Tea industryâ€™s competitiveness in cost and quality need
Workers at a tea factory.
PLANTATION MANAGEMENT: The history of the progress of plantation
management efforts in the tea sector in Sri Lanka can be classified into
three broad phases over more than a century.
The early phase under the colonial initiatives lasted till the
nationalization of estates in 1975, the second phase under the native
control, the â€śpost-nationalization phaseâ€ť was until 1992 and the third
phase the â€śpost-privatization phaseâ€ť is now more than about 15 years
with active participation of private sector in the management of State
owned tea plantations.
The approach during the colonial past had been for effective price
stabilisation strategies for a given Cost of Production (cop). The
â€śpost-nationalisationâ€ť period had its typical public sector care-free
style of management filled with politically acceptable and beurocratic
Despite differences among the plantation management companies, a
common feature since the beginning of the post-privatisation phase has
been efforts to capitalize on available opportunities for minimizing
unit cost of production and exploring potential outlets for increasing
the net income per unit area.
The economic liberalisation of the 1990s, also provided opportunities
for changing pattern of production in that the traditional estate model
began gradually giving way to smallholdings, a trend that has already
become a characteristic feature of the Sri Lankan plantation economy.
The global tea production is now dominated by four countries, China
970 Mnkg, India 966 Mnkg, Sri Lanka 310.8 Mnkg and Kenya 310.6 Mnkg with
Indonesia closely following with a production of 139.8 Mnkg in 2006.
These countries together account for about 75-80% of world tea
production. Sri Lanka is ranked as the 3rd leading global producer
marginally ahead of Kenya in 2006
Tea production in the country peaked in 1965 when it hit 228 million
kg, a record at that time, which remained intact until 1990 when a crop
of 233 million kg was harvested. Since then, production has been rising
almost annually to reach the highest level of 317 million kg in 2005.
Despite, the total production if 310.8 million kg recorded in 2006 is
a 3-year low, the forecasted increase of 2% with total production
expected to reach 322 million kg level, is likely to retain Sri Lanka
firmly in the 3rd position in global production in year 2007, although
production in January 2007 is down by about 14.4 percent.
The increased demand for the low grown produce, coupled with larger
extent and higher productivity, despite frequent droughts, has
stimulated higher growth in the low-country region over the last several
The low grownâ€™s share of the national production rose from 2.8% in
1970 to 56% in 2001 and to 60% in 2006. The share of mid-grown was 16%
and that of high-grown 24% in 2006
Much of the growth boost in low-grown tea production is attributed to
the rise of the tea smallholders who are concentrated in the
It is estimated that the smallholders occupy about 65 to 70% of the
tea extent in the country and their contribution to overall production
has also now risen to around 65 to 70%.
The estate sector has seen a gradual erosion in its share of
production from about 85% in the early 1980s to about 30 to 35% as of
Tea crop productivity in Sri Lanka is a different story altogether.
It lacks professionalism in approach and continues to be stagnant and
below-par in performance, notably in the corporate sector. It is amongst
the lowest in global scenario.
The national average of 1415 kg/ha in 1998 was about 65% of that of
Kenya, which at 2284 kg/ha was about the highest in the world, at that
The current national average is also not significantly different and
is around 1520 kg/ha with low country productivity averaging around 1850
kg/ha. South Indian tea productivity is currently in the region of 2,240
The story of the disparity in yields between the corporate sector and
smallholder sector has now been well documented.
Yield among the small holdings now average about 2,450 kg/ha and that
of the corporate sector plantation is in the region of 1275 kg/ha which
is about 65% of that of the former category. It is heartening to note
that smallholder crop productivity is comparable with South Indian and
Low productivity of the ageing tea bushes in corporate sector
plantations may be one of the major contributory factor besides
inconsistent use of crop productivity improvement inputs notably
Tea is known to be very responsive to added fertilizers. Estate
sector plantations in smallholder dominated area are known to record
yields much lower than the latter category, the differences being in the
region of 700 to 750 kg/ha. Obviously, such differences cannot be solely
attributed to agro-climate variations.
As the economic lifespan of the low yielding seedling tea is known to
be around 100 years, it had been the tendency for the corporate sector
to delay their replanting programmes.
The rate of replanting is believed to have been less than 1%, despite
growing awareness in the past of the differences in yield potential
between vegetatively propagated (VP) tea and seedling tea, which is in
the region of 100 to 150 percent.
The estate sector had not been very enthusiastic to replant.
