Tea broker suggests 5-point strategy to regain dominance
21 Aug 2015 - {{hitsCtrl.values.hits}}
By Chandeepa Wettasinghe
In the backdrop of a failing tea industry with both Colombo Tea Auction prices and unsubsidized prices of tea leaves falling below 2011 levels and plantation companies running at losses, leading commodity broker Ceylon Tea Brokers PLC recommended 5 points to bring the industry back to profitability.
Colombo Tea Auction prices fell to an average Rs.366 per kilogramme this week, while the cost of production remains at an average of Rs. 430. Demand-side woes are due to the oil crisis and violence prevalent in main markets in Russia and the Middle East.
“Some of these global issues may be beyond our immediate control. It is however important that all stakeholders collectively examine this situation and take the needed policy decisions to ensure that the Colombo auction regains its dominant position as the most competitive global auction centre,” Ceylon Tea Brokers Chairman Chrisantha Perera said in the company’s latest annual report.
With respect to the costs of production—especially the high wages—which remain the largest supply-side problem, Perera recommended that a productivity-based model be adopted instead of the current guaranteed daily wage which promotes inefficiency.
Perera said that a holistic national policy is needed for the industry as well.
“A five-year rolling plan for the tea industry covering all aspects, which includes production, marketing and any other factors that should be taken into consideration,” he said.
He opined that China should be developed as a potential large market for Ceylon Tea, while also noting increased tea exports to India.
Most exporters have found it hard to market their teas in China—which is the largest tea producer and consumer in the world—while economists and exporters who have found some success have noted that high value addition luxury brands with Western influences should be created, as Chinese consumer trends are now mimicking Western trends.
However, exporters have said that branding, marketing and creating networks in China are expensive, and required more funding from the special promotional cess, which Perera said is reportedly being utilized now.
“We should endeavour to maximize the potential of our Free Trade Agreement with Pakistan. Out of the five largest tea importing countries, i.e. Russia, UK, Pakistan, USA and Egypt, we have a significant presence only in Russia and that too appears to be declining,” he added.
However, markets such as UK and Pakistan are known to favour the Kenyan teas due to their lower prices, and might remain there despite the Mombasa auction prices overtaking Colombo prices in the short-term due to a shortage in tea supply.
Experts have said that these markets too could be broken into with a strategy similar to China, while curbing the blending of Ceylon Tea using other teas.
However, Perera opined that Sri Lanka too could follow international trends, as tea blending hubs have become successful.
“At the risk of creating controversy, we are of the view that we should examine the hotly debated topic of making Sri Lanka a Tea Hub without compromising the inherent value of marketing Pure Ceylon Tea,” he said.
Perera noted that there is some silver lining for the rest of 2015—possibly referring to exports picking up to Russia and Iran—but said that losses made in the first half of the year cannot be recovered.
Tea exports for the period fell to US$ 680 from US$ 780 a year ago.
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