The Tea Exporters Association (TEA) has issued a press release in response to the press article released by the Planters Association (PA) under the title of “PA Sounds alarm on growing discrepancy between tea auction and export prices,” to clarify certain misconceptions on the tea auction and export prices.

The Full Press Release is as Follows:

The sustainability of Ceylon Tea or Sri Lanka tea industry depends on how efficiently and effectively it can adapt to match the changing global consumer preferences and consumption patterns. The tea industry needs to be competitive in production, marketing, logistics and product form etc. It must face the market realities and redefine its business strategies and reposition the product lines to achieve this task.

The global tea market is highly fragmented with several players occupying the market share. At present, about 35 countries produce and export tea allowing the international buyers a wide range of selection of products. According to available data, in 2017 the world tea production reached 5.69 million MT registering a growth of 124 million kg over 2016 but the world tea exports recorded a decline of 9 million kg. The growth in world tea production continued in 2018 as well and registered at 5.89 million MT, an increase of 134 million kg over 2017, but exports increased only by 63 million kg. As a result, the year 2019 commenced with a surplus of about 200 million kg in the world tea market making a huge challenge to the tea producing countries to adapt to the global tea market situation.

Currently Sri Lanka tea is sold through the Colombo Tea Auction that brings many buyers and sellers to a single platform leading to a very transparent price discovery. The free interplay of supply and demand in the auction system creates a competitive environment and determines the correct price. The tea prices are also influenced by the quality and product reliability. The auction system ensures that, the highest bidder is awarded the tea and there is no squeezing of prices as claimed by some producer members. The average tea prices realized at some world tea auction centers during the last three years reveal that Colombo Tea Auction always get better prices than its competitors (Table 1 – Prices in USD / Kg).

By way of imposing a minimum price for tea at the auction will drive away the demand which is currently experienced. The producer has all the liberty to withdraw any tea from the auction if it does not fetch a reasonable price. Whilst all other producing countries are liberalizing the sale of Tea, we are trying to impose more restrictions. It’s globally accepted that, the market forces will determine the best price for any product or service.

The low grown elevation contributes about 64% to the annual Sri Lanka tea production while the contributions from high and medium grown elevations are about 21% and 15% respectively. The bulk tea shipments contain either high grown tea, low grown tea or blends of all three elevation teas. Therefore, comparing average FOB prices of bulk tea with average auction prices of high grown tea gives a distorted picture on the tea auction and export prices (Table 2)

Comparison of Colombo Tea Auction Prices of Three Elevations and their share of  FOB Prices of Bulk Tea (Rs / Kg)

The above data reveals that, the cost of tea or producers share in the average FOB price of bulk tea is between 75%-80% leaving only about 20% - 25% to the exporter. It should be noted that, the share of export price received by the exporter is not his profit but the available portion of the export price to meet all his expenses.

The Colombo Tea Auction by-laws require that buyers settle the full cost of tea to the producer within seven days after purchase of tea from the auction compared to 14 days in Kenya. The exporters of bulk tea are compelled to offer 60 – 120 days of credit to foreign buyers due to the heavy competition in the world tea market. In respect of markets like Iran, Syria, Russia etc longer credit period are offered as the buyers need more time to pay the suppliers due to international sanctions on their banking systems. However, the exporters are expected to operate at the tea auction every week to procure their tea requirements and also to support the producers with borrowed money from banks at high interest rates. Hence the finance cost is a major element in the cost structure of tea exporting companies. The other costs of company overheads, storage, transport, freight, tea flavor, CESS and Tea Promotion Levy etc are also to be met within the 20% – 25% share of the export price. The export CESS and Promotional Levy account for approx. 2% of tea auction price and payable in advance. The tea producers are a fortunate group to receive the payment within a very short period of seven days compared to other producers / suppliers in the country.

The tea exporters expect a guaranteed product from the tea producers when they purchase tea at the auction. The compliance with ISO 3720 minimum standard, free from any extraneous matters and compliance with international food safety standards are some of the quality parameters expected by the tea exporters. However, most tea producers do not strictly adhere to such requirements and as a result, the tea exporters have been compelled to invest in tea cleaning machinery also for cleaning of tea before shipping to foreign buyers. The exporters bear additional expenses to ensure the purity of tea to foreign buyers when it should have been done by the producer before teas are offered for sale.

The decline in tea production in Sri Lanka during the last six years has led to an unethical competition for green leaf. The traditional plucking norm of “bud and two leaves” has been forgotten by many producers. The quality standards of tea produced 10 – 15 years ago have deteriorated substantially resulting in depressed prices at the auction. Sri Lanka was famous for production of quality tea and it appears that some producers have forgotten of how to make a good cup of tea that appeal to global consumer. The producers cannot produce “Any Tea” and expect higher prices. They should produce good tea that is required by the international buyers. There is a substantial price difference between the good tea and poor tea at the auction and producers should make every endeavor to enhance the quality of poor tea that could automatically increase their auction averages.

Ceylon Tea was the preferred component in the blends of many multinational brands some years ago. Due to the deterioration of quality, high prices and its volatility, most global brands have reduced the Ceylon Tea component in their blends and today Ceylon Tea maybe accounting for less than 3% in the top three global tea brands. Even the demand for Dimbula and Uva seasonal teas have been diminished as some producers adopted short term measurers to induce seasonal characters that eventually killed the demand and depressed the auction prices. Further, it’s worth mentioning that, the demand for mediocre Orthodox rotawane teas is diminishing by the day limiting the demand only for extraction purposes.

There are too many tea manufacturing factories in the country with no noticeable new tea being cultivated. According to Sri Lanka Tea Board the country has about 710 tea factories for production of 320 million kg of tea compared to 110 tea factories in Kenya for production of about 400 million kg of tea. Most tea factories operate below their capacity due to non availability of adequate quantities of green leaves and as a result the cost of production is very high. Though the volume of tea crop has declined during the last six years the numbers of tea factories remain the same.  Due to high demand for bought leaf, the factory owners accept any quality of green leaf and pay premium prices to the suppliers which are not a sustainable method.

The EU, Japan, Taiwan and a number of other tea importing countries have introduced strict MRLs (Maximum Residue Level) for tea imports to ensure safety of the product for their consumer. Although the glyphosate issue was resolved in October last year, high MRLs continue to affect the Sri Lanka tea exports. The exporters get samples of tea tested through foreign laboratories to ensure that, they meet with MRLs required by the importing countries prior to effecting the tea shipments. The exporters spend a substantial amount of money on testing of tea samples as each test cost about USD 200.00 per sample. Such expenses are also to be borne within the exporters’ share of the FOB price. In the recent past some tea shipments were returned from Germany and Taiwan due to high MRLs and other quality issues but exporters have no recourse either from producers or state regulatory bodies. The MRL issue has driven away some premium buyers resulting decline of tea prices at the Colombo Tea Auction. The producers are required to comply with food safety standards of tea importing countries as other tea producing countries are prepared to meet with such requirements. Sri Lanka has already lost and continues to lose market share to Kenya, Vietnam and India over the MRL issue. Ceylon Tea is no longer considered to be the cleanest tea in the world and is losing its competitive edge.

