on Ceylon Tea
BY MAXWELL FERNANDO
At the start of 2000,
a restoration of stability brought about a complete change in attitude and aspiration for all concerned in the Ceylon tea industry and trade. The weather was favorable, and fertilizer applications went down at the right time, resulting in a surge in the crop. Marketing has been better organized, tea prices started to strengthen, and sufficient orders were received in Colombo to absorb excess tea produced. The port of Colombo worked to maximum efficiency and tea moved out without delays.
After a difficult year in 1999, the tea industry in Sri Lanka is currently enjoying a period of strength and optimism. Maxwell Fernando, of Mercantile Produce Brokers (PVT) Ltd.,
explains how this has come about.
During the past decade, tea exports have increased from 215 million kilos in 1990 to 288 million kilos in 2000 - an increase of 34%. Colombo has remained one of the most active auction centers in the world, with a high concentration of buying power from the largest tea consumers in the world. The global distribution of Sri Lanka tea for 2000 is most encouraging and has penetrated to all corners of the world. Since privatization of the plantations, the marketing arm has been revitalized and the export figure of 288 million kilos is once again an all time record.
Sri Lanka’s prime exports still continue to be bulk teas, but the main thrust of the export strategy is to switch over from bulk to value-added tea products. The price structure of value-added exports generate higher foreign exchange earnings and tend to create additional employment opportunities down the line. In the year 2000, approximately 63% of their exports were in bulk, generating 54.7% of total revenue, while 25.6% was derived from the sale of tea in packets and 9% from the sale of teabags. This is not at all satisfactory and earnings from the sale of value-added consumer products must be increased if Sri Lanka is to perform its obligations towards the economic advancement of the country. The country is also quickly moving towards the production of specialty teas and is on the lookout for niche markets for their disposal.
The most notable achievement for 2000 was in the field of production. Since 1993, the country has accounted for a series of achievements by developing on the crop harvested the previous year (see fig. 1). High grown varieties have recorded an excess of only 22.2 million kilos for the year and it must be recalled that this sector is mostly dominated by private management companies. Mediums have maintained steady growth rate, although both high and medium sectors saw better days a few decades ago.
Evidence of the success of the private estates in increasing the tea crop has not been spectacular and has only registered an annual increase of 1.6% over the past six years. As already ascertained, their average yield during the period under consideration has been lower than the national average. With a more planned approach to replanting and in-filling, the benefits from these influences will take a longer time to surface.
It is the low-grown sector dominated by the small holder that has maintained an unprecedented track record and accounted for astonishing growth rate. In 1961, production from low grown areas crossed the 50 million kilo mark for the first time and since then, there has been no let up in the situation.
The production of CTC varieties has witnessed steady growth since 1983 when it was decided to convert 10% of orthodox teas to CTC varieties. Most of the CTC factories are located in high and medium grown areas but their production is on a constant decline. Manufacturers of CTC varieties commenced in low grown areas at a much later date but their production is on a steady rise, mainly because the CTC teas are often preferred to other varieties and they continue to obtain better support from the regular buyers of CTC teas.
The local teabagging industry is capable of manufacturing a complete range of teabags, such as non-heat sealed (double chamber) bags with and without string and tag, with or without envelopes. Tea pot packs containing 15 grams each are also manufactured mainly for use on airlines, passenger ships and in catering outlets. Consumer packs are exported in attractively printed cartons and reed ware bags. The expansion of this sector has been slow and in 2000, the country exported only 4% of the total export in this manner.
The local exporters are now obtaining a niche in the more sophisticated market for flavored teas. Colombo has become a center for flavored teas and variety of scented and spiced teas are locally produced. The product range extends from Earl Grey to lemon, orange, lime, mango, strawberry, apple, jasmine, peppermint, cardamoms, cloves, nutmeg, etc. These are exported in keeping with the buyers’ requirements, either in bags or packets.
