State intervention sought at tea auction to control prices

• RPCs say tea industry in crisis amid dwindling prices and highwage costs 
• Call govt. and SLTB to introduce minimum price at Colombo Tea Auction 
• Say such measures required as productivity-based wage model stands no chance
•  Want govt. to guide tea industry towards mechanisation tocut costs 

By Nishel Fernando 

As efforts to introduce a productivity-based wage model to the plantation sector have repeatedly proved futile with politicised estate sector trade unions, Sri Lanka’s Regional Plantation Companies (RPCs) now seek State intervention at the Colombo Tea Auction to control tea prices to avert crisis.

“During last three years, we have gone through two worker wage negotiations with almost 17 percent increases granted in each wage increase. This has had a major impact on the cost of production, since almost 60-70 percent of the cost is linked to worker wages.

“Commodity prices although recorded temporary increases in between, have fallen back today to levels that prevailed three years ago. These factors have now created a crisis situation in the industry,” Planters’ Association of Ceylon (PA) Chairman Sunil Poholiyadde pointed out, addressing the 165th Annual General Meeting of PA in Colombo last Friday. 

RPCs with the support of the plantation sector trade unions made several attempts to introduce a productivity-based wage model during the collective agreement that is negotiated every two years.

However, RPCs were forced to give up their attempts as trade unions demanded a 40 percent basic wage increase while expressing a severe agitation against a productivity-based
wage model.

“Therefore, I would propose that in future, when such negotiations are made, the government would consider, along with Sri Lanka Tea Board (SLTB), a minimum price at the tea auctions. No sooner the prices drop below the minimum price, the SLTB should intervene and commence buying from the auction, in order to ensure the producers are able to survive,” Poholiyadde said. 

According to Forbes & Walker Tea Brokers, the average tea prices which reached Rs.650 a kilo in early 2018 declined to Rs.570 by the end of the year, which has further declined during this year. During the past two months, tea prices have been averaging between Rs.500-Rs.515 a kilo.

The prices of high grown tea of RPCs in particular have seen an over 20 percent  decline in prices so far in the year averaging between Rs.438-468 during past two months while low green tea, which is mostly planted by smallholders, have only seen a 7 percent decline in the prices.

The reduced demand from Japan is one of the key reasons for the steady decline of high grown tea prices at the Colombo Tea Auction. 

Poholiyadde noted that Japan is no longer among top ten Ceylon tea buyers.

“We still face the consequences of the ban on glyphosate without substitutes. Many major importing countries have imposed stringent restrictions on MRL (maximum residue level) and we have also lost the market share we had, specially in Japan,” he added.

Although, the government lifted the ban on glyphosate for tea and rubber, Japanese consumers in the meantime had shifted towards cheap teas coming from countries such as Indonesia. 
The poor quality of high-grown tea, particularly in the Nuwara Eliya region, remains another reason for the declining prices of high-grown teas at the Colombo Tea Auction. 

Poholiyadde noted that in the current environment of low tea prices and high labour costs, it has become extremely difficult for RPCs to operate sustainably. 

“Even if you were to consider the impact of the price drop of Rs.150 over the nine months and the average quantity of tea to be produced by a RPC amounts to 10 million kilograms, the loss of revenue would exceed Rs.1.5 billion.

“You will all agree that a reduction in the expenditure of Rs 1.5 billion would be almost impossible, since over 70 percent of this cost will be wages,” he said.

As a solution to high labour costs and shortage of labour, Poholiyadde urged the government to guide the industry with research and development (R&D) for mechanisation. 
“In my view, we need to commence mechanisation in a meaningful manner with specific targets to be achieved. I appeal to the respective research institutions to commence all possible R&D work in a much more aggressive manner and make their recommendations to the industry.

“There is no option in this aspect, but to commence mechanisation specially in harvesting, which would give a significant cost reduction. Also, in any future replanting, we need to concentrate on undertaking planting in a manner suitable for mechanised plucking,” he stressed.

Poholiyadde also requested all industry stakeholders to reach consensus on longstanding issues such as limitations in the importation of teas of other origins and commence dollar auction, which would in return facilitate producers with access to cheaper funding benefiting all stakeholders. 

August tea production up 21%

Sri Lanka’s tea production rose of 20.9 percent year-on-year (YoY) or by of 4.5 M/kgs to reach 26.08 M/kgs in August driven by a significant production gains in low-grown teas, according to Forbes & Walker Tea Brokers.

During January-August this year, tea production recorded a growth of 7.2 percent YoY to reach 210.8 M/kgs.

In absolute terms, the low-grown teas recorded the highest growth followed by medium-growns and high-growns.

CTC production made a fairly significant gain of 0.5 M/kgs in August to reach 2.2 M/kgs. All elevations showed a growth with high-growns showing a substantial increase over the corresponding period of 2018. 

Meanwhile, medium-growns too showed a fairly significant increase followed by low-growns.

January-August 2019 cumulative CTC production, which was at 15.4 M/kgs, showed a marginal decrease of 0.13 M/kgs vis-à-vis 15.6 M/kgs of January-August 2018. 

On a cumulative basis, only medium-growns showed a growth, while high-growns and low-growns showed a decrease compared to the corresponding period of 2018. 
During first seven months up to July, Sri Lanka tea exports grew by 4.5 percent YoY to 170 M/kgs earning Rs 141.1 billion. 

Although exports to all three markets of Ceylon Tea declined during the period, Iraq, Turkey and Russia respectively remained top three buyers. Tea exports to Libya, China, Azerbaijan and United States made notable gains during the period.