nnovation key for buoyant tea industry

October 30, 2011, 7:01 pm


Welcome

Welcome to the sixty third edition of this regular column. Here, we discuss a wide range of topics around Information and Communications Technology (ICT), Business Process Outsourcing (BPO), many aspects of Business, Education, Entrepreneurship, Creativity, Innovation and the Society at large.

Tea Sector in Sri Lanka

Our topic last week revolved around agriculture. Let’s keep it in similar lines today, and discuss about Tea! Who doesn’t love a good cup of tea anyway?

Global tea production is primarily lead by the countries India, China, Kenya and Sri Lanka. These four countries account for about 75% of the world’s tea production. In fact India and China are the largest tea producers in the world, but due to their huge populations, domestic consumption is very high too. So they aren’t very big exporters. Hence, Sri Lanka and Kenya are the largest exporters of tea in the world. Sri Lanka held the position of number one in this category for a long time but for the first time in recent history, Kenya surpassed us in 2007. Kenyan tea production has been growing strong, mainly due to the increase in cultivated land mass and improving production skills with regards to the tea sector.

As we saw last week, services and industry sector contributes more to our GDP than the agriculture sector. However, the tea sector earns over 1 billion USD a year for us (USD 1.18 in 2009, which is roughly 15% of the total export income) and that’s the second largest export revenue earner for the country, only second to the garment industry. About 1 million people are directly employed in the sector. So, it is still an extremely important socio-economic factor for the country.

Challenges

According to records, Sri Lankan tea yields have been lower than those of the competing countries such as Kenya, China and India. Kenya has average yields of about 2000 Kg per hectare while India has it around 1800. The Sri Lankan average is around 1400 Kg per hectare. This appears to be a productivity issue.

Interestingly on the other hand, small tea estates (smallholdings) account for about 60% of the total tea cultivated land area. However they contribute about 70% of the total tea production. So, the larger estates in fact show a lower productivity level than the smallholdings. These large estates were privatised a couple of decades back and there seems to be more to be done by them to improve the productivity including more re-planting. When we look at some of the small holders, their dedication and productivity on a small land mass of less than 5 acres is actually admirable.

The cost of production is high for tea in Sri Lanka as for many other industries. Here, the Cost of Production (COP) is around USD 2.33 per kilogram. This is one of the highest in the world. Kenyan COP is almost half of this figure. Vietnam, India and Bangladesh etc have much lower COPs. The lower productivity is one factor that increases the cost. The labour costs are the other. Also, the cost of electricity has also increased considerably over the last few years.

So, the competition is increasing while we battle with the above issues. Additionally, our focus has been geared towards bulk tea over the years. However, slowly, the consumption patterns in the world are changing. Green tea, tea bags, iced tea and other forms of novel versions are increasing in demand. Also, beverages such as Coke are fast spreading across the world. Of course, it wouldn’t completely kill the demand for tea, but it could push it down. However, the biggest substitute and hence competitor for tea would be coffee, which commands a very strong presence in most countries around the world.

Improving the quality of life of the estate workers is a challenge too. Out of the people involved in the tea sector, a significant number are working and living in the tea estates. Out of these workers the vast majority are women. It always amazes me that if you take the top foreign income earners to this country, garments, tea and foreign employment, all of them are dominated by women. We owe more to these hard working people!

Innovation

In order to compete and thrive in the future tea industry innovation should come into play. New varieties of tea should give us the edge. In fact the profit-margins in the global market for specialty tea are higher. Also, while maintaining bulk tea exports, export of tea bags, green tea, instant tea and tea packets should also be increased.

The government has been trying to encourage more exports of value-added teas and has discouraged bulk exports by imposing a tax on the latter.

In addition, there is a need to export more value added tea. Ceylon tea was known for its premium quality. When the consumption patterns change, we need to innovatively respond to those changes. We need to maintain our uniqueness and at the same time image on high quality for teas that will be in demand in the future. There needs to be a lot of attention to this area.