The 1981 Sri Lanka Tea Board regulation for import of tea for re-exports was introduced with the objective of promoting export of value added tea from Sri Lanka. Only CTC tea, green tea and specialty teas are allowed to be imported under the scheme while orthodox black tea is not permitted. This restricted scheme is monitored by Sri Lanka Customs and Sri Lanka Tea Board and all teas imported for re-exports are properly accounted for by the regulators. The samples are checked by SLTB prior to importation to ensure that, they meet with required standards. All leading Sri Lankan tea brands have benefited from the scheme and 75% of the re-exports are in value added form compared to 35% – 40% for pure Ceylon Tea exports.

The blend component of re-export of imported tea purely depends on customer requirement or the market segment that is targeted by the Sri Lanka tea brands. The price of imported tea is not a criteria specified in the regulation. However, it is a known fact that price of some imported tea is lower due to the low cost of production but better in quality than some of the local tea. The re-exported teas are labeled as “Ceylon Tea blended with other origin tea” and not as Pure Ceylon Tea. The value addition accrued through re-exports is more than the value addition per kg for Ceylon Tea (Table 3).

Most exporters have invested in tea packaging and bagging machinery, provide employment etc under the prevailing scheme for re-export of tea to enhance their brand portfolio and any tinkering with the scheme could have an adverse impact on the local value addition of tea, performance of brands etc and exporters moving away from Sri Lanka to places like Dubai or free zone in India also cannot be ruled out.

It is reported that, some unscrupulous businessmen are engaged in import and export of tea using different HS codes (non tea). The Sri Lanka Tea Board, Sri Lanka Customs and other regulatory bodies should take action against such illegal activities.  If any illegally imported teas are coming to the auction it can come only through the tea factories and as such the producers have a responsibility to prevent them coming to the system.

Global consumers are moving away from traditional tea products. The fruit tea / flavoured tea / milk tea / functional tea and RTD products etc are the preferred tea products among the younger generation. The producers should understand the changing global market scenario and adapt to such changes. If Sri Lanka wants to cater to the mass market of tea its price may not be acceptable to the packers. On the other hand the specialty tea or the top end of the global tea market is looking for good quality tea and as per the current standards only about 100 – 120 million kg of Ceylon Tea will qualify for this segment. It will be useful for the producer segment to have information on world tea market trends regularly and adapt to changing requirements while controlling their production and operational cost. Most plantation companies have tea export companies within their groups and under the same management and hence they will be able to obtain firsthand information on the global tea market from their own colleagues.

If the tea producer members are of the opinion that, the auction system is not the best and there is more money in the export sector or believe that they should get 100 % of the export price, they can make use of the facility given by the Sri Lanka Tea Board to export 50% of their production in bulk form direct to the foreign buyers. Then only they will come to know of the challenges, difficulties and other pitfalls faced by the exporters.

In conclusion, we would like to reiterate the fact that all stakeholders should manage their cost efficiently to withstand the pressure from international market situation. The Sri Lankan tea producers should look at using the modern technology, digitalization and product diversification to reduce their operational cost. While the domestic expenditure is controllable the international prices are beyond the control of all stakeholders. The Sri Lanka tea producers cannot dictate terms to the foreign buyers unless they can supply a unique product that cannot be matched by other tea producing countries. Even the traditional low grown markets are not safe anymore as India, Vietnam and Kenya have increased their production of orthodox tea which is in high demand due to better quality and competitive prices. The policy makers should not make any hasty decisions on the free market operation of the tea industry without consulting all stakeholders.

• Unexplained gap between Bulk export and High Grown average widens in every month of 2019
• Warns of severe disruption to the industry if producers continue to be squeezed on price at auction
• Urges all stakeholders to ensure that producers are given a fair and sustainable price at auction
• Calls for immediate action to shift industry to revenue-share models
• Advocates for stricter controls on cheap teas allowed by Tea Board for re-export

The Planters’ Association of Ceylon sounded a cautionary note with regard to the health and sustainability of the entire tea industry – including Regional Plantation Companies (RPC), and Government and smallholder sectors at large - as tea and rubber prices at the Colombo auction continuously plummeted in 2019.

At the start of 2018, the high grown sales average – which is comprised mainly of RPC teas – stood at Rs. 636.8 per kilo, before dropping to an annual low of Rs. 495 per kilo and concluding the year at a price of Rs. 565.3 per kilo.

Similarly, the high grown average in 2019 peaked in January at Rs. 577.2 before plummeting over each successive month down to Rs. 449.1 per kilo by July while all indications point to a continuing weakening of prices across the high grown sales average.

By way of contrast however, the PA drew attention to a substantial and growing discrepancy in the trends of export price of bulk tea which had essentially been kept stable – if not improved - despite plummeting auction prices – an unprecedented development in the local industry.

In January 2018, bulk tea was exported at a rate of Rs. 747.3. Despite the massive reduction in prices at auction, bulk tea export prices one year later stood at Rs. 747.4, and reached a two year low of Rs. 679 per kilo in July 2019.

According to the PA these sharp reductions in the price available to Sri Lankan tea producers at auction are also clear evidence of the entire tea industry’s urgent need to rapidly transition into a revenue share model for plantation sector workers, and away from the traditional wage models introduced during the time of colonisation and state control of the tea industry.

“It has become clear beyond a shadow of a doubt that the current wage model which remains totally uncoupled from productivity simply cannot stand – let alone current demands for a Rs. 1,000 daily wage irrespective of tea prices or productivity. Aside from the fact that Sri Lankan plantation workers are comfortably the best-paid in the global tea industry – our industry is increasingly unanimous in our demand for an immediate shift to a revenue share model as the only feasible path to long-term sustainability. These are serious challenges that threaten the stability of the entire industry. Low prices have already resulted in factory closures, and even smallholders are facing severe difficulties. Without a rational and supportive policy framework in place, such reforms will not be possible. The Government must intervene in consultation with all stakeholders on a priority basis,” the PA stated.

Commenting on the Sri Lanka Tea Board allowing imports of cheap South Indian teas to be value-added under the category of speciality teas for re-export, the PA further noted unscrupulous importers had already been caught sending these cheaper teas back to estate factories for bulk packaging, and called for much stricter controls and monitoring of importers for re-export.

“Particularly at a time when we are facing some of the worst prices on recent record, the move to allow importation of cheap South Indian Teas, and the lack of controls and enforcement by the Regulator to prevent individuals and firms from abusing this dispensation, is only adding fuel to the fire. What we need to be doing is supporting and encouraging local producers instead of facilitating others overseas to sell us their lowest quality tea to be blended with - or passed off as - Ceylon Tea.

Comparison between Colombo Bulk Tea Auction Price vs Export Price 2018/19

Sources: Planters Association of Ceylon

The margin between tea auction and export prices has always been a constant, largely owing to the value addition and logistics management necessary between the auction and export.

“The PA reiterates the vital importance of all stakeholders carrying out their business operations in a manner which ensures the sustainability and continuing commercial viability of Ceylon Tea as a whole. As producers, our members are already facing massive challenges on all fronts. The wages we pay to harvesters and tappers are among the highest in the world, yet we struggle to maintain productivity owing to a combination of factors. This means that our total cost of production is also the highest in the world – of which labour wages account for almost 70% of total costs.

