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Tea industry could overcome crisis through sustainable agri-business management

10 Nov 2015 - {{hitsCtrl.values.hits}}

“Every cup of tea you drink should help better the lives of the people who produce it, improve the environment where it is grown, and contribute to a thriving global industry.”- A Hero Crop for 2030.

Hero crop for 2030
The Report “The Future of Tea – A Hero Crop for 2030”, launched in 2014, is the result of a year’s research and collaboration between organizations from all parts of the sector, facilitated and managed by Forum for the Future.

The Tea 2030 partners focus their collaboration on three key areas: (1) Sustainable production - benefitting the environment and communities where tea is grown; (2) Market mechanisms - which deliver greater value to all players in the supply chain; (3) engage consumers.

The Tea 2030 partners include four of the seven companies responsible for 90 percent of the world tea market, Unilever, Tata Global Beverages, James Finlay and Twining’s, plus the Ethical Tea Partnership, Fairtrade International, IDH – the Sustainable Trade Initiative, Rainforest Alliance, S&D Coffee and Tea, and Yorkshire Tea, and they are supported by the International Tea Committee. In the report the industry identifies profound challenges facing the industry, including climate change, population growth, and competition for agricultural land and water.

Global tea beverage boom
A new market study on the global tea market has been recently published by Transparency Market Research (TMR), determining its value in 2013 at US$ 39 billion and estimating the CAGR of the market over the period from 2014 to 2020 at 3 percent. Analysts at TMR have projected the market to reach a value of US$ 47 billion in 2020.

According to the report, rising awareness among the consumers regarding various benefits of consuming tea is the major growth driver of the global tea market. Apart from this, the economic advantages and ample opportunities for employment presented by the tea industry is also supporting the global market to a great extent.

“The increasing concern over beauty and skincare is encouraging consumers to switch to green tea, which is expected to open an opportunity-rich market for players in the global tea market” one internationally reputed market report stated recently. According to ‘World tea expo’, many tea drinkers, especially younger ones are embracing more expensive tea brands, like Teavana, that has unique flavours. Howard Telford, Euro Monitor beverage analyst says that US tea sales are glowing due to the innovative products and flavours, loose –leaf format, various ready to drink options, convenience factor etc. Unfortunately hardly any Ceylon teas are available in those markets due to a number of reasons.

Ceylon tea in crisis
At present, Sri Lankan tea industry is facing many challenges. RPCs, which account for 35 percent of the tea production of this country, are at cross roads and faced with severe cash flow crisis. Basically, the three main challenges are (a) inadequate and non-remunerative tea prices, (b) overall high cost of production mainly due to low land productivity, and (c) Estate worker daily wage model not linked to productivity.

Follow expert advice
These challenges need to be addressed through consultation by all the stake holders. My view is that the solution lies in implementing the recommendations already given by three expert advisors concerning the three areas mentioned above. Let us examine one by one.

Degradation of tea fields/ Soil fertility management.

In Sri Lanka, the land productivity in the tea sector is reported to be very low compared to other tea growing countries. The major reasons for this situation include factors such as land degradation, poor soil fertility status and adverse climatic conditions. Land degradation is the reduction or loss of the biological or economic productivity and complexity of rain-fed cropland. In Sri Lanka, major contributors to tea land degradation are soil erosion and soil fertility degradation.

It is therefore, important to adopt a “sustainable agricultural model” focusing on ecological balance. As reported by Chairman, Planters Association, the RPC estates continue to invest funds annually on field development programmes despite making colossal financial losses. Further, most of the RPC estates are certified with Rain forest Alliance, Ethical tea partnership and ISO 14000, ISO 22000 (environmental compliance, food safety) etc. This is a step in the right direction.

Tea Research Institute of Sri Lanka (TRI) has declared the year 2015 as “Soil Fertility Management Year”. Time is opportune to seriously address soil fertility management aspects and adopt best agricultural practices recommended by TRI considering the vulnerable situation of the tea estate land managed by the RPCs. Let us look at this important issue on a fresh and open mind and implement TRI recommendations.

