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| Monday, 7 July 2003 |
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Features | |
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The future of "Green Gold" Every expatriate planter and tourist who has set foot on this island had not failed to see the green slopes of the hills filled with the tea plantations. The allure of "Green Gold" is what made James Taylor, the first planter to make Sri Lanka his home. Though we are the largest exporters of pure tea to the world in terms of production we are still behind India and China. We have just managed to pip Kenya recording around three million kilograms per year. Our acreage under tea is only 7 per cent compared internationally. The unique feature of the local tea plantations is that though 56 per cent of the planted acreage is controlled by the Corporate Regional Plantations Companies (RPCs), the rest belongs to the smallholders who outnumber the corporate sector two to one.
This has created to some extent an imbalance in the development of the plantations. While the last three years production amounted to around three hundred million kilograms, year 2002 recorded the highest being 310 million kilograms. Yield per hectare has been the highest with the smallholder plantations outpacing the corporate sector, which came in second and state-owned plantations running for the last berth. Auction prices are a general indication of the demand as well as the quality of the various categories coming into the auction houses. Looking at total exports and value added exports, value added is less than one third of the total exports as at end of last year - 2002. However the trends are favourable towards growth in the value added segments of tea exports. Hence strategy should and must look at branding value added tea to selected overseas markets. The above overview indicates that the transformation, which needs to be ushered in, has not yet happened. There are positive trends and the auction prices have shown an improvement due to increased promotions. There is bound to be an increase in the collar borrowings too due to the domestic interest rate scenario. Building the brand Both the Tea Association of Sri Lanka and its predecessor the Tea Board have focused on promotion of Sri Lankan tea. The producers and exporters have not synchronised their generic strategies towards pushing Ceylon Tea as the most valued consumer product. The proposals in the Tea Industry Action Plan envisages many events to show case "Ceylon Tea". First on the cards is bi-annual tea festivals. This has proved immensely popular by the buyers, particularly the Commonwealth of Independent States of Russia and Europe. Such tea festivals can also be a platform for promoting other local food products and organic produce. RPCs The psychology of the private sector firms, which hold 49% ownership of the Regional Plantations Companies, has not generated the momentum for long-term investments and promotion of joint ventures. Particularly the foreign investor is looking at growing dividends from all his investments. The next 25 to 50 years capital infusion in plant and machinery will be running to millions and justifiably cannot be recouped within a short period of 5 to 10 years. One of the industry demands is to consider 99 year lease packages for RPCs. Many RPCs have already prepared proposals for foreign direct investments (FDI) and for marketing to potential JV partners. Long-term ownership of these plantations will also yield the added bonus of mining rights for the holding company. To some degree this concession can offset losses, which may be incurred in upgrading the factories and in re-planting the fields. As it has been the experience in the recent past, high cost of production relative to new comers such as Kenya and Malawi has created a disparate playing field. The solution perhaps is in heavy investment upfront in replanting and upgrading the factories so that latest technology could be used to obtain an out turn which is far superior in quality. To some extent this syndrome, where companies fight shy of capital expenditure, has been responsible for low yields. Labour productivity consequently is low too. Many smallholder companies do not invest in training their labour and providing the necessary essentials such as light weight baskets and upgraded factory floor to enhance productivity. "Field productivity" is hardly known to the labour force of many of these estates except for the estates owned by large corporates. Another issue, which had compounded the low productivity of the plantations, is the collapsing of the engineering support services in the plantations. Engineering companies such as Walker & Sons had long packed up. Some new vendors too find tea uneconomical to extend their services to the far reaches of the industry. Incentives need to be introduced to encourage more entrants into the engineering field which has to capitalise on opportunities arising from the increased investments in the plantations. While power and energy has a direct impact, machine down time has to be avoided at all cost and necessarily import duty has to be waived for import of power generation equipment. The last of the hurdles is the enlightened leadership among the plantations unions that has to come to terms with the productivity linkage to the wage structures. Cost of living based on wage increases necessarily confines the labour force to a survival mode whereas productivity and performance based wage systems will drive productivity up. Marketing "Ceylon Tea" The promotion campaign which had been launched in various forms have sought to increase the share of the "Ceylon Tea" label. It is a truism, that the local trade is unable to determine the percentage of "Ceylon Tea" vs imported tea, in the blending process. We should position not only the "Ceylon Tea" brand but also aim to produce and market "regional brands" such as "Labukelle Ceylon Tea" and "Islaby Ceylon Tea". This form of differentiation will only accelerate premium prices which some of our superior blends fetch at the auctions. A whole change in attitudes, in looking at tea plantations from bringing best blends to the local auctions, to a value added agri-business need to be made. An incentive the private sector may find attractive is a reduction of duty on exports particularly of Sri Lankan brands. A worthwhile proposal by the Steering Committee to establish a joint marketing body as well as an export marketing council will help in this drive. The joint body would enable the various marketing competencies of the various regional plantation companies (RPCs) to be bundled to a formidable export marketing machinery. Perhaps agri-business consultancy has to be brought in to further develop product differentiation. Marketing communications can help showcase "Ceylon Tea" through road shows, jointly launched in collaboration with shipping lines, airlines and JV partners such as food industry giants Del Monte can create the aggressive marketing brand awareness campaign needed in this sector. Awareness can also be promoted through tourism and tourist traffic with eco-adventure tourism combined with short stays in plantation bungalows, in the middle of the "Green Gold" country. An important addendum to the development of the industry is the upgrading of the three crop research institutions including the TRI. It has been a constant lament that the industry has lost, quality contributions particularly from the Tea Research Institute. The political agenda of the subject ministries have literally ruined its relevance and its close relationship to the industry. Private sector must and should take the leadership and the Ministry of Plantations Industries should have least control over the much endowed research facilities, so that the research priorities of the institute is entirely determined by the industry. This transformation could also make it a self-sustaining organisation, servicing not only Sri Lankan plantations but also other plantations in the region. AgriCola |
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