“All operations, development and maintenance of RPC tea and rubber estates are funded by revenue generated by each RPC. Given the high cost of production and prolonged low prices, the entire industry – including but not limited to RPCs – will be compelled to cut back spending except for the most essential operational expenses, eventually leading to a drop in volume and quality of yield,” the PA stated.

Tea producers under pressure from all sides 

In that regard, the PA strongly cautioned all stakeholders against entering into a short-sighted ‘race to the bottom’ in relation to tea prices. “As producers, we are well aware of the fact that when it comes to bulk tea exports – it is the international buyer who wields the most bargaining power today, especially with the rise of global competitors. If such a negative cycle is allowed to continue indefinitely, it will spell doom for tea producers, and without them, all other components in the value chain will also go out of business,”

Over the past year, bulk tea exports have been able to maintain and even improve prices Year-on-Year while our best high grown teas receive continuously weaker prices at auction. These dynamics were once again brought to the fore at the recently concluded PA Annual General Meeting when PA Chairman, Sunil Poholiyadde called for State intervention to set and guarantee minimum prices at the tea auctions in order to cushion the entire sector against protracted periods of low prices.

After tea is initially processed and packed in bulk for sale at auction, it is the responsibility of the producers to transfer the tea to the broker and exporter warehouses following which value addition takes place for export to international markets. Notably, leading Tea Brokers too have acknowledged the clear and significant discrepancy which emerged over the past year.

High-grown teas are just one component in bulk tea exports that are often blended with medium and low grown teas in order to create flavors suited to the palettes of specific markets – particularly those in the Middle-East. While these and other perennial challenges have helped to keep prices low, these dynamics alone are insufficient to explain the widening gap between auction and export prices.

In that context, the PA also drew attention to the importation of teas permitted under the speciality tea category, noting that some firms had sought and received permission from the Sri Lanka Tea Board to import cheap South Indian teas of lesser value than what is produced domestically in Sri Lanka. Typically the classification of ‘speciality teas’ are exotic varietals which cannot be grown in Sri Lanka such as Darjeeling, Malawai, and East African CTCs, by contrast with low-quality teas currently imported from South Indian estates which are currnerly being brought into the country and disingenuously labelled as ‘Packed in Ceylon’.

Immediate action needed to revive auction prices

Moving forward, the PA highlighted several areas in which stakeholder action could be mobilised to help revive Colombo tea auction prices including the development of mechanisms to secure payments from exports to major tea importing nations like Iran and Russia which are currently under sanction.

Meanwhile, RPCs and tea producers around the country would have to continue to maintain a rigorous focus on quality throughout the value chain in order to preserve the strong brand equity of Pure Ceylon Tea.

Crucially however, the PA advocated for immediate steps to be taken to protect the local industry through the imposition of a minimum value of at least US$ 3 per kilo on speciality teas in order to prevent US$ 1.5 South Indian teas from being included in the same category. In this manner, local producers would be provided with even a small measure of immediate protection which would support efforts to maintain and enhance quality in the local production process.

The tea industry which is exempted from VAT until now is subject to an 18 percent VAT from 1^st January 2024. While it is understood that in order to resurrect the country’s financial stability, we have to widen the tax net and the VAT, the high VAT on a commodity of which over 90% is  produced and sold purely for exports, wherein all of the VAT will need to be refunded to stay competitive in the world market, the imposition of VAT on Tea has caused grave concern amongst the Tea industry stakeholder.

The tea industry value chain involves a number of stakeholders – over 400,000 tea smallholder farmers who account for over 70% of the tea production , 21 regional plantation companies , about 600 tea manufactures who are the sellers of tea as well , more than 300 tea exporters/ buyers  and eight brokers who conduct the weekly tea auction. Each weekly  tea auction sells between 5-6 million kg of tea divided into about 10,000 lots or different types and grades of teas. Buyers are required to settle the full value of tea within seven days from date of purchase to ensure that tea farmers/growers get their payment without any delay. On behalf of the tea manufacturers/sellers the invoices are issued by the eight brokers only making it very much convenient for both sellers and  buyers in respect of administering the weekly tea selling and buying. This transparent  system has been there for more than 125 years and secured the best possible prices for Ceylon Tea that enable the country to receive about USD 1.3 billion of foreign exchange from tea exports annually.

At present only tea exporters are registered for VAT and SVAT but according to the new VAT Bill that was approved by the parliament a few days ago, the 600 tea producers/factories in the tea industry should get themselves registered for VAT and SVAT to be eligible for issue of  VAT invoices to the buyers of tea. Instead of the current system where the exporters/buyers are dealing with eight brokers, in future the exporters  will have to deal with about 600 tea factories that may create huge administrative challenges  including additional cost.

The industry stakeholders under the umbrella body of Colombo Tea Traders Association has made a submission to the Hon Minister of Plantation and to the Hon. State Minister of Finance and Commissioner General of Inland Revenue last week requesting for more time for registration of tea factories for VAT and SVAT as it may be impossible to register all of them by the 1^st January 2024. They have also requested to allow the brokers to be the contact point for issue of invoices for easy communication between IRD and the producers.

The last tea auction of the year concluded on 19^th December 2023 and the next tea auction is scheduled for 3^rd January 2024 . The exporters are skeptical about the ability of tea factories getting the VAT/SVAT registration before the 1^st January and fate of the first tea auction of 2024. The tea manufacturers who are unable to get the VAT registration by 1^st January  will not be able to issue VAT invoices and may have to  keep away from the auctions until the registrations are completed. This may have multiple effects on tea exports, income of smallholders farmers etc. Even foreign buyers may keep away from tea auction temporarily that could affect the tea prices.

According to the government gazette notification  even the green leaves are subject to VAT however we have been assured that green leaves may not be liable for VAT payment as it is a basic agricultural raw material.

Tea Exporters Association understand the necessity to enhance the VAT network under the current economic situation of the country but it urges the Ministry of Finance and Inland Revenue Department to introduce a mechanism to register all tea manufacturers for VAT in the next few days to ensure that tea supply/tea value chain may not collapse over the VAT issue. Tea industry is a unique industry and needs special attention by the IRD.   While the country needs to reform its taxation, the VAT on export commodities a such a high rate of 18% only to be refunded after going through a lot of administrative procedures in the private sector as well as the government sector seems to be unproductive.  Better consultation with the stakeholders, well in time before implementing such sweeping changes will help the industry to sustain in the current challenging global environment.

Tea Exporters Association is relieved over the government decision to defer the removal of SVAT until April 2025.

The association wishes to thank HE The President, Sectoral Oversight Committees of Parliament, Ministry of Finance and other relevant organizations for understanding the position of all exporters and possible adverse impact that may have fallen on the country’s export sector if the SVAT was removed without introducing any efficient mechanism for settlement of VAT refunds. 

TEA was very much   concerned over the proposed removal of SVAT as there is no output VAT to set off against the input VAT and some part of the VAT component may have to be factored in to the price of export products affecting competitiveness of Ceylon Tea. It may have also restricted exporters’ ability to pay better prices at the tea auction due to cash flaw issues.

TEA believes the recommendations made by all export sector associations would be carefully considered by Inland Revenue Department and removal of SVAT will be introduced gradually even from April 2025 to cushion out any sudden adverse impact on the export industry.  We request the IRD to clear all the back logs in refunds and VAT deferment and introduce a robust mechanism for settlement of VAT refunds to the exporters within 2-3 weeks to enable the removal of the simplified VAT system which has helped the exporters to be competitive in the global market for tea.

