TEA
Colombo International Tea Convention 2012 ends successfully
Tea pluckers in Nuwara Eliya tea estate
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Once every four years, a large and distinguished gathering of the
Global Tea Community gravitates to Colombo to attend one of the most
keenly anticipated events in the international tea calendar.
This event is the Colombo International Tea Convention which was
held, on this occasion, over the period February 1 to 3, under the
auspices of the Colombo Tea Traders' Association, the apex body of the
tea industry of Sri Lanka, and the Sri Lanka Tea Board, the State
Regulatory Authority of the tea industry. It coincided with the 145th
anniversary of the introduction of tea to this island, which was first
planted on the slopes of the central hills in 1867.
To briefly digress from the matter in hand, it must be recorded that,
for over one hundred years, the tea industry has consistently sustained
the economy of this country.
Other industries have emerged to temporarily take the shine off tea,
but they lack the resilience of the tea industry and wilt under the
pressures of international adversities. Furthermore, there is the
tendency to evaluate the performance of an industry on its gross foreign
exchange earnings, ignoring the high percentage of imported components
which may form a part of the finished product that is eventually
re-exported and, consequently, artificially swells its value. In the
case of tea, the gross and net foreign exchange earnings are almost on
par, as the export value comprises, almost entirely, indigenous in-puts,
which now amounts to US $ 1.5 billion. If net earnings are used as the
yard-stick, tea will regain its due primacy.
It is also not fully appreciated that the tea industry supports
approximately 20 percent of the country's population, through direct and
indirect employment, out-sourcing and dependent families.
The Small Holder Sector, an industry stakeholder created, in the
main, as a consequence of the Land Reform Act implemented in 1975,
accounts for two million individuals. The Corporate Plantation Sector
has one million people residing on its properties, with instances of as
many as four members of a single family provided employment within the
sector. The Private Factory, Export and Broking Sectors, together with
other ancillary industries, such as shipping, transport,
printing/packaging, etc., in combination, provide support to a further
over one million persons. Consequently, approximately 4.3 million of a
total population of 22 million obtain their livelihood from the Tea
Industry.
Reverting to the Convention, the importance of this event is
underscored by the fact that two internationally renowned organizations
decided to convene their biennial meetings in Colombo, immediately
preceding the Tea Convention. The International Tea Committee held its
Producer/Consumer Members Forum on January 29, whilst the Food and
Agriculture Organization Inter Governmental Group on Tea conducted its
20th Sessions from January 30 to February 1.
A tea factory
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The theme selected for this Convention was "ExclusiviTEA". The
rationale for this is that Ceylon Tea is indeed an exclusive and unique
product. Being specialty in nature, it caters primarily to niche
markets.
It represents the main source of Orthodox Black Tea to the world.
Ceylon tea is grown and produced in seven major ago-climatic regions.
The seven major ago-climatic regions are further divided into 38
sub-regions, each with its own distinctive characteristics.
These are spread over three broad elevational classifications, with
varying soil types, a range of cultivars, contrasting rainfall patterns,
temperatures, hygrometric gradations, etc.
There are over seven hundred factories manufacturing tea, each one
unique in regard to location, elevation, climatic conditions, soil types
and production processes, and with twenty five different grades, the
choice available to consumers is virtually infinite.
Ceylon tea and the names of the seven major agro-climatic regions
have been registered in Sri Lanka as Geographical Indications, with
respective logo designs as identification symbols. Over a period of time
these eight Geographical Indications will be registered in all major
consumer markets, as protection against counterfeiting.
Ceylon tea is also acclaimed as the cleanest tea in the world. It is
the only country officially recognized as a producer of Ozone Friendly
Tea. It has been permitted, under the vigilant management of the Sri
Lanka Tea Board, to use the "Ozone Friendly Pure Ceylon Tea" logo, which
has been incorporated into an "Ozone Friendly" sticker that may be
attached to all retail tea packs of Ceylon Tea exported from origin.
The International Tea Conventions held in Colombo are renowned for
their innovative content and stimulating deliberations, in addition to
providing eminent opportunities for effective networking. This year's
Convention was no exception. It attracted a record number of delegates;
over 200 from overseas and over 400 from the domestic industry.
The Convention was conducted over five sessions, dealing with
different aspects relating to the main theme - "ExclusiviTEA". Each
session comprised five to eight presentations made by distinguished
speakers; reputed experts in their respective subjects. Each session was
followed by a widely participative Panel Discussion.
The subjects ranged from the "Uniqueness" of Ceylon Tea, to its
adherence to a wide spectrum of hygiene, food safety, ethical and
environmental codes; conformity to International quality parameters,
International Compliance Regimes, product quality and process practices
and labour standards, supported by highly developed scientific and
research facilities in biotechnology, integrated pest management,
conservation and sustainability strategies and Eco-friendliness/carbon
balance; the availability of "state-of-the-art" facilities in printing,
packaging, processing/value addition and quality control to having
access to the advantage of enhanced value of logos and upgraded
regulations to control counterfeiting.
