|
“We
must aggressively promote Sri Lankan tea”
Former
Sri Lanka Tea Board Chairman Niraj De Mel asserted that Sri Lanka
needs to aggressively promote Ceylon tea in order to improve the
tea industry in the backdrop of tea bags slowly, but surely, making
severe inroads into our market. In an interview with The Bottom
Line, De Mel – who is now the Chief Operating Officer of C.S.
Asia Teas – pointed out that Sri Lanka cannot continue to meet
the demand given the internal problems that the tea industry in
the country is facing.
“We have to cash in or be a step ahead by doing continuous,
aggressive promotion of Ceylon tea. The more people get used to
tea bags, the more they will get used to what is called tea and
not a specific origin. We can lose out on that because, Sri Lanka
is 95% orthodox. We need to keep the consumer aware of the intrinsic
value and satisfaction that orthodox tea can give a consumer,”
he emphasised
Q:
There has been a drop of 14 million kilogrammes in the tea crop
this year. To what do you attribute this drop?
A: Reason number one is, we had this prolonged wage negotiations
issue which took place in the latter half of last year. I would
say that it dragged on too long, which resulted in a go slow at
first, followed by a complete stoppage of work. This happened at
a time when we were moving into a fairly dry period.
As a result of the bad handling of the negotiations, when it was
finally resolved, there was a situation where the bushes were overgrown
and had to be skiffed, and in certain cases, even pruned. The leaf
was not good for plucking for manufacture.
Then, we moved into the usual dry period. That was not the best
time for skiffing. We didn’t have crop during the time of the
work stoppage, and the go slow was bad enough, followed by the drought
– we are still facing the repercussions of all this. In addition,
the non-application or poor application of fertiliser through the
year – as a result of high costs – only compounded matters.
Q: The issue of replanting needs
to be urgently addressed. What steps should be taken in this regard?
|
Checklist
for improving the tea industry
•
Replanting
• Factory modernisation
•
Traceability
•
Aggressive promotion
marketing for or
thodox teas
•
Ploughing back
funds into the industry
|
A:
There was a norm that at least 2% of replanting must be done annually.
This was an age old method in order to maintain the crop without
having any issue when you come to the crunch point.
In 2004, a study was done by the TRI and they found that in the
six years to 2004, the replanting had fallen short. The three years
to 2004 was even worse. This means we have to forget about the 2%
and actually double up on our performance and replant 4% to 5% per
year to catch up on where we have fallen short.
The reason why the replanting is not being done is that it costs
around Rs. 1.5 million per hectare to replant in the high and mid-growns.
In the low country, you would need about Rs. 700,000 to Rs. 800,000
per hectare because there you could start harvesting much earlier
than in the high growns.
The plantation companies or the private land owners are not willing
to undergo that loss. That is the reason why they would rather go
on plucking more and more, even from an old man, than try and rejuvenate
a young guy.
I think, the government should come up with alternate land so that
these people don’t lose out and do their replanting as well.
There should be a scheme where they have land in which to replant,
while having an income. But is there land available?
That’s
the next question.
In addition, the plantation companies are now going to benefit through
the tea cess where a sum of Rs. 75 million has been allocated per
annum from the 2007 Budget towards replanting work. This is grossly
inadequate but it is some start – the state acknowledging that
this is a grey area and if it is not addressed, we won’t be
able to maintain production.
Q: There is an increased demand
for orthodox teas, for which Sri Lanka is the main supplier. However,
there has been a loss in acreage, due to which tea production will
drop in the years to come. How do you think we can continue to meet
this demand?
A: There is a drop in orthodox production because of the
Sri Lankan situation. Sri Lanka is the largest orthodox tea producer
and supplier to the world. If Sri Lanka is affected in terms of
our harvest, there will be a global imbalance in the supply-demand
situation.
We cannot go on the basis of the global tea demand situation, because
that consists of two manufacturing processes – CTC (cut, tear
and curl) and orthodox. This year CTC, with the Kenyan surge, must
be around 60 million kilogrammes and as a result, CTC prices will
begin to come down.
