Everyone blames somebody when nobody does

14 October 2015 06:30 pm Views - 3654

Tea is a very delicate perennial plant, sensitive to changes in temperature and precipitation. 

In the last 60 years in Assam, a primary tea-growing region in India, rainfall has fallen by more than a fifth and minimum temperatures have risen by one degree. 

Projections indicate that Sri Lanka will experience a warmer climate and more intense rainfall with the possibility of a 10 percent increase in the length of dry and wet seasons per year in the main tea plantation areas. The climate change is also expected to increase the number of pests and diseases affecting tea plants. 

Tea was the largest foreign exchange export earnings plantation crop until eighties when it was overtaken by garments, foreign employment sector and now by tourism earnings.




The writer has just returned to the Colombo desk from a two-day visit to Norwood estate and saw a congratulatory note saying that Norwood estate BOP grade has achieved the highest price of Rs. 550 per kilo of tea at the Colombo auction held on 7th October, bought by Akbar Brothers (Pvt.) Ltd. 

Norwood estate is situated at an elevation of 4800 feet above mean sea level. It enjoys both monsoons and the decennial average rainfall at about 3900 mm whilst temperature varies between 19o to 23o C. The face of the estate is located at the upper end of the Castlereigh reservoir giving it a favorable climatic condition and conducive for the production of a unique tea much sought after by tea connoisseurs. Akbar has been the largest exporter of Ceylon tea for the past 25 years and one of its Directors, Joseph Sinniah was once conferred with the “World’s best tea blender” award by the prestigious French International magazine ‘The Magazine’. 

Like many tea estates in up country, the harvesting of green leaf is mainly done by the female workers in Norwood estate whereas the other agricultural work is done by male workers. Growing & harvesting tea is labour-intensive, but young people are choosing to leave the tea plantations and move to city-based jobs in the service sector. Opportunity is there to use this trend to drive greater mechanization of tea harvesting. 




Demand for traditional tea declining?
According to the Central Bank statistics, the tea export revenue has been steadily increasing during the last ten years and suddenly it has come down to Rs 119 billion during the last 8 months from January to August 2015 as against Rs 141 billion during the corresponding period 2014.

The political & economic situations in most of the Ceylon tea drinking countries have led to a crisis in the Ceylon tea export industry as a whole. 

Also the demand for traditional Ceylon tea is declining and buyer requirements and consumer preferences are fast changing. Nevertheless, the global tea beverage market is steadily moving up and the total tea beverage market is around US$ 37 billion. As Ceylon tea export figure is around US $ 1.6 billion in 2014, Sri Lankan companies capture only 4 percent as foreign exchange revenue share out of the global beverage market.




 Global tea beverage market growing
United States Tea Association (USTA) claims that about four out of five consumers drink tea in the US. One of the prime reasons for tea’s growing popularity in the US is its perceived health benefits compared to soda. 

Many consumers believe that tea varieties like black tea and green tea increase metabolism and may prevent cardiovascular disease. 

According to a presentation made at the World Tea Expo by Euro monitor International senior Beverage analyst, Howard Telford, the US tea sales are growing due to the innovative products and flavours that the industry has brought to the table. The convenience and options across the ready-to-drink tea category have also attracted consumers. Coca-Cola, PepsiCo, and Dr Pepper Snapple have introduced several flavours under their popular tea brands. Starbucks has also gained traction in the tea market through its Teavana brand. 

Many tea drinkers, especially younger ones, are embracing more expensive tea brands, like Teavana, that have unique flavours like acai blueberry or watermelon mint. According to Howard Telford, this interest in premium has consequently led to an increase in speciality loose-leaf tea, which increased by 6% in off-trade value in 2014 to US$62 million. 

The loose-leaf format is also popular in green tea, fruit/herbal tea and other tea. An increasing number of tea manufacturers are producing tea products in loose-leaf format for sale in supermarkets and hypermarkets because they are generally perceived as higher quality than bags and can be sold at higher price points. 

 Although, the consumer base for tea is growing, it is still small compared to the consumer base for coffee. “The popularity of coffee in the US is historical – an American staple in households harking back to the “cup o’ joe” that US soldiers would have whilst serving in the armed forces as a caffeinated beverage to start the day.” Howard Telford said. 

Tea, on the other hand, although linked to a variety of health benefits, is not drunk as an everyday beverage in the same way as coffee. Hot coffee accounts for double the value of tea (despite only 59 percebt of tea volumes) meaning coffee market has better premium fueled by the global development of café culture. 


Opportunity not a threat?
The writer’s view is that the tea industry, especially the up country tea sub sector, is currently at cross roads and this could be used as an opportunity to optimize value addition. On the positive side, the Sri Lankan Rupee traded at Rs. 142 per USD on Monday the 12th. The Russian Rouble continued to strengthen at 62.35 against the USD. 

The last time the Rouble was below 63 per USD was two months back. The Rouble rebound comes on the back of the rise in oil prices after the US cut output forecast & the big producers signaled joint action to support the oil market. With the devaluation of the Rupee & the Mombasa auction prices being higher than that of Colombo auctions, it is an opportune time to market our teas to the biggest tea importers in the world where our exports are minimal, eg: USA, UK & Pakistan, China and to other emerging markets where Ceylon tea has not reached so far. As pointed out by marketing experts, the power lies with top global brands, food service chains, retailers etc. 

The issue here is Ceylon tea is too expensive to tap emerging markets such as US, EU countries, Japan etc. because the multinational players continue to supply the blended tea at a lower price in those markets. Consumer preferences are getting more sophisticated with the life style changes and the tea content of the final product is getting less significant.  An opportunity is there for Sri Lankan tea industry to be a player in the global beverage market. The Tea hub concept could be tested in “off shore” environment, if specified teas (high grown grades only) are allowed to be imported & blended with Ceylon tea to increase the market share, whilst serving the “Ceylon Niche market” In other words, we will continue to be in the niche market for purest of the pure Ceylon tea and explore the global tea market with Ceylon tea blended with other origin teas packed in the “off –shore tea hub”. Sri Lanka could eventually expect a higher net foreign exchange through developing a tea hub and capture untapped markets. Other Global players would come and invest in SL hub and source/buy additional quantities of Ceylon tea and blend with other origin teas to export into untapped markets. Since the marketing pie is getting increased, demand for Ceylon tea volumes will increase. Consequently from the producer’s point of view, Ceylon tea could fetch a better price contrary to concerns expressed that Ceylon tea price will decline.


Good for tea growers and exporters
One expert at the “World expo” commented: “We used to have a food market dominated by the brands, and then the supermarkets started to develop their own brands. This balance of power within the tea sector may shift in the future. Producers are slowly beginning to capture more economic value in the chain. There would be a shift in power will result in consolidation in the tea sector, with longer-term contracts and a shift towards terms and conditions determined by sellers rather than buyers”. 

Sri Lankan growers together with our tea exporters must demonstrate their sustainability credentials to global consumers who demand high standards. Therefore, the whole tea industry together with the policy makers could make use of this opportunity to brainstorm & strategize marketing tea in blended and other form globally.

(Jayampathi Molligoda is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka and he holds a FMIC Masters of Business Administration from the Post Graduate Institute of Management, University of Sri Jayawardhanapura. He is currently the CEO of Bogawantalawa Tea Estates PLC and can be contacted through jayampathy@bpl.lk)