The proposed removal of exemption of VAT for Tea and green leaf recently announced is also of concern to the all important Tea sector. Our request is to consider the natural produce of Tea of which peoples’ cost is the biggest component, be kept exempt from VAT so that this key net foreign exchange earner is in an equitable position along with rice and paddy which continues to enjoy the VAT exemption.

We also request the IRD to have consultations with industry stakeholders to come up with a practical VAT and refund regime so that decisions such as bringing tea smallholder farmers, factory owners and producers under the VAT net could have adverse impact on the entire sector and the Forex earnings.

Tea Exporters Association

The members of Tea Exporters Association (TEA), who are responsible for earning over USD 1billion in net tea exports earnings annually, express our deep concern over the decision taken by the Cabinet of Ministers on the 5th June 2023 to terminate the paperless Simplified VAT system.  This current simplified system provides exporters with a significant level of ease of doing business, competitiveness, as well as conserves their cash flows towards export operations.

When the government is working towards improving the Ease of Doing Business, such decisions taken without considering the export sector operations will render this important sector inefficient, uncompetitive and affect our ability to sustain and grow the foreign exchange earnings.

The SVAT was introduced in April 2011 to help the export trade as there were long delays, inefficiencies and misuse in settling the VAT refunds by the Inland Revenue Department under the previous system.

The Tea Exporters are concerned about this decision due to following key factors:

• Cash flow constraints for exporters as their funds would be blocked for a longer period – adding to our finance costs.
• Increased costs of operations due to additional overheads on documentation and follow up with IRD and possible need to work with intermediaries and promoting corrupt practices.
• Such cost increases affect the ability of exporters to pay better prices at the Tea Auction thus affecting the small holder’s livelihood.
• With no output VAT to set off against the input VAT some parts of the VAT component may have to be factored into the price of export products affecting the competitiveness of value-added tea exports primarily.

When the Government expects the export sector to perform better and achieve increased revenue targets in the coming years, the proposed termination of SVAT will negate all our efforts for enhancing export revenue. The blocking of funds even for a short period would be an added burden on tea exporters as they would be required to borrow more for cash flow requirements from Banks at high cost. Further, the exporters will have to spend their valuable time on following up on cumbersome procedures which is even now causing delays due to past issues with the RAMIS system at the IRD.

The increased tax burden on the export sector along with the highly volatile exchange rate and rupee appreciation, continued high cost of inputs such as electricity and general costs of living, combined with an inefficient bureaucracy causing delays in import of material for re-exports are already making this sector challenged and uncompetitive globally.

The SVAT scheme is now well established and operates smoothly and therefore, we urge the Government to continue with current scheme to facilitate the export trade.

While we appreciate the government’s need to reform the VAT system as part of the IMF conditions, we believe the decision is not well thought through and this can be implemented better by following certain tried and tested methods used in other countries.

• The removal of SVAT may be done in two stages – initially for all VAT registered persons other than exporters and once the system of refund settlement is fully tested, streamlined, and implemented; exporters may be included with minimum time delay for refunds of not more than 3 weeks.
• Exporters who may be classified into Star ratings (as done in India) depending on the past records of exports and track record of dealings on the VAT front – may be given a special scheme to use SVAT to be cleared monthly via a special window within the IRD.

We urge the authorities and decision makers within the government to consider the above plea by forming a special committee to study the plight of exporters and the negative effect this may have before implementing such decisions.

Tea Exporters Association

8^th June 2023

The Tea Export sector that annually brings revenue of about USD 1.3 billion is concerned about the proposed corporate income tax of 30% by the government on the export sector as it could seriously hinder the industry efforts for revival. The sector is currently going through a challenging period due to a number of internal and external issues and this increase of corporate income tax by more than 100% from this month could further aggravate the plight of tea exporters.

Some of the internal issues tea exporters are grappling with are;

1. The decline in tea crop by about 20 percent during first eight months of the year that has restricted the tea export volume, primarily due to the fertilizer shortages;
2. Uncompetitive high interest rates that have increased the financial cost with the large amount of working capital required for purchase of tea for cash at the weekly auctions, which fund the tea producers and the small holders’ livelihood and sustainability.

The external issues faced include, Russian- Ukraine conflict, sharp depreciation of Turkish Lira together with financial sanctions on Iran and some other leading tea importing countries in Middle East. Although India has introduced “Indian Rupee Trading” mechanism to overcome certain financial sanctions and increase her tea exports to Iran and Russia, Sri Lanka has no such mechanism to overcome these obstacles. Despite all these challenges the tea exporters have earned USD 819 million dollars during the first eight months of the year and are hopeful that it could bring about USD 1.2 billion by the end of the year.

This move by the government to more than double the corporate income  tax rate will impact all-important net foreign exchange earning  of Tea industry  mainly in three ways,

1. Deplete our competitiveness in the world market against some of our key competing countries such as India and Kenya,
2. Destroy the industries capability to invest for growth and maintaining such competitiveness.
3. Reduce our ability to pay the best prices for the Tea growers including the large population of small holder farmers.

When more funds should be made available at the disposal of exporters for dealing with internal and external challenges it is rather surprising that government has decided the other way around without giving much consideration to the plight of tea exporters. The proposed increase in corporate income tax up to 30% will have multiple implications on the sector especially on investment in machinery for developing and modernizing the tea processing factories for improvement in efficiency  and  optimizing cost of operation, enhancing value addition of tea,  marketing of Ceylon Tea brands abroad etc as the available funds from  profits for such activities / investments would  be severely curtailed  with the revision of corporate income tax from 14% to 30%. It may also affect generating employment opportunities for the youth due to low investment in the industry.

It will further affect the competitiveness of Ceylon Tea as some of our competitors like Kenya has lower income tax rate of 16% on export trade. The new Kenyan government is looking at providing Ksh 800 million (USD 6 million) for developing orthodox tea manufacturing factories to compete with Ceylon orthodox teas. Contrary to this, all investments for modernization or development of tea factories in Sri Lanka are borne by the private sector. The Indian government offers INR 10 per kilogram for manufacture of orthodox tea, once again to compete with Ceylon orthodox tea. When the Sri Lankan government is not providing such incentives or investments the best they can do is to lower the corporate income tax on export sector to help investment and marketability of Ceylon Tea by the private sector.

The tea exporters appreciate the government decision to exempt the export sector from payment of 2.5 % Social Security Levy on the export turn over. However in reality the exporters are being charged with the social security levy by the input suppliers to the tea industry such as packing material, tea bag filter paper, tag & thread, tea flavor etc. Since each supplier will add the levy at different stages the ultimate increase to the final cost of the tea product can be more than 2.5%, another concerning factor for the tea exporters. Since the social security levy is not claimable like the VAT payment, the entire increase at different stages of supply chain is borne by the exporter, thus further depleting our competitiveness in the world market.

According to tea industry experts the increase in corporate income tax could affect the overall efficiency in the tea industry and the burden may sooner or later could felt through the entire supply chain including the tea smallholder growers. Some tea export companies may even move to other countries like Jebel Ali Free Zone in Dubai due to high taxes, purely to protect their market shares which have been gained through several years of hard work.  Hence the Tea Exporters Association ( TEA ) earnestly request the government to maintain the concessionary corporate  income tax rate of 14 % for the tea  export sector for its long term sustainability, which will ultimately bring in much higher growth dividends for the economy.

