Wednesday, November 11, 2015 7:17 am, | Economic
A crisis over prices has triggered an emergency meeting of the tea industry stakeholders last week when a wide range of issues and their causes as well as possible solutions were discussed.
The Ex-Co of the Tea Exporters Association (TEA) convened the meeting with the Tea Producers sector stakeholders comprising Planters Association (PA), led by Chairman Roshan Rajadurai and Sri Lanka Private Tea Factory Owners Association (SLTFOA) headed by Chairman Anil Perera took part at the discussion. Sri Lanka Federation of Tea Small Holdings Development Societies was unable to attend the discussion due to a meeting called by the Minister of Plantation Industries at the same time.
TEA Chairman Rohan Fernando was of the view that both producers and exporters are in the same situation due to the current tea market crisis and that all should come out together.
As an association, TEA was keen to have a discussion with stakeholders, especially with producers for the greater interest of the country and the industry. He stated that the tea industry has experienced similar difficulties in the past too but current situation is different as it is confined to Sri Lanka’s main export markets.
Regular meetings with stakeholders during both good and bad times are necessary to make the relationship strong by understanding each other’s difficulties and find remedies that would not be viewed as one sided, he has pointed out.
The committee discussed a possible oversupply situation of orthodox tea in the global market due to current low demand from Russia and Middle East. Sri Lanka tea exports in the first nine months of 2015 have dropped by 15 million kg compared to last year but the production shortage was only one million kg. The tea export revenue loss during the same period has been Rs. 24 billion. On the other hand, the Kenyan tea production has dropped by 50 million kg and Indian tea production declined by 10 million kg during the first nine months of 2015, creating a shortage of CTC tea in the world market.
Members were in agreement of the need for improvement of tea quality as a measure for price improvement. It was stated that good quality teas attract relatively better prices whereas the problems are mainly with poor quality teas resulting in a lower average price. If the producers together with tea small holders maintain quality standards it will help to increase the NSA even with lower volumes. They also agreed that it is easy to sell tea when the prices are on upward movement but under the current situation foreign buyers are reluctant to place orders in anticipation of further price drops, as they maintain adequate stocks. The producer members were hopeful that the market improvement witnessed in the last three sales would continue for some time.
Strengthening the Tea Auction process for better price realisation was discussed. SLTFOA Chairman Anil Perera stated that it is difficult to eliminate the packing of small lots as there are many small factories that cannot manufacture large volumes of tea. He further stated that factories do try to produce different types of tea grades at the request of exporters, another reason for increase in lot numbers. Fernando stressed the point that factories should produce only according to CTTA tea grade nomenclature and deviating from this practice could affect them badly when the prices are on downward trend.
He explained the rigorous process exporters have to go through to put a brand on the shelf in a foreign country due to strict food safety regulations imposed by the importing countries. Even a country like Nigeria takes a long time to approve a product. Hence, Government authorities responsible for ensuring export of good quality tea from the country should strictly monitor the tea manufacturing process and the relevant quality parameters at the point of export to facilitate efforts of brand exporters.
The Government decision to withdraw the Rs. 80 subsidy for green leaf suppliers was welcomed by those present as they believed the scheme was politically motivated and led to some malpractices and discouraged the producers of good tea.
PA Chairman Roshan Rajadurai said that Government assistance is needed to strike a deal with Trade Unions on the wage issue based on productivity. At present, the RPCs spend about Rs. 1,100 per worker per day although the wages are not linked to productivity and had become a huge burden on the companies. The labor cost component account for 70% of COP of teas manufactured by RPCs compared to a lower percentage in other tea producing countries. Both TEA and SLTFOA agreed with PA on this issue. All were unanimous that Government and Trade Unions should seriously consider a wage model linked to productivity for long term survival of the tea industry.
Rajadurai also said that Government has banned Glyphosate, an herbicide which is essential for the tea industry without introducing any alternate products. As a result, they now have to use labour for weeding, further increasing the cost of production and also creating other problems like soil erosion. The migration of labour from plantation to other sectors is another area worrying the industry. The participants were of the view that a mechanisation of plucking will be the long term solution.
A member of TEA pointed out that international blends can be done about USD 2 per kg cheaper than Sri Lanka tea. Since 95% of Sri Lanka tea is meant for exports, the producers should look at the cost of production from foreign buyers point view and not from local perspective. Sri Lankan producers should also look at COP of other tea producing countries as it has to compete with them. There is no short term solution for cost reduction models and hence RPCs to convince the workers to agree to a model for improving productivity and sharing revenue. The Planters Association has requested the Government to extend the existing Collective Agreement on wages for a further one year period due to the cash flow problem.
The RPCs are unable to continue the business without any cash infusion from the Government as a concessionary loan as the banks are reluctant to offer further loan facilities to them.
The participants also observed that devaluation of local currency has not supported the tea prices as witnessed on previous occasions. The depreciation of currencies in Russia, Iran, Syria, Turkey etc in the recent past has negated the benefit of devaluation of the Sri Lanka Rupee. The collapse of the oil and gas prices has eroded the purchasing power of major tea importing countries and therefore recovery in the global economy is essential for stabilisation of the tea prices. In view of volatile global economic situation the need to have Business Plans for a five year period by all stakeholders of the tea industry was also emphasised.
Rohan Fernando, Chairman/TEA thanked the representatives of both organisations for taking part at the discussion. It was agreed to refer the main areas of discussion to the respective state organisations for remedial action. All agreed to meet on a regular basis to discuss matters of mutual interest for the benefit of the tea industry.
Are far too many factories a bigger problem that has led to the aggravation of the crisis in the tea industry?
This question did take come up when tea industry stakeholders met recently. It was observed that availability of large number of tea manufacturing factories in the country more than the required level is a main factor for manufacture of low quality tea in Sri Lanka.
With an annual tea production of around 340 million kg, the country has 714 factories whereas Kenya has approximately 115 factories for production of around 400 million kg of tea. In Sri Lanka, the installed factory capacity far exceeds the available green leaf. Apart from the historical reasons the ad hoc policies of the Government are the reason for the large number of tea factories far in excess of the requirement. Due to this the factories compete for the limited availability and absorb low quality green leaf resulting in poor quality in the final product.
Three Associations – Tea Exporters Association, Planters Association and Private Tea Factory Owners are urging the Government not to issue any new permits for establishment of tea manufacturing factories at least for the next three years and also SLTB to control the expansion of capacities of existing factories. (Daily FT)