This is where tea research would come in handy as well. I hope more will come out from existing tea research centres in Sri Lanka to further innovate our offering. Generally speaking, research is something that is lacking in Sri Lanka in most areas, not just in Tea. Even in the Sri Lankan university sector, the scientific research is comparatively less than in the developed countries. This is partly due to the unavailability of infrastructure, equipment and funds. On the other hand it’s the lack of linkage between the universities and the industry.

If energy (electricity) costs are higher, can we produce energy within the estates at a lower cost? I remember once someone pointed out that during British rule, almost all tea factories had their own small turbine to generate hydro-power but today only a handful is left with that facility. In fact when mains power lines were expanding, factory authorities just stopped producing electricity. That has added more strain on the national grid and their costs!

Branding

We need to continue to position Ceylon Tea as the world’s best tea. If we are to make the Tea sector hit revenue of about USD 2.5 billion, the brand needs more promotion, especially among the younger generations while responding to changing consumption patterns. There were reports a few months ago that The Ministry of Industry and Commerce will readily support the Tea Board and the Ministry of Plantations to achieve a $ 2.5 billion tea export revenue target. The Geographical Indicator (GI) Registration undertaken by Sri Lanka will make Ceylon Tea stronger in the international market. The government has committed Rs. 8.5 million for 2011 for the Geographical Indicator (GI) Registration to ensure ‘Ceylon Tea’ a protected brand in twenty countries.

Dilmah is a Sri Lankan brand that took Ceylon Tea to the world stage. Their association with the Sri Lankan cricket team as former sponsors and strong advertising overseas helped Dilmah as well as Ceylon Tea. When I was in Australia, I was always proud to see a Dilmah advertisement on TV. On the supermarket shelves, our brands have presence but then again cheaper brand-less products from low quality tea production countries take a lot of shelf space too.

Lets end today’s discussion with a few interesting points about tea.

* Tea breaks are a tradition that has been with us for approximately 200 years.

* 80% of office workers now claim they find out more about what’s going on at work over a cup of tea than in any other way.

* Tea contains half the amount of caffeine found in coffee.

* Tea was created more than 5000 years ago in China.

* Tea is a natural source of fluoride that can help protect against tooth decay and gum disease

* The first book about tea was written by Lu Yu in 800 A.D

* Tea has potential health maintenance benefits in cardiovascular disease and cancer prevention.

* 96% of all cups of tea drunk daily in the UK are brewed from tea bags.

* Apart from tourism, tea is the biggest industrial activity in India.

Tea is a cup of life. ~Author Unknown

If you are cold, tea will warm you. If you are too heated, it will cool you. If you are depressed, it will cheer you. If you are excited, it will calm you. ~Gladstone, 1865

Get in Touch

If you have an event or a group that you would like me to talk to, I can see if I can make some time for such activities. I am happy to speak to groups about the ICT/BPO sector, youth leadership, business, careers, communication skills, soft skills and entrepreneurship. I always take pleasure from such activities.

If you have any feedback, please drop a note to yva@lankabpoacademy.lk

See you next week!

The Columnist

Yasas Vishuddhi Abeywickrama is a professional with significant experiences. In 2011 he was recognised as one of the Ten Outstanding Young Persons (TOYP) in Sri Lanka. Yasas has a bachelor’s degree in Computer Science from University of Colombo and a Masters degree in Entrepreneurship & Innovation from Swinburne University in Australia. He has worked in the USA, UK, Sri Lanka & Australia and being trained in the USA & Malaysia. He is currently involved in the training organisation, Lanka BPO Academy (www.lankabpoacademy.lk). Apart from this column, he is a regular resource person for ‘Ape Gama’ program of FM Derana (Sunday 3-5pm). Yasas is happy to answer your relevant questions – email him at yva@lankabpoacademy.lk .