019 12:00 am

 

The note under reference hopefully will help the government to boost exports out of Sri Lanka and formulate policies for potential sectors to collectively go beyond a US $ 25 billion export economy and perhaps retain a surplus after debt redemption in the national budget and free ourselves from the international loan sharks, who come as guardian angels. 

Boosting exports is the key to reduce the budget deficit. Unfortunately, the technocrats in the Finance Ministry and specifically the National Budget Division have an understanding quite different to the people at ground level, who run businesses with years of knowledge, experience and commitment. They are the true entrepreneurs of this country, who stand by the nation, even in times of peril and expand the global reach of Sri Lankan exports and services.

There are a few export industries, which can be exponentially boosted in terms of foreign exchange earnings. Tea exports are one of them. There is no other export product out of Sri Lanka, which has built world-renowned indigenous brands available in any part of the globe. Then why do the policymakers ignore this veritable resource to ignite the economic growth through maximum value addition taking place inside the country? Is it because the political hierarchy makes lip service to few merchants with selfish interest, believing them to be the successful brand builders, ignoring a multitude of successful entrepreneurs, who have done far better with less noise? 

Following statistics explain the sorry state the tea exports have fallen into.

 

• Sri Lanka is struggling to increase the annual tea output averaging 300 million kilos for the last several years, whereas other producing countries have successfully achieved growth year-on-year. 
• Kenya, lagging far behind Sri Lanka for many years, has surpassed us and their target for 2019 is 500 million kilogrammes plus. 
• The global tea market has grown from US $ 35 billion in 2013 to US $ 40.5 billion in 2018 and projected to reach US $ 44.3 billion in 2021. Compare this with our tea exports struggling to maintain US $ 1.5 billion. 
• The proposal to make Sri Lanka a tea hub of the world came very close to reality three times. First, during President Rajapaksa’s rule, the concept of a tea hub was included in the Mahinda Chinthana. Then during the current regime under Finance Minister Ravi Karunanayake, the concept was twice sanctioned in the annual budget proposals. Both times this was scuttled by persons with selfish interests. 
• The last proposal adopted at the budget debate stage was derailed by appointing a lopsided committee by the Prime Minister’s Office, perhaps believing in the idiom, ‘A camel is a horse designed by a committee’. These moves with political influence to ridicule the establishment of a global tea hub in Sri Lanka have encouraged and powered Dubai, 3037 kilometres and four and half of flying time away from Colombo, to become the world’s biggest tea hub. 
• It is at the expense of Sri Lanka that the Dubai tea hub has proliferated with global tea giants, including Lipton, setting up headquarters in the UAE. At present, 19 out of the top 25 Sri Lankan tea exporting companies operate out of Dubai, importing tea in bulk from Sri Lanka for value addition in that country, enjoying multiple tax benefits, whilst expanding their global reach. 
• This number is growing annually with the export-friendly facilities and competitive interest rates offered by the UAE government. 
• It is certainly beneficial for Sri Lankan companies to operate through the UAE and other similar export zones in the Gulf region, India and Russia. But what long-term effect would it befall the rural tea farmer? These farmers have been misled to believe that a global tea hub in Sri Lanka would depress the tea prices at the Colombo auctions. 
• Would any economist with knowledge on how the international trade and commerce function, accept this theory, specially in an environment where products of your choice can be accessed with the touch of the mobile screen? 
• Currently there is a monopoly created by the suppression and restriction of other origin teas imported for re-export by vociferous agitation to stop any form of liberalisation of hubing in the island. This has resulted in large-scale adulteration by unscrupulous tea factories, using additives and encouraging banned substances for growth enhancement in the tea fields.
• Pure Ceylon Tea once famous for ecologically pure quality with unique natural flavour is now being suspected for non-favourable chemical residuels. For the first time in our history, the tea shipped out of Sri Lanka is rigorously tested by the food control authorities in Japan, Germany, Saudi Arabia and Taiwan, which may trigger a domino effect in other countries importing Ceylon Tea. 
