Tea sector and its economic importance to Sri Lanka

By: Malin Goonetileke
For the first time since the inception of the Tea Industry 141 years ago, Sri Lanka’s tea export earnings exceeded 1 billion US Dollars in 2007. This achievement amidst the many setbacks and ad hoc changes in fiscal policies detrimental particularly to the producers clearly underlines the potential of the Tea Industry which still continues to grow on a stressful environment and the significant influence it exerts on the country’s economy through export earnings and employment generation is scarcely appreciated.

Production however steadily dropped to 302 million kilograms compared with the all time high of 317 million kilograms achieved in 2003 which can partly be attributed to the go slows and strikes in late 2006 followed by the drought in early 2007.

Despite the record foreign exchange earnings which are commendable, the amount which accrues to the producers is almost 30% lower than the total export value.

Tea, once Sri Lanka’s largest export commodity has experienced and surmounted intermittent crises over the past several decades and continues to be perhaps the highest Nett Foreign Exchange earning Industry and merits the support from the powers that be, to ensure its sustainability and growth.

Fortunately, Ceylon Tea is still synonymous with high quality and its particular strength lies in its diversity and hence the continuing demand from consuming countries. Therefore, some key strategic decisions need to be made and support meted out at every level in order to attain at least 2 – 2.5% of the country’s GDP held 3 decades ago from the current 1.5% as quoted by the Central Bank, contributing 13% of Sri Lanka’s total exports.

Local employment generation
The estates managed by the Regional Plantation Companies employ in excess of 300,000 workers while the Industry provides direct and indirect employment to over one million people which is some 13% of the country’s total labour force. Little known and appreciated is the fact that many townships and villages within the plantation areas have steadily developed with their economic situation totally dependant on the well being of the Industry.

In this context, the Plantation Sector takes precedence over all others in terms of the Economic, Social and Environmental benefits that accrue to the country.

Further, the State is relieved of having to provide facilities such as housing, water and sanitation and other infrastructure provided by the estates not only to the workers but to the entire resident population along with other administrative support such as facilitation of ID cards, Birth & Death Certificates and not least the maintenance of Law and Order in these areas.

Contribution to the Capital Market and related industries
The eighteen Plantation Companies listed on the Colombo Stock Exchange account for 1.64% of total market capitalisation which is significantly higher than apparel, tourism and other foreign exchange earning avenues.

Despite the declining harvest, export levels and earnings therefrom have shown positive gains with good demand from Sri Lanka’s traditional markets such as the CIS countries, Iran, UAE and other Middle Eastern destinations.

The volume of value added teas in the form of Packets and Tea Bags is steadily increasing and the expansion of the product range to Instant Tea, Green Tea, Organic Tea, a variety of flavoured teas albeit in limited quantities, apart from creating opportunities and growth through exports, have indirectly benefited Industries such as Printing and Packaging, Logistics and Freight Forwarding as well as the Local Handicrafts Sector.

Challenges faced

Sri Lanka cannot be complacent any longer with the changing Global scenario where competing countries are aggressively promoting and supporting production and exploring new markets.

The Indian Government is said to be embarking on a series of measures commencing with enhancing productivity. Union Minister of State for Commerce, Jairam Ramesh is quoted having said that the Indian Government was considering sharing 50% of the social security expenditure on estates due to the high social welfare costs which the Indian Tea Companies were finding difficult to bear.

Among the host of issues plaguing the Plantation Industry, critical and significant are problems that directly relate to land and labour. Frequent Government intervention and politicised trade unions add to the severity of the problem. A burning issue is the looming labour shortage due to out migration, voluntary unemployment and the ageing work force.

In as much as the onus is on the companies and employees, Trade Unions too have a key role to play in encouraging their members to greater productivity thereby realising the true potential of the industry.

Unwarranted work stoppages and other similar set backs, while incurring losses to the companies, adversely affect the plantation workers and the National Economy in the long run.

All stakeholders in the industry as responsible citizens as well as the Government must analyse what needs to be done to ensure the long term sustainability of the Industry.

Ceylon Tea is no longer a commodity but a food item contending with rival products in a fiercely competitive global market with the dubious distinction of having the highest cost of production amongst the major tea growing countries and any further decline in productivity due to ageing tea bushes, worker agitation, political and Government interference, ill conceived fiscal measures etc would be the stepping stones for our competitors.

This calls for urgent attention at the highest levels.

The writer is the General Secretary of the Planter’s Association of Ceylon