Tea Exporters Association

17.10.2022

Challenges Facing the Industry Front and Centre

Tea Exporters Association (TEA) Sri Lanka held its 23^rd Annual General Meeting on the 9^th of September 2022, at the Oak Room, Cinnamon Grand, Colombo. The theme of this year’s event, which is the first in-person AGM of the Association since the pandemic, was “The Challenge of Change”. The Chief Guest at the event was the Hon. Dr. Ramesh Pathirana, Minister of Plantation Industries, while Mr. Niraj De Mel, Chairman of the Sri Lanka Tea Board, was the Guest of Honour. The keynote address, entitled “The Challenge of Change for Tea” was delivered by Sri Lankan Economist, Social Scientist, and Senior Lecturer at Erasmus University – Rotterdam, International Institute of Social Studies – The Hague, Professor Howard Nicholas.

Mr. Ganesh Deivanayagam, Chairman of Eswaran Brothers Exports was elected as the new Chairman of the association for the 2022/2023 period. He succeeds Mr. Sanjaya Herath who led the association for three years from 2019-2022.

Speaking at the event, Minster of Plantation Industries, Dr. Ramesh Pathirana said, “Historically, Sri Lanka produced the highest quantity of tea in 2013. In recent years, China, India, and Kenya have overtaken us so we are 4th in relation to the production quantity, but Ceylon tea is still renowned as the highest quality tea. We looked at the values and by the end of July of this year, production was less than 20 million kilos than we had in 2021. However, our export income has not decreased and we recorded $695 million by the end of July. We will work together and do everything possible to uplift the state of tea production and its market values.”

A number of the challenges faced, and still to be faced, by the industry were discussed at TEA’s 23^rd AGM. It was noted that the industry had pivoted away from its traditional technophobic stance, having instead adapted to include technology wherever possible, including doing away with the iconic 150-year-old public tea auction by the open outcry, in favour of a digital, electronic auctioning system, helping to overcome many challenges.

Chairman of the Sri Lanka Tea Board, Mr. Niraj De Mel also commented saying, “We are more than convinced that there is no substitute for Ceylon Tea. It is our responsibility as stakeholders to draw up a blueprint for the tea industry by amalgamating the 5-year tea strategy and CTRM 2030 in order to take the Tea industry to new heights. I also take this opportunity to recognize the TEA scholarship programme which is seeing an annual contribution of 1 million rupees to help children in the estate sector and rural areas.”

‘’As a result of the seriously poor decision to ban chemical fertilizers, Sri Lanka’s tea crop, across all elevations, from January to July 2022 recorded a significant 18.6% decline, a shortfall of 35.07 million kilograms, when compared with the corresponding period in the previous year. This is even a marginal decrease when compared against the crop figures of January to July 2020, during

the height of the pandemic. In fact, this is the lowest crop on record for the comparable period since 1996’’, Mr. Sanjaya Herath, the outgoing Chairman stated.

In terms of tea export quantities too, the Association outlined that a significant decline of 9.77% was recorded from January to July 2022, when compared against the corresponding period in the year prior. Export quantities totaled 148.05 million kilograms for the period, which is a 14.47-million-kilogram shortfall when compared to 2021. The Association noted that the contraction in export volumes was almost entirely due to the crop shortfall, while exports to Russia were dampened owing to the tensions in Ukraine.

Speaking at the event, the new Chairman of the association, Mr. Ganesh Deivanayagam said, ‘’Our excellent primary conditions and strategic locations should optimize to enhance production and increase revenue respectively’’.

In terms of nominal export revenues in Sri Lanka Rupees, the industry witnessed a very handsome 37% growth rate for the period. However, this increase is largely attributed to the sudden depreciation of the Sri Lanka Rupee, which fell by about 80% against the US Dollar in March 2022. Consequently, prices at auction rose quite phenomenally, with teas hitting all-time-record Sri Lanka Rupee prices during the period.

The Question of the Auction

Tea has been sold by open auction in Colombo since July 1883, allowing participants to benefit from price discovery in a free and open market. This allows both producers and exporters to transact at the best and fairest price. The Colombo Tea Auction has long held the position of being the largest single-origin tea auction centre in the world. However, the present economic uncertainty in Sri Lanka has given rise and lent an air of authenticity to the false belief that, the benefits of rupee depreciation have not been fairly passed down to the producer. This is a view primarily held by a small group of tea producers and supported by certain policymakers.

This notion is, however, easily refuted by even a cursory examination of recent price trends at the Colombo Tea Auction. Industry experts understand that this is a misconception far removed from the truth. Nevertheless, this notion is gaining traction in certain quarters, with some with vested interests standing to benefit from interfering in what has been a free and fair market for over a hundred years. Therefore, in this article, we will examine this claim and recent trends witnessed at the Colombo Tea Auction, to factually and irrefutably quell any authenticity that these ill-conceived ideas attempt to claim before they have a chance to destroy one of the last remaining bastions of Sri Lanka’s already battered economy.

An Untenable Proposition

The solution proposed by a segment of producers is to change the value currency of the Colombo Tea Auction from LKR to USD. However, such a move will not work to better compensate producers. Such a move would introduce unnecessary and time-consuming red tape, not to mention volatility, into a system that functions very smoothly as it is. It also has the potential of further exacerbating the foreign exchange crisis, as the industry would need to “dollarize” itself, meaning that fewer dollars will be available for import requirements, as they will be in circulation within the local economy.

Furthermore, there is the question of the other members of the supply chain, for example, smallholder tea growers and transporters. What happens if they too demand that they must be paid in USD? Such circumstances would only exacerbate the foreign exchange crisis, as more and more participants demand to be paid only in USD. There will also be other foreseen and unforeseen macro-economic challenges, as a result of such a move, with part of the industry denominating its transactions in USD and other parts in LKR. Furthermore, dollarization may restrict exporters’ ability to pay the fair price at auction, leading to a potential negative impact on the price of tea.

Dollarization has been suggested before in Sri Lanka and has been decided against, for good reason. However, the present crises have lent a certain authenticity to these ideas, which must be refuted at once. Dollarization has been implemented in countries like Kenya, but the move only resulted in small and medium buyers being wiped out, and large multinationals taking control. Sri Lanka’s tea industry largely remains diverse, locally owned and controlled, and such proposed dollarization of the industry could potentially lead to a loss of ownership and control to a homogenous monopoly made up of large foreign companies.

Numbers Do Not Lie

Supported by the sharp depreciation of the LKR against the USD and a shortage of tea in Q1 2022, auction prices soared in the last two months providing, in some cases, even more than the full benefit of the exchange rate movement to the local tea producer and grower. For the first time in history, average tea auction prices for all three elevations exceeded LKR 1,000 per kg in April 2022. Accordingly, the average price of tea sold at auction rose from LKR 708.00 per kg in January 2022 to Rs. 1,324.95 per kg by May 2022, an increase of 88%. At the same time, the Rupee depreciated by only about 75% from LKR 203.00 to LKR 356.00 per dollar. This alone is sufficient to empirically prove and make the case that the present system of tea auctioning is serving both exporters and producers equally and fairly.