• Amidst these depressing situations, there are entrepreneurs who believe Sri Lanka can regain its lost glory to become one of the largest tea hubs in the world with safeguards in place to protect the local tea industry and the nostalgic taste of pure Ceylon Tea, within a liberal economic environment. 
• The promotion and marketing fund, to promote and proliferate Ceylon Tea in the world, was initiated by the Tea Exporters’ Association with an ambitious plan to expand the tea export revenue to US $ 5 billion by 2020, through value addition, branding, research and development and by enhancing the export volumes through the hub concept. In today’s world, expansion of markets and consumer reach are achieved through the development of the supply chain. Tea being the main component of our branded product range, a shortage could not be allowed to disrupt the supply. 
• Sri Lanka is the pioneer out of all tea producing countries in building global tea brands. Hence, the local knowledge and support systems in packaging, manufacturing, logistics and finance could very well work for the end goal of carving out a substantial share of the world tea market. 
• Sri Lanka is also famous for research in tea and developing tea-based consumer products for the food, beverage, cosmetics and health-supportive sectors. 
• However, the state is blissfully ignorant of the potential in tea exports and blindly believing that we should first add value to all we produce in the country before considering the liberal import-export policy for tea. This belief, inculcated in the politicians’ mindset by hitherto powerful tea magnates, is perhaps due to the fear of losing market share.   
• The local brand exporters have toiled hard to place their branded packs on the shelves of sophisticated global markets. Yet, the failure of successive governments in recognising their potential and capabilities has frustrated the tea exporters to move away from Sri Lanka. 
• For the longest time, tea exporters have never received any financial assistance or special bank facilities for brand building, modernising equipment or upgrading technology. The exporters have invested large sums of fund from the retained earnings and bank borrowings at very high interest costs. 
• The promotion and marketing fund contributed to by the exporters currently stands at Rs.7 billion. The fund initiated in 2010 is primed by the cess charged at the point of exports at the rate of Rs.3.50 per kilogramme and the interest on investment it earns from the Central Bank. 
• It is most disturbing to witness this money, legitimately belonging to the tea exporters of the country through a gazetted cess as opposed to a tax, is being misappropriated by the government, probably under the direction of the line ministries with the Cabinet approval to dole out concessionary loans to all and sundry, other than the exporters. This is a gross violation of rights and statutes as well as misuse of power in an election year, akin to the alleged ‘sil redi’ case.  
• The tea exporters under the organisation, the Tea Exporters’ Association, have time and again appealed to the government to suspend the cess and support the exporters to promote their brands, as per the original terms when establishing the fund. 
• One option the budget could focus upon is to utilize this fund to support exporters build and promote indigenous tea brands backed by research and development, which are directly in line with the terms of engagement in utilising the fund. An effective mechanism could be placed for the disbursement of such monies, as loans on concessionary interest, thereby replenish and rotate the fund for continuous assistance. 
• The tea export industry is the highest taxed for any export industry, perhaps in the developing world. The taxes, charges and cesses are levied by several agencies, including the Sri Lanka Tea Board, Customs, Trade and Commerce Ministry and Inland Revenue Department. In a country where exports are paramount for priming the economy, how would the government expect this sector to grow with such an unrealistic tax regime?

 

Sri Lanka can
On a general analysis of our nation in peril, one would wonder how and why we are in this sad situation after being the most envious country at the time of our independence. We were a stable economy, a prosperous nation and the cynosure of all eyes at that time. Aren’t we now the beggar of Asia after 70 years of self rule?

If you briefly look at our history, we were one of the first, if not the first nation in the world to master hydraulic engineering when most countries in the western world were hoodlums fighting thieves and thugs. When chartering the future strategies in economy or the annual budgets, we should never ever forget the power our ancient rulers wielded in constructing the magnificent irrigation tanks, likened to inland seas, the water distribution channels like the 87 kilometres Yoda Ela with a gradient of 10cm to a kilometre, using our own engineers, local knowledge and technology. 

