Tea poised to top US$ 2 b by 2010

Rohantha Athukorala Chairman Tea Advisory Committee Ministry of Industries

Whatever the pundits of the world say, Sri Lanka is a world beater not only in the world of cricket, but also in the world of tea. Sri Lanka is the market leader in almost 14 countries around the world and has carved out a reputation as the tea nation of the world.

All credit should go to the different stakeholders that are driving this national treasure under the Tea Board's guidance and the Ministry of Plantations mandate. I will be failing in my duty if I do not mention the contribution made by the Ministry of Industries to this sector.

It was a memorable day at the Ceylon Chamber of Commerce where, the tea industry got together and marketed a range of Speciality Teas from different parts of the country and shook the nation with a earning of 6.8 million in just twenty minutes of trading.

One particular lot of tea fetched a record breaking Rs. 12,700 per kilogram tells us of the potential Sri Lanka teas have globally. Even though the proceeds were given to charity, it was a unique event given that different stakeholders in the tea industry came together, to make this event a memorable moment for the country.

The tea producers, brokers, exporters orchestrated by the Sri Lanka Tea Board came under the hammer of the best auction system of the world that sure shook Sri Lanka for the record earnings. I was proud be a Sri Lankan that day, given that the guest in session was the ambassador from the Big apple- Robert O' Blake.

The concept- speciality tea

The U.S is the fourth largest market for tea in the world with a volume of over 120 thousand metric tones and in value worth a staggering 6 billion dollars at retail prices.

The market is growing at around seven percent per annum which is encouraging. Sri Lanka's share is around three percent but the growth seen in this market for Sri Lankan tea is above twenty percent.

It is obvious that the ground conditions are right for the US market to be a priority market in the Sri Lanka's tea strategy.

In fact 83 percent of the tea that is being imported into the United States is Black Tea in bulk form which is an ideal strategic fit based on the supply chain of Sri Lanka. Orchestrated by the Tea Board the concept was formulated to penetrate the US market.

Six different products were being developed in key agro climatic regions of Nuwara Eliya, Dimbulla, Uva, Uda Pussellawa, Kandy, Ruhuna and Sabaragamuwa that brings out a different flavours in the tea, just like the different kinds of wines that are being produced in France.

Research reveals that different agro climatic regions have a different topography which brings out the unique flavours of the tea. Research reveal that the a flavour of a tea is based on factors such as the age of the tea bush, soil structure, altitude, climate changes and wind velocity.

This infuses diversity into Ceylon tea, which in turn drives strong orientation into this age old agricultural product.

What was unique about this concept is that the project does not end at the supply chain end, but goes on to build a linkage with a select consumer group in the United States.

Behaviourial research revealed that consumers in different parts of the United States has a habit of visiting exclusive restaurants called 'Tea houses' where one savours a biscuit whilst enjoying a speciality beverage. Sri Lanka's Specialty Tea's strategically fits well into this need segment. The strong focused marketing campaign lased out by the Sri Lanka Tea Board adds the new blood required to this traditional industry.

A competition was staged called ' Speciality Estate Tea of the Year' competition that resulted in a record 410 entries coming in from different tea producers across the country. This was short listed by an eminent panel to 48 entries that was featured in to the final at the World Tea Expo in Las Vegas, USA.

Two of the entries won a global award and was auctioned immediately after the competition that received a premium price. This gave birth to a new brand name of tea's that will emerge to the world from the Tea Nation of the world - Sri Lanka.

Key strategies

Whilst Sri Lanka's traditional tea business continues to give leadership to Sri Lanka with a staggering 42% increase in export earnings to 623 million dollars, a point to be highlighted is that in fourteen countries across the world Sri Lanka is the market leader.

UAE (55% share), Syria (99% share), Iran (62% share), Jordan (86% share), Ukraine (53% share), Tunisia (72% share), Saudi Arabia (61% share), Finland (89% share), Romania (97% share), Hong Kong (43% share), Libya (37% share), Russia (34% share), Chile (37% share), and Israel (59% share).

However, the challenge is for Sri Lanka to position the country in each of these markets with a set of unique characteristic which will strengthen the brand name Ceylon Tea.