However, because of the drop in orthodox tea, towards which Sri
Lanka is the main contributor, the tea prices for Ceylon tea will
continue to go up until such time there is a supply-demand balance.
As for Sri Lanka continuing to meet this demand, I cannot see it
happening because of our own internal problems.
Q: What are the steps that need
to be taken to improve the tea industry?
A: Primarily, we need to aggressively promote Ceylon tea.
We need to get people who have got used to tea bags to know the
satisfaction that orthodox tea can give a tea drinker. The tea bag
dominating the global tea market is a multi-origin blend, the majority
of which comes from CTC tea.
We have to look differently at going into markets that appreciate
Ceylon tea, such as the Middle Eastern market and even the Russian
market, both of which are main importers of our tea.
They
are loyal to us but the market shares are getting smaller because
of the inroads made by tea bags, as a result of which, we must not
allow a UK type scenario to take place even in these markets. We
have to cash in or be a step ahead by doing continuous, aggressive
promotion of Ceylon tea.
The more people get used to tea bags, the more they will get used
to what is called tea and not a specific origin. On that we can
lose out, because Sri Lanka is 95% orthodox. We need to keep the
consumer aware of the intrinsic value and satisfaction that orthodox
tea can give.
It can entail a little more time because a tea bag is about quick
brewing. You are in the rat race and the tea bag helps, but then
you are not enjoying the goodness of a cup of tea. You can do that
only with orthodox tea but you need to be a little more patient.
The tea prices that Sri Lanka is enjoying right now are unprecedented.
Current auction value in terms of dollars is almost touching US$
3 at weekly auction level. Price-wise, it’s a good price. There’s
nothing to grumble about. We should all be actually running businesses
that are more than profitable.
However, what has happened and why they are grumbling is because
the costs of inputs have gone up. The wage hike is contributing
towards the up country estates costs. For the private factory owners
and small holders, the problems are the high costs of fuel, energy
and imported packing material.
But having said that, those who are running their factories well
are enjoying a really good time right now and therefore, if discipline
can be brought in, I’m sure a greater majority of private factory
owners can enjoy better returns.
Having said that, the downside of high prices is that multinationals
or international packers are moving away from Sri Lanka because
they have a set price. The moment that is upset by way of high Sri
Lankan components, they substitute that with other origins. Once
they do that, getting them back to Sri Lanka, even when Sri Lankan
price comes down, will be difficult.
Even though their production is much smaller than ours, there are
enough countries that, when put together, are making severe inroads
into the Sri Lankan presence in the blend menus of international
packers.
Q: Fertiliser is not being applied
in the proper quantities due to high costs and reconditioning and
rejuvenating of the soil needs to be done. Factory modernisation
is also extremely important for the tea industry to survive. How
can these issues be addressed?
A: Where the soil is concerned, the Tea Research Institute
(TRI) has to play a far more proactive role. Why they are unable
to do this is because the funds that are set aside for this from
the tea cess – on which the TRI is fully dependent – are
grossly inadequate.
As for factory modernisation, Rs. 61 million has been allocated
from the increased tea cess since last year, but that is peanuts.
You need a minimum of Rs. 10 million to Rs. 15 million to bring
a factory to the levels of today’s requirements. We have 600
plus factories. I would say not more than 100 to 150 – and
I am giving very high figures – are modernised or are in the
process of being modernised. The remainder, which is the greater
majority, needs to be modernised.
About 50% of those factories are low grown factories, which cannot
grumble about inadequate funds. Prices are good and they can easily
start work on modernisation. But the problem there is that quite
a number of them are not ploughing back into the industry.
Q: The tea cess is meant to
be ploughed back into the industry for development, promotion, replanting,
and factory modernisation. However, the CTTA recently highlighted
that a progressively increasing share of the cess funds, which now
amounts to almost a third, is being retained for other purposes,
depriving the tea industry of desperately needed funds. How do you
think this issue can be resolved?
