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Time for Tea Production Cost Control (cont.)

From a global perspective, Lawrie Plantation Services Ltd, based in the U.K., plans for cost control in several continents. Stephen C. Buckland, commercial projects manager, arrived in the U.S. this past summer to pioneer cost-effective wholesale expansion of Goodricke grown tea. Ajay K. Jain, vice president and general manager of marketing at Goodricke’s Calcutta headquarters, also arrived in the U.S., to coordinate this unprecedented expansion. Goodricke’s new venture to direct-sell bulk tea in the U.S. carries some risk, and Jain returns again to New York City, planning to keep costs down in that high-expenditure region. Goodricke owns numerous cost-effective plantations and factories, providing the necessary start to their expansion program in instant, bulk, estate-specific and organic teas.

Goodricke is able to ship by multiple 40-ft. container loads, a powerful economy-of-scale, and reportedly has two loads for New York. Goodricke controls tightly managed companies, landmark buildings, equipment or land in 18 nations, under a corporate structure rarely discussed in public. The Goodricke Group is aggregated under The Goodricke Group of Companies, all ultimately controlled by Camellia plc. Camellia recently folded into itself the Lawrie Group, another international land and factory owner. Lawrie boasts a geopolitically leading agribusiness in Brazil, which recently upgraded with real-time wireless telecommunications linking all managers, a cost-effective innovation for South American production.

Peter A. Leggatt, board director at Camellia, is chairman of both Lawrie Plantation Services and Goodricke Group. At the highest multi-national level, including international banking enterprises like Duncan Lawrie Ltd and many crop species on five continents, all the Goodricke/Lawrie businesses are answerable to Camellia plc, with H. Keith FitzGerald the board chairman. FitzGerald holds the longest tenure I can comprehend, with the company since 1946. Malcolm C. Perkins is chairman of Linton Park Plc, another diversified global Camellia subsidiary. Perkins, a Camellia director, is “nominated successor” for the Camellia chairmanship.

The top personal Camellia shareholder is presumably modern-era founder Gordon Fox, who has intentionally avoided the celebrity spotlight for 50 years while creating tea employment for many thousands, profitable art dealerships, off-shore banks and modern hospitals for the rural poor. Fox is retired, retaining some control over the investment bank. The leadership now proactively reduces costs after the recent Camellia consolidation by erecting strong boundaries among corporate divisions to precisely isolate subsidiaries’ individual expenses.

The managing director of Goodricke Group, Kruppakaran S. David, recently added to his duties, serving as the new deputy chairman of the troubled, prestigious Darjeeling Planters Association. Darjeeling is in crisis, and must cut production costs or face accelerated decline. David is attempting to pull together several factions, which differ by operational size, goals, budget depth and market integration. Darjeeling can no longer survive by solely relying on quality level (very high), and has a narrow range of choices to make, with some factories certain to cease production.

In Sri Lanka, a different search for cost savings is in progress, with guidance from Mahen Dayananda, vice chairman of the Colombo Tea Traders’ Association (CTTA). Dayananda sits as chairman of Tea Tang Ltd, holding this top post for over 20 years. His other chief positions are executive director of 1872 Clipper Tea Co Ltd and executive director of B P De Silva Holdings PTE Ltd, a diverse powerbase in Singapore. Additional appointments include director at Capital Suisse Asia, director of Risis PTE Ltd, Director of De Silva (Ceylon) Ltd, and Sri Lankan Resident for Gover Horowitz & Blunt Ltd, of London. Dayananda also serves his nation on seven apex national committees, trade bodies, councils or non-profit boards, and is vice president of the Sri Lanka Japan Business Committee. Starting this year, he is a member of the National Board of Arbitrators.

Dayananda appreciates modernization, but also knows to avoid automatically accepting new technology or systems merely because of claims of “newness” or high-tech speed. Dayananda states, regarding Ceylon, that it is “our duty to look at new developments,” but he also cautions against moving too rapidly during the current review of technology. Any innovation will meet resistance from vested interests, and the Ceylon establishment will move forward only gradually after circumspect analysis.

At time of this writing, no CTTA decision on cost-cutting modernization is yet finalized. Dayananda states with diplomatic sophistication that the, “evaluation (will be) carried out over a period of time.” Some Ceylon tea c.e.o.’s consider this approach too slow for competitive success in the era of export globalization. One c.e.o. stated to me that on the factionalized CTTA, many brokers, small holders and planters “do not know the subject of global trade in the electronic age” nor the reality of the “borderless global village.”

Tea is more important to the culture, national self-image and treasury in Sri Lanka than in any other country. The biggest cost to Ceylon tea lies outside the domain of business, resting instead with the government, the secularly powerful Buddhist clergy, and the rebel group commonly called Tamil Tigers. This situation is unique to history. India suffers over 450 armed separatist extremist organizations. Ceylon authorities battle but one, albeit the world’s most ruthless, strongly managed and broadly financed of such internal entities. Few in the West realize that separatist extremists dominate two regions of Sri Lanka and that the “Black Tigers” suicide bomb division is the most consequential domestically of all the world’s self-destructive bombers.

The paradoxical good news for Ceylon tea is that the rebels are a unified organization, making peace negotiations in Sri Lanka theoretically possible. However, the hurdles to peace are both socio-religious and political. India, on the other hand, has no possibility of pacifying most of its internal armed extremist groups (which usually are small, dirt poor and badly managed). Sri Lanka may attain internal resolution, which would yield the biggest “cost” savings for the global tea business in our lifetime.

If warfare costs are ended, with a concomitant building of infrastructure and reduction of politico-military expenditure, Ceylon tea will gain extraordinary global market share of average and premium quality tea, in numerous categories, such as bulk, blended and value-added-packaged. Even more remarkable, Sri Lankan tea industry leaders would become the leading private secular citizens, thus moving their government toward the 21st Century’s most pro-tea-business nation. This series of events would simultaneously reduce production cost and, for the first time in history, yield a producer-nation with financial ability for massive global tea promotion and brand advertising. The combination of production cost control and advertising budget increase will keep tea’s status as the planet’s most widely purchased beverage.

Tea & Coffee - July/August 2001
Theta Ridge Coffee


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