Comment

Tea: Trouble brewing

There is a storm brewing and it’s not in a tea cup. The controversy surrounding the Tea Board has spilled over to the industry leaving a bitter taste among exporters.

The Sri Lanka Tea Board was once the powerhouse driving the country’s top foreign exchange earner at the time, tea. Today it is just a shadow of the institution it once was, limping from one controversy to another.

The problems confronting the tea industry as a whole however are not limited to the Tea Board but also includes what used to be the heart of the industry, the Tea Research Institute.

The Tea Research Institute (TRI) located at Talawakelle was known to be a centre of excellence, but lately with funding drying up it is an institution that is falling apart. Its scientists, the pride of the institution, are leaving by the droves, a disillusioned lot.

Sadly for the tea industry all this is happening at a time research and development are the key tools that can keep Sri Lanka ahead in this increasingly competitive industry.

With the emergence of low cost producers such as Kenya and Vietnam what kept Sri Lanka ahead of the pack was value addition, with the TRI playing the lead role.

The neglect of the TRI is bound to have far reaching repercussions for the industry as the flight of its leading scientists to emerging producers elsewhere in the globe will see this nerve centre being reduced to another Tea Board where not much else happens other than politics.

Rumblings

To state that the Tea Board is in dire straits is an understatement. It was only a few months ago that there were rumblings about staff salaries not being paid due to lack of funds but that issue was subsequently sorted out. This sorting out, it now seems has been at the cost of drastically cutting down overseas promotion efforts, which the industry sees as vital in sustaining Sri Lanka’s market share in key markets increasingly coming under pressure from competitors. The Tea Board has offices in strategic markets such as Poland – overseeing the European market, in Dubai – servicing the Middle East and North Africa etc. The officers manning these stations have now been recalled, it is learnt.

On the back of this, now comes the news that the overseas tea promotion budget, which was around Rs. 100 million, is no longer available. What this means is that Sri Lanka’s participation at the world’s leading food and beverage promotion events has been compromised.

According to industry sources participation at international events such as Foodex which brings together all the leading food and beverage producers in the world is a sine qua non for the Sri Lankan tea trade and is the platform that is used by local companies for branding and to gain exposure in the world market. With the Tea Board no longer facilitating participation at such events the local companies have been left to their own devices to figure a way out to continue to participate at these events.

Earlier the Tea Board absorbed 50 percent of the cost associated with these promotional events and the balance 50% was provided by the respective participant. Today however with no assistance forthcoming from the Tea Board, participants have been told to fork out the entire amount should they want to participate at overseas fairs and not only that, even the costs incurred by the Board in facilitation will have to be reimbursed to the board.

Intriguing

What is shocking however is that as cash strapped as the Board may be, the collateral damage from withdrawing from international exhibitions is that reservation fees for these events which are paid much in advance will have to be forfeited as no refunds are possible due to non participation.

This state of affairs at one of Sri Lanka’s premier state institutions is all the more intriguing as technically, the Board should be one of the most well funded as Rs. 4 is extracted as cess from each and every kilo of tea that is exported. With last year’s exports being around 318 mn kilos the cess fund should have had over Rs. 1.2 billion. It is reliably understood that only half this amount was made available to be ploughed back in to the industry in 2008 by the administrative authority of the fund, which is the Treasury. Of the total fund, 30 percent is allocated for the upkeep of the Tea Board and the balance is split between the TRI and Tea Smallholder Authority.

That inadequate funding is hurting the industry can be seen from the lagging behind that is apparent on the issue of implementing the all important HACCP Standard, seriously compromising the competitiveness of the country’s tea exports. Today HACCP is a minimum standard that is demanded by almost all markets across the globe and is a key factor in determining a premium price for the produce. Yet out of the roughly 600 tea factories in operation in the country only around 100 have obtained this vital certification to date.

Major share

Tea smallholders produce approximately 65 percent of Sri Lanka’s tea production. The Tea Smallholder Authority was set up taking note of this fact and to help small time growers to keep pace with industry developments. Yet inadequate funding is having a telling effect on the role this institution is meant to play. The question being asked by the industry is what exactly is happening to the cess fund, which if ploughed back in to the industry as intended when it was set up, would solve the problem and bring the smallholders up to scratch with market requirements such as HACCP.

That only half of the cess fund is making it back to the industry has raised many an eyebrow and a cocktail of questions and curses is what is on the lips of many a small holder today.

While it maybe tea time for some with the industry earning US $ 1.2 bn last year thanks largely to dearer prices, the fact that there has been a 24% drop in production in the first six months of this year should open the eyes of the powers that be that all is not well with Sri Lanka’s most famous export, its cuppa.