Nevertheless, during the post-privatization period some efforts have
been made to rectify this anomaly. A replanting rate of 2% is expected
to provide the desired results.
Smallholdings are known to have a very high proportion of VP tea,
which account for the yield differences between the two-sectors. This
sector supported by the state and International development agencies
have been able to incorporate a very high proportion of VP tea besides
other latest agro-technologies and inputs.
Skilled worker deficit/productivity
Skilled worker out-migration in plantations, another challenge to the
corporate sector, as highlighted in some of the previous articles. This
is continuing to cause serious crisis in terms of productivity
Harvesting technology, a skilled operation, is known to play a key
role in determining production, productivity and quality standards. In
order to mitigate the situation, the corporate sector has been
attempting to introduce partial mechanization of some field operations
and other labour saving and incentive measures.
The entire plantation systems needs re-vamping to eliminate this
deep-rooted perennial problem. The labour situation in the plantation
has gone from one of surplus to deficit with an annual decline at the
rate of 10-20% of the workforce.
Labour accounts for more than 60 percent of the production cost in
tea. Worker productivity is therefore a major component of plantation
production efficiency. It is known to be linked to three factors in tea
plantation scenario; wages, incentives and social-economic
The extent to which the additional cost of such factors can be
neutralized through corresponding gains in productivity will constitute
and important element in labour management.
A combination of better skills, improved knowledge ( that is the
underlying reasons behind the various skilled operations), positive
attitudes ( eg : the urge for achievement motivation) and enablers will
go a long way to upgrade an average worker into a top performer.
Cost of production/ profitability
The profitability of Sri Lanka tea industry like any other plantation
industry, rests heavily on the movement of global market and production
With cost of production in Sri Lanka being very much higher than its
competitors and international tea prices being increasingly competitive
with the emergence of low-cost global producers like Kenya, India,
Vietnam etc. domestic producers and the corporate sector in particular
with un controllable overheads may find it difficult to make ends meet.
Sri Lankaâ€™s COP has been recording steady increases and is now around
U$ 1.75 per kg, which is well above that of Bangladesh with U$ 1.35,
India with U$ 1.25 Kenya around U$ 1.00 and Vietnam, the lowest around
U$ 0.75 per kg.
Three possible ways available for the producer to enhance
profitability are, to fetch attractive prices for their produce,
increase their productivity level and to reduce the COP.
The potential for corporate sector to rise even above the levels of
the smallholdings in terms of crop and worker productivity is
Additionally, consistency in the quality of tea for which this sector
has the technologies and resources, would fetch higher prices.
There are several avenues open to improve profit margins even in the
face of increasing costs, through wage hikes being granted in response
to workforce agitations, which is unavoidable. Costs of imported
materials are also bound to rise.
Although tea prices increased significantly in January / March 2007
due to global shortage of volume in the region of 15 Mnkg and in the
domestic scenario, the aftermath of the plantation strike, drought
effects and depreciation of SLR, But the market is expected to stabilize
by mid-April with more volume available for sale in Sri Lanka. Kenyan
tea has already recorded increased output.
In the final analysis, one way to shield against global â€śboon and
bustâ€ť cycles and enhance bottom lines is to increase value-addition. One
only has to look at the price differentials as the value addition scales
The corporate sector has been steadily progressing into
value-addition, yet much remains to be done, besides improvements in the
marketing system for which the smallholdings lack the expertise, capital
and other related resources.
Given the current scenario, the sustainability of the conventional
plantation structure as a large scale corporate enterprise will be
An examination of this scenario has a political as well as economic
and social dimensions. Field technology being neutral to size, the
preferred strategy is for a shift to small holdings/out grower
The emergence of bought leaf and co-operative tea factories have
displaced the rationale for proximity to the central processing
facility. The introduction of out-grower systems within plantations as
is being attempted in some plantations seems to be a promising system
The general belief empirically demonstrated, is that both land and
labour productivity is higher in such systems of management/ownership.
Growing proliferation of smallholdings has now become a common feature
in global plantation scenario.
Opportunities and challenges
The globalisation process has offered unlimited opportunities as well
as challenges for the tea producing countries.
Technically, although it may be difficult to generalize either the
opportunities or challenges for the simple reason that each country is
at different stages of development of their tea industry, yet, the
opportunities and challenges of the producing countries can be grouped
together under a common slogan â€ś competitiveness in cost and qualityâ€ť
If we fail, the tea industry will get back into the wilderness and
will move into the fourth phase of its management cycle.