However, it is possible to further demonstrate that the benefits are being passed down to the bottom of the supply chain if we consider the green leaf pricing formula. According to this formula, which is set and maintained by the Sri Lanka Tea Board, the apex governing authority for the industry, green leaf prices are set at a percentage of each factory’s tea sales average, computed based on monthly average tea auction prices. Thus, it is usually the practice that smallholders receive the price paid by the best factory in their area for their green leaf, sometimes even more. As a result, smallholder tea growers are now paid over LKR 200 per kg for green leaf, compared to Rs. 100/- 125/ per kg in the months before the rapid depreciation of the Rupee. These gains have also allowed many factories to provide increased compensation or relief packages to their staff, including labourers and other ancillary members of the supply chain.

Thus, teas are fetching prices far beyond fair value in many instances, giving a false impression that exporters are unfairly benefitting from the exchange rate volatility. The reality is, however, that the system of the open auction for tea in Sri Lanka, an established practice for over a century, is functioning well and exactly as it was designed to, fairly and openly distributing capital throughout the system, ensuring fair compensation to all members of the supply chain.

It is also necessary to bear in mind that tea exporters themselves have many costs over and above the tea itself. These include freight, packaging materials, tea flavours, agents’ commissions for foreign agents/distributors and marketing, all usually made in foreign currency, and none of these costs are passed on to growers or producers. With the present dollar shortage, most exporters are now required to make these payments in advance, even before receiving export proceeds, whereas these payments were made on credit terms in the past.

Understanding Reality & Gearing for the Future

Examining the figures and facts of the matter, it is impossible to draw any rational or reasonable conclusion other than that, the present system of tea auctions in Sri Lanka is working well and does not need any kind of meddling from any party, particularly policymakers. Much of the present economic disaster in Sri Lanka is a result of such meddling, so let us ask ourselves whether we would like to see one of the last remaining economic opportunities in Sri Lanka being destroyed for the benefit of a few.

If producers wish to benefit more than they already are from the currency depreciation, then Sri Lanka must look at increasing its annual tea production from 300 million kg to around 350 million kg, over the next 3 to 5 years, to meet global demand and benefit from increased revenues. This additional 50 million kg of produce could grow the nation’s export earnings by approximately USD 300 million each year.

Recent exchange rate movements have made Ceylon Tea and other products more attractive to overseas buyers and have even increased demand. However, Sri Lanka cannot benefit from this increased demand, without increasing production, and it certainly will not benefit in any way from parties with vested interests meddling with a system that has functioned well, created wealth and lifted generations out of poverty for over a century.

The Sri Lankan tea exporters who are grappling  with a number of internal and external issues such as  low tea crop, high COP, fuel issue ,  sanctions on Russia, high freight rates etc are concerned of the possible loss of market share for Ceylon Tea if the corrective measures are not taken immediately.  

Since November last year the domestic tea crop has been declining largely due to the non- application of fertilizer on time and also due to adverse weather conditions prevailed in the tea growing regions during the last few months. In the first two months of 2022 Sri Lanka registered a tea crop of 41 million kg as against 45.7 million kg registered in the same period last year, a decline of 4.7 million kg. As per the tea quantities offered at the Colombo tea auction during the month of March 2022, it is estimated that the tea crop in the first quarter would be in the range of 65 million kg, a drop of about 10% compared to last year. Although tea cropping months have begun with the onset of rain, the fertilizer is adequately not available for the tea growers. Further, the price of fertilizer has gone up by three to four folds making it unaffordable to many tea producers.  Since tea export volumes are directly related to available tea crop, the tea export volume is also estimated to be lower by about 8-10% in the first quarter of the year.   The exporters are worried about losing Ceylon tea market share to other competitors and also losing valuable foreign exchange earnings.

The regular power cuts and non- availability of sufficient quantities of fuel to operate generators have also hampered the day to day operation of tea export companies. The exporters of value added tea have been affected more than others as the tea packing machines that normally operates on 2-3 shifts per day are unable to function even on a single shift without any interruption due to the power cuts. The brand owners face a huge challenge in fulfilling their contractual obligations to the foreign buyers.  The exporters are unable to plan the production due to long power cuts.  The end result would be low export volume and revenue from tea sector during year 2022.  The association has sought the assistance of Sri Lanka Tea Board to obtain the fuel requirements for tea exporters but CEPETCO has not been able to supply the required quantities. The fuel issue also affects the tea manufacturers and transport of tea to Colombo for the auction. The escalation of transport cost along with high auction prices negatively impact on the competitiveness of Ceylon Tea in the global market. It is necessary to provide fuel to the export industries on priority basis in order to ensure the continuous foreign exchange earnings that are vital to the country at the moment.

The value added tea export sector is also affected from shortage of tea packaging materials. The suppliers of tea packaging materials who depend on imported raw materials are unable to secure the required quantities due to shortage of dollars. They do not get priority from Banks when LC is opened for import of materials.  The prices of packaging materials too have gone up with the dollar shortage. A similar situation is seen in the supply of tea flavours and other inputs for value addition of Ceylon Tea. These factories too suffer from power cuts and shortage of fuel.

At present, the Colombo tea auction prices have gone up to record levels due to the depreciation of the local currency and non - availability of sufficient quantities. The situation has temporarily mitigated the adverse impact of sanctions on Russia on Colombo tea auction prices. Sri Lanka used to export about 28-30 million kg of tea to Russia and another 4 million kg tea to Ukraine annually. Though there are no sanctions on Ukraine, export of tea to this country has been affected due to disruptions to the shipping and other logistic arrangements. The infrastructure in most parts of Ukraine has been damaged and therefore the retail businesses will not be able to resume the operations soon. The US/EU sanctions on Russia, depreciation of the Ruble, curtail of shipping movements etc have affected Sri Lanka tea exports to this important market. As per available media reports, India and Russia have agreed to carry out their trading business using the Rupee & Ruble. This will enable the Indian tea exporters to continue to supply tea to the Russian market at the expense of Sri Lanka and some other suppliers. China and Vietnam who do not accept US & EU sanctions on Russia will also continue with their tea supplies to the Russian market.  Tea Exporters Association (TEA) has suggested to Sri Lanka Tea Board to explore the possibility of having a mutual trading arrangement with Russia but Sri Lanka is yet to initiate any dialogue with Russia on this matter. Since the Russian sanctions may get dragged on for some time, the absence of any acceptable solution to the issue could affect the Ceylon tea share in the Russian market at least in the short to medium terms.   

Tea Exporters continue to face difficulties in getting the empty containers for supply of tea. The freight rates have further escalated with sanctions on Russia affecting the pricing of Ceylon Tea. The high COP and the tea auction prices combined with other internal & external factors may adversely affect Sri Lanka tea exports not only to Russia but to other destinations as well.   

Some foreign buyers are inquiring about the uninterrupted supply of Ceylon Tea under the current situation in the country. Tea Exporters Association ( TEA ) members are committed to increase the volume of export of tea and foreign exchange earnings and  request the responsible state agencies to address the prevailing issues without delay as they could seriously affect the sustainability of the  tea industry. The government may also explore the possibility of having a special trading arrangement with Russia to safeguard the important Russian market for Ceylon Tea. It is a matter of time that Colombo tea auction experiences the heat of Russian sanctions. 