Commercial production of Chinese-type green teas started in 1981. The export of these has gradually improved over the years. And organic tea is the latest addition to the wide range of products. The dye is cast, and the progress the country has made in the recent past to expand the product base is a sure indication that the tea export segment in the country is becoming more market oriented and is viewing the marketing aspect in a more professional manner. Product diversification seems to be the only answer to the many problems the tea industry is facing today.
Sri Lanka’s Customers
The CIS continue as the principal buyer of Sri Lanka teas, having purchased an extra quantity of 8.9 million kilos more than in 1999. Over the past decade, CIS purchases have increased from 14.1 million kilos in 1990 to 56.6 million kilos in 2000 - a 300% increase.
The UAE is a constantly expanding market and is unique in that about 70 shippers from Sri Lanka serve it. The UAE is capable of absorbing approximately 250 million kilos each year. This market is a comparative newcomer to Colombo and has made a tremendous impact in recent times. It is poised to offer stiff competition to the CIS and last year purchased 40 million kilos.
Syria has increased their purchases from 19 million kilos in 1999 to 21 million last year. The gradual liberalization of trade in Syria has opened up new opportunities for Sri Lankan teas. Syria is a land of mixed compositions, comprising scorched deserts, coastal greenery, snow-capped mountains, and a warm Mediterranean, which has made the Syrians a nation of tea drinkers.
Turkey offers great potential for the development of trade in that region because of its strategic position. With the liberalization of trade, the country can offer all facilities as a trans-shipment point for their neighbors. Turkey is a potential tea producer but not large enough to pose a threat to Sri Lanka as the Turks prefer our tea to their own. Their teas are exported to Germany and other continental countries. Last year’s imports reflect a drop of 4.6 million kilos compared to the previous year but Turkey continues to support a wide range of our exports. For last year 65% of Turkey’s total imports were taken in bulk, 15% in packets and a small quantity in bags. The country is also showing a preference for other value added specialty teas.
Iran has been a long-standing supporter of Sri Lanka teas and has expressed a special desire to secure the bulk of the tippy teas produced in the country. They have increased their purchases from 98.7 million kilos in 1999 to 12.5 million kilos last year.
Saudi Arabia’s total market potential is in the region of 17 million kilos. A very slow growth rate has been recorded but it is significant that the bulk of the country’s purchases are secured form Sri Lanka. Saudi Arabia at one time supported our value added segment very strongly and the bulk of her imports were in packet form and teabags. The situation has changed considerably in the recent past and for last year, 77% of her purchases were in bulk form. Small quantities of packets are still required but their imports of teabags reflect a slight improvement.
Iraq has for a considerable time supported tea markets in Colombo. In 1997, after a period when a series of United Nations sanctions caused the country to cease operating, the Iraqis reappeared at the Colombo market place. The 3 million kilos purchased then has increased to 11 million kilos last year.
The United Kingdom market used to absorb 65% of Sri Lanka’s total production but is now in 8th position in the list of buyers and their share of purchases has dropped to 3%. With the present marketing policies adopted by management companies to explore all channels of marketing, there is a possibility that more teas will be consigned to this destination in the future. The U.K. has always been a bulk buyer but has shown some preference for teabags and instant teas in the recent past.
Egypt has been one of Sri Lanka’s major buyers since the mid-1980s but in the early 1990s the country saw the advantages in CTC varieties where cuppage could virtually be doubled. Unfortunately, Sri Lanka could not at that stage meet their requirements and today, the bulk of Egypt’s requirements are supplied from Kenya. However, Egypt increased her purchases from Sri Lanka from 7 million kilos in 1999 to 10 million kilos last year, but their value-added component remains insignificant.
Japan is known to purchase the best teas Sri Lanka can produce. The country’s total purchases have increased from 5 million kilos in 1999 to 7 million kilos in 2000. The Japanese are known to pay up freely for teas of their choice and they are commonly accepted at the market place during the quality season. There is vast potential in the Japanese market but the Japanese buyers will only support the best the country can produce.
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