The architecture of the Ceylon Tea brand could be the fact that Sri Lanka Tea is the 1st country in the world to be awarded Ozone friendly status and already we having a reputation to produce clean tea.

May be the strategic and sustainable proposition we could shout to the world could be Cleanest Tea....ethically manufactured.

The next key strategy which needs our focus is to drive market penetration in the top ten key markets in the world-Russia, Pakistan, United States, Egypt, Morocco, Japan, Iraq and Germany.

Given the 325 million kilograms of tea that Sri Lanka produces annually it is obvious that the strategic direction has to be niche marketing game. This niche strategy can also enable us to elucidate a six dollars per kilogram that in turn can propel the industry to a new height of 2 billion dollars in the years. May be the policyholders who are conceptualising the 2009 budget, need to infuse some strategic incentives that can spruce up the tea industry. One such requirements can be funding to develop a 10 new brands in the likes of Dilmah and Mlesna's of the world.

The other area that requires the support of the state is in the step change development required in the supply chain. Namely in the area of R&D and Productivity enhancement techniques together with government led umbrella Nation branding strategies.

The grouse of the industry is that the cess funds collected of 1200 million can be ploughed back to the industry.

Currently just over a half the funds are only given back to the industry for development purposes which in fact is a legal offence.

RPCs

If we examine closely the challenges faced by the Regional Plantation companies (RPCs) and smallholders in the area of profitability, it is at a dangerously low le

vel.

May be one of the ways to improve this is to fine tune the test market operation on the Speciality Teas collection and set up one's own export division and sharpen ones skills on Global Marketing.

Maybe this export initiative by the producers can add to the new business model of diversification practiced by some of the Regional Plantation Companies. But I strongly feel the government must add muscle to this initiative so that we can develop 10 top tea brands for Sri Lanka in the years to come.

A point to note is that it's encouraging to see a new business model emerging in the structure of a RPC.

Some RPCs have diversified into cultivating Bananas for exports, growing cinnamon, commercial forestry, gemming, mini hydro power, tourism and domestic marketing of tea which should be commended.

However, we have to keep in mind is that the tea industry is our national asset and the strategic focus must be on the tea sector. The 2008 Central Bank report very clearly states that production of tea has been dropping year on year and in 2007 we hit an all time low of 304 million kilograms.

This has to be arrested eventhough the reasons can be attributed to the damning strike that happened in the latter part of 2006 and the adverse weather patterns that battered our nation. Sometimes I wonder if the Regional Plantation Companies should be classified under a separate industry just like the mobile phone industry so that a modern way of regularising the industry can happen.

It will benefit the RPCs too, given that strategic development can take place without it getting mirrored to the age old plantations sector mentality. After all the management approach is very modern with many of the senior managers being trained overseas and the techniques used are also very hip backed by multinational thinking.

The key issue is the political economy that is in play and can the strategic decisions that need be taken actually done. The best case in point is the linkage which is required between the wage increases and productivity. A point to note is that it is not only in Sri Lanka we see a political economy at play but right across the South Asian Region.

Way forward

Sri Lanka needs to build a culture where continuous test marketing operations are conducted like the one in the US on speciality teas so that 'different business models' will emerge for the development of the tea industry internationally.

A typical architecture of the models should include Sri Lanka having its own standards on the Minimum Residue Levels (MRL) that justifies the claim of being the Cleanest Tea in the world. Currently the field trials are being done at the Tea Research Institute (TRI) on MRL levels.

We must take high ground on the proposition - Ozone friendly status that Sri Lanka was the first to receive in the world.

A creative strategy needs to be developed that capture each of these elements to the overall positioning. May be it could be Ceylon Tea - Cleanest Tea...ethically manufactured.

The Tea Board and the Ministry of Plantation together with the Ministry of Industries must be commended for the strategic initiatives that it has taken to drive the industry to be competitive to the changing landscape of the world.

But I strongly believe that the private sector needs to now take the baton and run in an ethical manner as governments cannot do business nor should a government regulate too much that leads to politicising.

They can only provide a conducive environment and leadership to innovate. The good news for Sri Lanka is that Sri Lanka is well poised to make this industry a US$ 2 billion business by 2010.