High wages in relation to low labour productivity.

There has been wage increases from time to time to estate workers without due recognition of the low labour productivity mainly due to high bargaining power of the trade unions. It is therefore important to study the far reaching implications on the socio/political and economic aspects in arriving at plantation worker wage models, which is a “complex adaptive system”.

The three stake holders, namely, the Government, RPCs and the trade unions could reach a consensus and facilitate implementing “Ramani Gunatilleke report” (which was initiated by RPCs/EFC three years back) on new approaches to estate worker wage models. It was recommended that current daily wages be changed to productivity linked (piece rate) wage models.

According to her report, the wage negotiations need to be decentralized based on either agro climatic level or even “an enterprise bargaining” level. It may not be possible to convince the workers and the trade unions to migrate into a revenue share model, without having an intermediate arrangement based on a hybrid model -green leaf rate coupled with a guaranteed minimum daily rate. The PA /EFC committee has already proposed two optional wage models and Unions could take this as a basis for negotiation in order to arrive at a reasonable, yet commercially viable model. Let us hope that the three stake holders follow the “expert recommendations”.

Inadequate and non-remunerative tea prices.

Tea is a beverage. Tea blending is being taken place at many trade/blending centers all over the world with Ceylon teas are blended with Indian, East- African, Vietnam teas etc. It would be interesting to find out as to what percentage of unblended teas of “Ceylon origin” is finally reaching the ultimate consumer. Vietnam is already in the Trans- pacific Partnership (TPP) countries, along with Japan, Australia, US etc. and the preferential tariff rates will apply to the tea industry players in Vietnam. Japanese Prime Minister Shinzo Abe said last week that TPP is the structure where Japan and the US can lead in economic rule-making. The problem with Ceylon tea is its too expensive and our tea exporters are finding it difficult to compete with multi -national players who source other origin teas worldwide.

The “Tea Exporters Association” is of the view that they be permitted to blend multi origin teas to capture greater market share globally in existing markets and penetrate in to untapped markets as well. In the meantime, the tea producers need to adopt an integrated quality & productivity drive and ensure teas are sold at the auction based on the specifications, quality as per the typed samples and the needs of the potential buyers. Sri Lankan tea trade and producers must demonstrate their sustainability credentials to differentiate pure Ceylon tea products. The “tea hub” concept also could be tested if specified teas only are allowed to be imported (high grown teas) and blended with Ceylon teas to increase the global market share, whilst serving the pure Ceylon tea niche market. One could expect that other global players would come and invest in SL hub and source /buy additional quantities of Ceylon teas and blend with other origin teas to export into untapped markets. Even the packaging industry will flourish in the next few years and Sri Lankan economy would definitely benefit.
In the meantime, trade finance facilities for exporters, working capital needs of the RPCs, as well as funds for capital development programmes would have to be arranged by the parties to continue operations without any interruptions to commercial activities. This aspect could be addressed jointly and severally as an immediate relief measure with the assistance obtained from a multilateral financial institution. Asian Development Bank (ADB) has already expressed their intention to undertake feasibility studies to come up with a “tea bond”, a series of financial instrument, if requested.

Conclusion:
The way forward would be to have a shared understanding among the three stake holders and reaching a consensus on implementing a “Sustainable agri-business management” model as described above. The ultimate success depends on the commitment shown by the three stake holders, in particular the RPCs to execute the said business plan efficiently and effectively. The three stake holders must unite first. Individual RPCs need to examine their own site specific issues, land suitability for tea, agroforestry and other diversification options etc. and adopt slightly different strategies and action plans. The speedy solutions to the above three factors will shape the future sustainability of the Sri Lankan tea industry.

(The writer is the CEO of Bogawantalawa Tea Estates PLC and can be contacted through [email protected])

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Tea industry could overcome crisis through sustainable agri-business management

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