- Tea Exporters Association

By Dr. Roshan Rajadurai

Sri Lanka is a humid tropical country with a two main monsoon seasons endowed with well distributed year-round rainfall. Tea is the only major perennial commercial economic crop grown widely in all three elevations and rainfall zones and in 14 Districts under varying temperature, rainfall, elevation, topography and terrain.

It provides direct employment to over 600,000 people engaged in cultivation and processing and indirect employment to a further 200,000 involved in the supply chain. Thousands of townships and village economies in tea growing areas are sustained by and completely depend on the tea industry. The sector provides complete livelihood support for a resident population of one million in Regional Plantation Companies (RPCs) and 450,000 tea smallholder operators, hence supporting a total population of nearly 1.5 million.

Overall, considering both employment and livelihood generation, the industry sustains more than 10% of our national population and its net foreign exchange earnings are only second to the garment industry. It is a total home-grown export industry from the production of raw materials to the finished goods, except for fertilizer and certain agro chemicals, all inputs are local and hence all the money earned is circulated within the country. In 2020, Sri Lanka earned Rs. 260 billion from tea which was circulated within the country.

Tea is an evergreen woody perennial plantation crop grown in large extents and contiguous swathes of land for commercial crop extraction. Cultivations are generally monoculture, with other plant species grown to provide shade. The use of green manure, cover crops, hedge rows and intercrops by tea plantations, together with homogenous cultivation and below the ground plant physiology and ecosystem, provide favourable conditions for various groups of pests and diseases to establish, spread, disseminate and survive. These pests and diseases which affect the leaf, stem, branch and roots cause significant crop loss and plant damage during various periods of the year and different crop growth stages.

Use of Integrated Agriculture Management

Tea requires timely use of synthesized chemicals such as fertilizer, herbicides, fungicides, pesticides, growth regulators and concentrated fertilizers. However, plantation agriculture has always practiced Integrated Agriculture Management (IAM), since no agriculture can rely 100% on either synthesized agro chemicals or organic inputs. Plantations have carefully followed ecologically protective, environmentally sustainable, economically feasible and ethically acceptable adaptation and mitigation techniques and practices under varying spatial, temporal, climatic and geographical conditions.

IAM in plantations is required to be financially viable, agriculturally productive, ergonomically practical and culturally compatible within a holistic sustainable plantation management framework. Plantations have strictly complied with the minimum use of agrochemicals because of global certifications, compliance and conformance standards set out by global regulatory agencies and importing countries while conforming to the very exacting, stringent and varying Maximum Residue Level (MRL) requirements required by all buyers.

As a result, Sri Lanka’s tea industry is the most certified tea industry in the world. Nearly 300 RPC factories have more than 625 global certifications such as Ethical Tea Partnership (ETP), Rainforest Alliance (RA), UTZ, Good Agricultural Practice (GAP), Sustainable Agriculture Network (SAN), Hazard Analysis Critical Control Point (HACCP), Fairtrade (FT), Mother and Child Friendly Estates, Forest Stewardship Certificate (FSC), ISO 22000, ISO 9000 and many other environmental, sustainable and green certifications. Ceylon Tea was declared the ‘Cleanest Tea’ in the world by the Food and Agriculture Organization (FAO) and was first to be certified ‘Ozone Friendly Tea’ in the world, with over 170 countries consuming our tea. Sri Lankan plantation companies have won global awards for sustainable environmental practices regularly in the international fora.

Tea plantations have followed integrated plant nutrition management (organic, inorganic, green manure and bulk manure fertilizer applications), integrated weed management (preventive, cultural, agronomic, manual, chemical, biological, ecological and mechanical methods),  integrated plant protection management (fungicides, insecticides, acaricides, nematicides, fumigants and weedicides), integrated pest management (cultural, biological, chemical and microbial control methods), integrated disease management (agronomic, cultural, biological and chemical strategies), sustainable soil and fertility management (physical, vegetative, cultivation and recapture techniques) and total ecosystem management (soil, water, biotic, abiotic ecosystem and the environment), in managing agriculture and crop production.

Requirements of commercial plantations

Commercial plantation agriculture requires balanced, essential plant nutrients in a timely manner and in adequate quantities at affordable prices and weed control in a timely and environmentally-friendly economic manner. It also requires control of seasonal and serious pests and diseases before reaching contagion level, control of climate and weather-related diseases effecting tea bush and crop and fast control of leaf and root diseases before they spread.

In addition, rectification of soil nutrient deficiencies and soil acidity, care and maintenance, formative growth of new clearings and young plants, assisting the rehabilitation and restoration of soils and soil fertility status are also necessary. Ensuring the required quality and physical condition of raw materials and maintenance of essential chemical quality characteristics and physical features for tea quality are all part and a result of IAM in tea plantations.

Agro chemicals and organic inputs are required for vital plant physiological functions such as respiration, photosynthesis, water and nutrient uptake and distribution throughout the plant, growth and cell division, hormonal function and to tolerate biotic stress from pests and diseases and abiotic stress from climate and weather-related issues.

Tea plants require three macro/major nutrient elements (nitrogen, phosphorus, potassium), three secondary nutrients (calcium, magnesium, sulphur) and 10 micro/trace elements (iron, zinc, copper, boron, manganese, silicone, molybdenum, sodium, cobalt, chloride) together with carbon, hydrogen and oxygen.

All these essential nutrients are required in a timely manner at correct dosages for vital plant physiological functions and crop growth. In the arable soil, 50% is solid and 50% is aerosol and of the 50% solid material only 5% is organic and 95% is inorganic compounds such as silicates, oxides, aluminium, calcium, iron and other minerals.

The weight of soil in one acre to a depth of six inches is one million kilos. It works out to 15 million kg of soil to a depth of three feet root zone, for one hectare. The addition of a maximum of 750 – 1,000 kg of inorganic fertilizer per year makes it impossible to bring about a dramatic change in soil composition. No soil in any part of the world is able to continuously supply the full requirement of nutrients for the production of economically significant crop yield without being supplemented by fertilizers.

Any deficiency of essential plant nutrients will retard growth and development and will eventually result in decreased growth, structural abnormality and death of tea plants as 20-50 harvestable shoots are removed from a tea bush every week, continuously for five years.

Balanced plant nutrition

In Sri Lanka, extensive field trials on use of inorganic synthetic fertilizer has been conducted since the beginning of the 20^th century. Synthetic fertilizer was introduced to the tea industry in 1905. Eden started trials with different NPK levels as a balanced fertilizer in 1931.

Fertilizer recommendations for Tea has been issued by the Tea Research Institute (TRI); Tolhurst 1954, Joachim 1963, Fernando 1969, Sivasubramanium and Jeyaram 1976, Wettasingha and Watson 1980, Wickramasinghe 1986, Hettiarachchi 2003 and Zoysa and Loganathan 2003.

In the 1970s, TRI recommended ERP as a source for Phosphorus. In the 1980s, urea-based regional specific fertilizer replaced Sulphate of Ammonia. In 1985, fertilizer based on yield potential was introduced. In 2000, site specific fertilizer recommendations (SSFR) were introduced based on soil testing for P, K, Mg., S, pH and yield potential for different agro ecological regions. In 2010, regional specific fertilizer applications were recommended. Nitrogen is the most critical nutrient for tea and tea requires nitrogen more than any other plantation crop, because of the vegetative nature of harvesting done every six to seven days.