Arising from this, constituting an all encompassing, dedicated
industry standard for Ceylon Tea, to establish its distinct identity,
and resolutely promoting its acceptance and recognition internationally
was identified as the "Key Take-away" of the Convention and has been
determined as the primary objective of the Industry.
Notwithstanding an overwhelmingly successful Convention, the tea
industry is not without very serious challenges. A general trend of
declining prices/demand has been experienced at the auctions over the
past many months and is likely to continue in the foreseeable future.
This is mainly the outcome of the prolonged political turmoil in the
West Asian and North African regions, the international trade sanctions
imposed on certain countries and the economic dilemma faced by many
countries world-wide. The lack of optimism in the future and the dearth
of export orders have resulted in a progressively increasing volume of
teas offered at the weekly tea auctions remaining unsold.
For Producers, this has created serious cash flow problems, which
have been compounded by the significant increase in costs on account of
the revised wage package, excluding any linkage to productivity, for
plantation workers negotiated in July last year and the sharp
appreciation in electricity, fuel and various other charges,
particularly the most recent.
The arrears payable from April 2011, within the framework of the wage
package, and the granting of the subsequent customary Festival Advances
to the plantation workers have placed many Regional Plantation
Companies, especially those with portfolios comprising either
exclusively or predominantly tea properties, in a virtually nonviable
position, financially.
The crop shortfall due to adverse weather conditions aggravated the
situation. Private factories, which are overwhelmingly the main buyers
of the green leaf harvested by the smallholder sector, have been
similarly affected by these circumstances, while the Smallholders, whose
returns have been sharply diminishing, find that their operations are
increasingly becoming financially unsustainable.
The Gross Sales Average in respect of the Corporate Plantation Sector
has declined from Rs.390 to Rs.325 over this period and the deficit
between the Cost of Production and the Net Sale Average is about Rs.75
to Rs.100 per kg, particularly in respect of teas from the higher
elevations. As a consequence, low grown teas, which account for the bulk
of the country's tea production, are now barely breaking even, as
against comfortable margins earned previously. High and mid grown teas,
which were not showing profits previously, are now recording significant
losses.
The National Gross Sales Average [NGSA] reflects an equally alarming
situation, although not to the same extent as in the case of those
applying to the Corporate Plantation Sector, which does not have the
advantage of a high percentage of low grown teas.
During the months of May to September 2011, the NGSA had declined,
from Rs.395 in January/February 2011, to around Rs.340, whilst a
comparison of prices realized in the months of January and February in
2011, against the same two months in 2012, show a less significant
decline from Rs.395 to Rs.350.
This slight improvement is on account of the fact that two major
producers, North India and Vietnam, suspend harvesting during this
period due to the winter, creating an imbalance in supply and demand.
The prognosis for the next quarter is far less favourable. It is
usually a high cropping period and, on the basis of current weather
conditions, 2012 is expected to surpass the performance in 2011.
Also India and Vietnam will re-join the supply chain, after the
winter break, and, with the onset of summer, the consumption of tea in
the two regions that account for the highest imports of Ceylon Tea, the
Middle East and Russia/the CIS countries, customarily consume less of
this beverage. This does not portend well for prices.
Exporters faced inequitable competition in the global market place,
as a result of sharp currency devaluations in both consumer and other
producer countries, an unrealistic exchange rate being artificially
maintained for the Sri Lanka Rupee, till recently, and additional levies
being imposed on exports, such as the Promotion and Marketing Levy and
the supplementary Rs.6 Cess on bulk tea.
They were further disadvantaged as a consequence of the suspension of
some channels of procurement of teas which were available to them prior
to end 2008 and the stringent controls placed by the State Regulatory
Authority on imports of tea from other origins for purposes of value
addition, also introduced during the last global financial crisis in
2008.
Furthermore, trade sanctions imposed on countries such as Iran and
Syria have caused export restrictions and undue delays in the receipt of
payment against shipments. With these sanctions expected to be more
rigidly implemented in the ensuing months, the situation cannot but be
exacerbated.
The devaluation of the Sri Lanka Rupee in the budget was "too
little-too late", whilst the subsequent depreciation in the value of the
rupee, following the "free float", has had little impact on tea prices.
In the final analysis, the ensuing months reflect an ominous scenario
for the tea industry. With so many of the country's population depending
on this industry for their very existence, the negative outlook for tea
could escalate into a national problem of calamitous proportions, in
regard to the economy vis-à-vis export earnings, employment and the
sustainability of the industry. The state authorities should view this
as an overwhelming priority.
In these circumstances, it is imperative that the funds approved by
the Cabinet should be judiciously invested by the Promotion and
Marketing Committee of the Sri Lanka Tea Board, which is driven by the
private sector.
The thinking of this forum should be steered towards using these
resources to expand into the largely untapped markets, such as China and
India, which hold the greatest potential for the creation of new
marketing opportunities, thereby shifting dependency from the volatile
Middle Eastern region, the financially challenged EU and US markets and
the increasingly protectionist policies of the Russian Federation, which
are adversely impacting the vital value added tea exports of the
country.
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