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Sri Lanka's tea production drops.

Sri Lanka's tea production for the period January to August, 1992 amounted to only 112 million kilograms as compared with 168 million kilograms for the corresponding period of last year. This steep drop of 33% in the tea crop is attributed to the prolonged drought that affected most of tea growing areas in Sri Lanka during the early part of this year. As a result of the severe drought, some of the tea plants have died resulting in reduced intake.

The Sri Lankan Government has moved quickly to remedy the situation. The Government is providing financial assistance to smallholders who account for 50% of the tea production in Sri Lanka to rehabilitate the tea lands affected by the drought by replanting and by filling vacancies. In the case of tea estates, the newly appointed private sector Management Companies have already taken steps to replace the dead plants in order to regain the lost productivity.

Although rehabilitation measures are already afoot, it will take two to three years for the new plants to come into bearing. Sri Lanka's crop for the calendar year 1992 is not likely to exceed 185 million kgs. In 1991, Sri Lanka's tea production totalled 240 million kgs.

Tea Marketing Reforms

From August, 1992, the Sri Lanka Government has introduced major reforms in the marketing of their teas. The producers of made tea are now permitted to packet and bag the tea produced by them for the purpose of export bypassing the auction system. This reform was introduced in order to encourage the producers of tea to be the direct exporters of their own product. Overseas buyers could now contract directly with management companies producing tea in Sri Lanka for their requirements of value added tea such packets and tea bags. The price of such teas exported by producers would need to be ratified by a panel appointed by the Sir Lanka Tea Board.

Tea producers are also permitted to sell 3% of their monthly output of tea for local consumption ex-factory. There will be no ad valorem sales tax on such sales. However, an excise duty of Rs. 1 per kg will be levied on all teas sold though the auction system. The decision to permit a small percentage of tea to be sold ex-factory was taken in order to meet the need of local consumers.

An official Committee which had examined the auction system had reported that the auction system is an efficient medium for sale of tea as a primary commodity and that the Government should encourage the development of the Colombo auctions as the premier tea auction center in the world. However, the auction system involves a time lag up to six weeks between production and sale of teas. This results in additional finance cost to the producer. The auction system does not promote direct links with overseas buyers in order to respond speedily to market needs and changes. Hence, the need for the above reforms.

Tea Plantations Go Private

The Sri Lanka Government has handed over the management of 499 plantations to 22 private sector Management Companies. These plantations account for 50% of Sri Lanka's tea production. Each of the private sector management companies is entrusted with the management of 15 to 20 estates on a profit-sharing basis. The estates will, however, continue to be under the ownership of State.

The historic event was necessitated by the continued financial losses that were incurred by the state-owned plantations since their nationalization in early 70's. State sector tea plantations have also not been responsive to the dynamics of international marketing. They had failed to keep up with the changing consumer habits and have not produced teas which the market demanded. For example, Sri Lanka production consists 97% of orthodox teas when the world demand is changing over to CTC teas. Besides, a major part of Sri Lanka's tea lands still continue to be under old seedling tea, and the production has remained stagnant around 1100 kgs per hectare whereas in Kenya and India, the productivity had moved up to 1,700 kgs per hectare and 2,000 kgs per hectare respectively. Low yields have made Sri Lanka vulnerable to the slightest price decline in the volatile international market.

The 22 companies which have taken over the management of the State-owned estates from July, 1992 have been conferred full powers to operate the estates as commercial units. The Government's administrative and financial regulations which hitherto stifled their operations are no longer applicable. The new private sector companies are now obtaining the required international links for market outlets, market intelligence and production strategy.

It is reported that several commercial banks already offered facilities to the private sector management companies to improve the productivity of their lands. It is expected that these changes in the management will result in the turn-around of the tea industry in Sri Lanka in the coming years.
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Author:Sambasivam, T.
Publication:Tea & Coffee Trade Journal
Date:Nov 1, 1992
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