Impact of synthetic fertilizer

The TRI recommended fertilizer mixtures, after almost a century of trials and research. These provides high nutritional value per unit of fertilizer are available in highly soluble and plant absorbable forms while taking in to account correct nutrient ratios and other nutritional antagonistic and synergistic complexities of plant and soil. They provide plant growth specific, seasonal, crop, soil and site-specific formulations.

They are precise, defined and controlled with specific need-based and precisely targeted dosages with soil and leaf testing for specific purposes including deficiencies and at formative growth stages. Synthetic fertilizer is consistent with no variability across batches, predictable in its response and have a reduced presence of undesirables in its formulation.

It can correct specific plant and soil nutrient deficiencies fast and its fertilizer efficiency usage is high. It is easy for crop planning and when all compounds in fertilizer mixtures are known and tested with no chance for unknown compounds, plant pathogens or soil borne root pathogens to be incorporated in the process of manufacture. It has the ability for use in spot applications and for any specific deficiency by foliar applications of micro nutrients, in particular.

Synthetic fertilizer is economic, cost-effective and convenient for collection, transport, storage and application and is available in required quantities at the required time. Generally, a maximum of four workers per hectare (Ha) is used for ground application of synthetic fertilizer and a maximum 60 – 80 Nitrogen per Ha is applied.

There are specific and different types of fertilizer applied with multiple elements, mixtures, nutrient compositions, dosages, frequencies and time of applications for different stages of tea plant growth. This ranges from rehabilitation, tea seed bearers, clonal mother bushes, nursery stage, immature stage, formative growth stage, restorative stage and mature stage, going up to 100 years maturity vintage. Different origins of tea such as seedling tea and vegetatively propagated tea, different clonal cultivars, different yield slabs, elevations, soil types and soil conditions require different fertilizer mixtures.

According to the validated research findings of TRI, crop loss without balanced plant nutrition is around 30% – 40%.  Tea Research Foundation of India too has confirmed that this would result in more than 30% yield loss. Fertilizer recommendations and applications are highly complex undertakings and are the combined result of over 90 years of validated, painstaking scientific research and trials on fertilizer by the TRI, which has won global acclaim and recognition for its pioneering work in this area of research.

Balanced plant nutrition and tea quality

Timely and balanced plant nutrition has a direct impact on the tenderness of fresh shoots, vigour and increase of Chlorophyll content and desired chemical compounds in the tea leaf that contributes to essential tea quality parameters on which a tea is assessed. These include black appearance of made tea, colour of infused leaf and tea liquor characters of the infusion such as colour, strength, quality, aroma and flavour.

To achieve these physical and organoleptic quality parameters, it is critical to apply the recommended balanced fertilizer mixtures of the right quality and quantity, at the right frequency, dosage, method and timing. Tea leaf, as the only raw material in tea manufacture gets its physical conditions such as succulence and tenderness to facilitate different stages of tea manufacture and its chemical characteristics that determine its quality through balanced plant nutrition.

Lack of plant vigour makes plants susceptible to attacks by pests and diseases and to climate change effects which have a direct impact on quality.  Diseases such as blister, blight and pest attacks from mites and tea tortrix not only result in severe loss of crop through its impact on harvestable shoots but also causes significant reduction of important and natural plant precursors that determine the quality of tea.

Nutrient deficiencies directly affect formation of chlorophyll and other desired chemical compounds and physical attributes of the tea leaf. Quality of tea is primarily determined by its physical appearance, chemical constituents and fibre content of made Tea. Nitrogen is required for protein, amino acids, caffeine and theanine and is critical for enzyme synthesis.

Phosphorus is required for formation of volatile flavour compounds and aroma complex that are essential in terms of quality. Potassium is an activator and a catalyst of important precursors contributing to quality. Magnesium is required for chlorophyll production which is critical for the black appearance of made tea and is required as a catalyst for precursors contributing to quality. Copper is required for enzyme PPO and for brightness of tea. Zinc is an important co-enzyme and di-ammonium phosphate contributes to the liquor colour.

Challenges due to lack of plant nutrition

The absence of balanced plant nutrition with all the required macro elements, secondary nutrients and trace elements would have a significant impact on the overall quality and taste of Ceylon Tea. For over 100 years, the consumers are familiar with and are used to the quality of Ceylon Tea. It is estimated that the quality of tea would reduce by 30% to 40% due to the lack of timely availability of balanced plant nutrition and adverse effects of pests and disease.

This would be an irreversible setback for Ceylon Tea – both in terms of quality and reputation. Once consumers move away from ‘Ceylon Tea’, they are gone forever and ‘Ceylon Tea’ would lose a hard-won market which has been established under tremendous difficulties and competitive challenges over the last 100 years. A case in point is the example of the premium, highest-paying Japanese market which ‘Ceylon Tea’ lost after the Glyphosate ban fiasco.

Without the availability of appropriate balanced plant nutrition, recommended herbicides for weed management, approved agro chemicals for pest and disease management and for the mitigation of climate effects the crop and quality levels of Ceylon Tea would irrevocably decline to uneconomic levels. The crop loss will increase the cost of production to unimaginable levels and locally, no one would be able to manage tea plantations in a sustainable manner as revenue received at auctions for such tea would be a fraction of the cost of production incurred.

The quality drop would result in Ceylon Tea being not sought after and all these would singularly and in combination spell doom for the 150-year-old Ceylon Tea industry which is a well-known global brand. Along with the diminution or collapse of the industry, employees engaged in the industry would suffer significant loss of earnings. This could lead to unemployment, poverty, reduced quality of life and abandonment of tea fields, closure of tea factories and other related and associated issues.

The socioeconomic, financial and livelihood impact on the resident population within RPC estates, with no recourse to alternate employment or income would be truly disastrous. Ceylon Tea has experienced some effects of this nature after the ban only of herbicides for weed management and the deleterious and adverse after effects of the ban are clearly evident even now.

Many warnings of what would happen were repeatedly brought to the attention of the authorities by the author himself on many occasions. Without the availability of plant nutrients and agro chemicals now envisaged, the impact is irreversible and beyond imagination.

Total earnings from Tea amounts to Rs. 260 billion or USD1.3 billion.

Total cost of fertilizer for tea amounts to Rs. 6 billion or USD 30 million.

The cost of fertilizer as a percentage of earnings from tea is only 2%.

Once started, the slide to oblivion is obvious and irreversible.

The acclaimed American economist J.K. Galbraith stated ‘farmers rightly sense in the counsel of any man who does not have to live by the results of the consequences of such counsel’. Planters and those engaged in plantation agriculture are now compelled to work in the industry, based on the decisions and advice of those who don’t have to deal with the results of such advice.

“You can avoid reality but you cannot avoid the consequences avoiding reality” - Ayn Rand.

About the Author: Dr. Roshan Rajadurai is the Managing Director of the Plantation Sector of Hayleys PLC (which comprise Kelani Valley Plantations, Talawakelle Tea Estates and Horana Plantations). A former Chairman of the Planters’ Association of Ceylon, Dr. Rajadurai has 36 years of experience in the plantation sector.