Many changes have taken place with foreign invasions and subservient attitudes of our modern-day leaders aping the West for everything and borrowing at will, getting caught to the never ending debt cycle. Obtaining loans to pay debt by blaming the past regime is not being smart. Instead, we must look at how we could deploy our own engineering skills, reactivate the ancient food production systems using biodegradable substances, promote the time-tested Ayurveda healing and wellness processes and make use of the God-given natural resources, abundant in land, sea and sky. 

We are blessed with 25 times the size of our land in the Indian Ocean full of marine resources. Yet the fish is imported from the other side of the world in Chile and even sea salt and marine-based minerals are imported. It was alleged, the fish in our seas die of old age but the Indians and Far Easterners, quick to understand our lethargic attitude and lotus eating mentality, encroach our seas not allowing the fish to die of natural causes. 

The position of our island just below the equator makes the sun above us glow the brightest. Sun is the most powerful energy source in our solar system dispersing 1380 watts of energy per square meter during the day. We are always in season, year round sunshine except for brief periods of cloud cover. 

How come we have not thought enough to research and develop the power of the sun, which could in the long term in combination with hydroelectric power provide the entire island with clean energy and save billions of dollars in power generating costs using fossil fuels. This is apart from wind, geothermal and kinetic wave energy we are privy to harness. 

How come the state has been mute to these possibilities but extremely interested in ‘private power purchasing’ at astronomical costs? The development of an integrated power system will take time but there is no indication of a futuristic and productive power generation system being thought of. We only hear of wheeler-dealer power manipulators engaging the politicians and top bureaucrats articulating the necessity to purchase in advance, stand-by power. 

We are also blessed with abundant quartz deposits available in shallow mines, from the Central to South Western districts. Quartz is the main raw material to manufacture photovoltaic cells. When technology has improved leaps and bounds to manufacture solar-roofs and power-walls, we are quite satisfied with exporting raw quartz to other countries. 

Our landmass is fertile but continuous use of agro-chemicals and harmful applications have made the soils and waterways contaminated and the people sick. Reverting back to safe practices in agriculture is the turnaround change embraced even by the Western world we ape. Safe agricultural practices using biodegradables and indigenous applications have shown impressive results in the production of safe foods and beverages supporting a healthy lifestyle, whilst reducing the cost of the ill-bill. 

We are blessed with two monsoons and intermittent rains bringing enough and more water, which we have failed to conserve but fearfully refer to as bad weather and floods. Every year we come up with the same story, drought and or floods without understanding the coherent power of the two in balancing nature. We possess the knowledge of our forefathers in water management by ways of diversion and conservation. Yet, we look to the West for expensive multibillion dollar irrigation projects, which our economy cannot bear. 

What can be done to get our dignity back? For once, after a very long time, people of this country have become very suspicious of the politicians and pray for a total system change from a wheeler-dealer economy supported and protected by the political cahoots to a liberal market economy with safeguards for the rural farmer, fisherman, the general worker and a safety net for the poorest to survive and become economically independent. 

The primary requirement for this to get started is the correct education to be imparted with life skills. Several universities like Moratuwa, Jayewardenepura and Uva Wellassa, have become just that and do not have non-employable graduates coming out demanding government jobs. Then we need absolute discipline in every sphere of life. Once we have these, the law enforcement and legal system will function. 

Considering the above, it may not be impossible to re-energize the economy for positive growth and a surplus budget before too long.
Yes, Sri Lanka CAN.

(Rohan Fernando, founder of Heladiv Ceylon Tea, former President of the Tea Exporters’ Association of Sri Lanka and the National Chamber of Exporters, is a winner of the Exporter of the Year and Entrepreneur of the Year awards)