A: The cess is now Rs. 4. This into around 300 million kilogrammes
amounts to Rs. 1.2 billion. This has to be divided between the Tea
Board, TRI and Tea Small Holders Development Authority (TSHDA).
Now a small amount is being set aside for the Emergency Fund; the
Tea Association is also being given Rs. 6 million; the ministry
itself, which was never a beneficiary in the past, is now getting
Rs. 3 million towards capital expenditure; then there’s funding
for replanting for RPCs and factory modernisation for the private
factory owners.
It’s all laid down. The problem that the CTTA highlighted is
that though it is laid down, this full amount seems to be slow in
coming to them. The problem was acute at the time they highlighted
it but I think it is now getting better.
Q: Consumer countries are demanding
that Sri Lanka obtains HACCP certification for its factories, in
order to maintain certain standards about which consumers are very
concerned. How can this be done given the lack of funds in the industry?
A: That is how it was projected, but actually, no one has
demanded the certification. I don’t think it’s a hard
and fast rule but it’s in our best interests to get ourselves
equipped with what the consumer wants.
The consumer may not come and ask whether this tea is coming from
a factory that is carrying out its manufacturing under HACCP certification.
However, in that HACCP system certification, hygiene and product
safety is addressed. That’s what they want.
Companies know what their clients want and they are gearing themselves
in order to be better marketable to their clients. Factories should
be improving themselves daily as the world changes. They have to
be conscious of that fact. They cannot carry a cattle-shed mentality
into this modern age.
It has been decreed across the globe that tea is no longer a beverage.
Though it is consumed as a beverage, it is a food product. This
means hygiene is uppermost. We have got to think of that. We cannot
just come in and churn out tea in any old way and get a price for
it. Factories keep taking this issue up with the government saying
they do not have sufficient funds to do it. But they must at least
plan it out.
If any other industry – be it garments or tea exporting companies
– can continue to improve and modernise themselves and get
whatever certifications that are relevant, tea producers must likewise
look at what is relevant for tea and improve themselves.
Q: About 35% of tea production
goes as value added teas and a scheme is needed to promote value
added teas. The government apparently wants this 35% to be increased
to 65% within the next five to 10 years. Since we are competing
with multinationals, big money is needed for this promotion. How
can this issue be addressed?
A: The good news is that we are doing more than 35% in value
added teas. I would put it close upon 50%, or even more. A lot of
our so-called bulk shipments no longer go in 50 kilogramme bags
or in sacks. There are consumer specifications where we now pack
five, 10, 11, 20 kilogrammes, etc. Those are not just plain boxes
– they are printed, beautiful, eye-catching boxes. Even Walmart
is today asking not for 200 grammes but for the seven kilogramme
box that housewives can just take away.
In this regard, Sri Lanka has really got itself going. If you ask
any of the corrugated carton manufacturers, they will tell you that
the tea segment is a big market for them. The tea comes from the
estates in big sacks. We tear open the sacks, put it into the blend
and then pack it into these boxes. This is also value addition.
When you add that on, we are not too far off from 65%.
However, it will be very difficult to touch the 65% strictly in
shelf packs because the advertising, designing and research budgets
of multinationals are way beyond ours.
As a case in point, in 1995, around 95% of our exports to Russia
were going in value added form. Everything was packed here. Today,
only 15% of our brands are going there as packed and finished products
from here. Around 80% is going from here as bulk for them to do
packaging there.
They must naturally be blending the tea with other origins when
doing it. Those packers have been able to really grow since they
have the finances to do it. This will be a serious setback for us.
In addition, our technology does not change fast. They change pack
designs very fast. Today, for a Sri Lankan company to change a pack
design, each colour needs a separate drum. There are around six
colours on a pack. A drum costs anything between Rs. 40,000 to Rs.
50,000. The start-up cost to change a pack is around Rs. 300,000
or more.
What Sri Lanka companies immediately look at is when they can recover
that cost. Since they cannot recover it that fast, they choose to
let the old pack remain. Overseas, the packs keep changing all the
time. We cannot afford to do this.
|
