LANKA,WORLD’S MOST coveted BLACK TEA source
WITH RAVI LADDUWAHETTY
Chairman of the Sri Lanka Tea Board Rohan Pethiyagoda said yesterday that Sri Lanka was the most coveted black tea source in the world.
"Of course, we need to do more to get our message out there. Competing with the big international brands isn't easy. They have more leverage when it comes to shelf space in supermarkets", he told Ceylon Today.
However, we're carving out a niche for ourselves and our challenge is to grow that niche, not so much in terms of volume but in terms of value, he said.
Here, he is in conversation with the Ceylon Today.
? You have been in office for the last two years or so. Are you happy with the present state and the celebrations regarding the 150 years old tea industry?
A: The industry has come a long way in the past 150 years and especially in the past 50 years, with the broad-basing of ownership. We now have tea being produced not by a handful of large plantation owners but by almost 400,000 stakeholders that include 700 factories. Right now, the prices at the Colombo auction are buoyant and the growers and manufacturers are reasonably content. But the exporters are not so happy. They have to pay higher prices for their raw materials and their margins have been squeezed. It is they who market the tea, we produce to the world and so their interests too need to be considered. As for celebrations, well, our focus is on using the 150 years as an overseas tea-promotional tool, not for tamashas. To that extent, I am happy.
? If you are happy, what would you say are the accomplishments of the Unity Government?
A: Well, for one thing, there is virtually no political interference in the industry and corruption, at least at the higher levels of governance, is non-existent. Everyone gets a hearing and the most transparent mechanisms possible have been put in place. Speaking for the Tea Board, I cannot think of another state institution that is held to greater account by its stakeholders. They are represented, and have the final say, at every stage of the decision-making process. That said, we have also kicked a few own-goals by formulating policy with insufficient stakeholder consultation. The ban on weedicides has been especially painful to the industry, especially as it was not founded on any scientific evidence at all. I also feel the government could do more to put the regional plantation companies on a more sustainable footing. Tea is a long-term land use, and leases of tea lands have to be thought of in 50-100 year terms. Otherwise the long-term investments that need to be made simply will not materialize. Also, we need to find ways to give more dignity to plantation workers. Few people want to work in the tea fields now, and new innovations need to be found to address the labour shortage. This is a question of dignity, not so much a question of money. There are also the issues of productivity and mechanization. But these issues are being addressed by a Reforms Committee headed by
R. Paskaralingam and I am sure an effective restructuring of the RPCs will take place.
? The all important and vexed question in the tea industry is when the Global Promotion Campaign for the tea industry is going to kickoff. There was much hype about this in the last seven years from the time it was launched in 2010 and Rs 6.3 billion has been collected and nothing seems to have been done since then. Don't you think that this is frustrating?
A: The problem is that promotion and advertising are intangible things. I cannot think of an easier way to make a pile of money disappear than to spend it on advertising. So, we need to be sure we're going to get a reasonable return for this spends. Then add to that is the cumbersome procurement process. If, we deviate even one inch from that, it is the media that will first hold us to account. Finally, an important aspect of promotion is flexibility. We need to respond not just to developments in our market countries but also to developments in technology. For example, since the Fund was created seven years ago, many of our target markets have faced trade sanction, the oil price has plummeted, and the focus of advertising has moved from television and print media to digital and social media. Each of these has had tremendous consequences. Of course, the lack of progress is frustrating, but there are no quick fixes. This is what happens when government tries to do things like promotion, which State institutions are not geared to do. State institutions are designed to be risk-averse. But a promotion campaign entails great risk. We need to know clearly what outcomes we desire from a global campaign. Will the quantity of tea we produce increase? No. Will the price of our tea in the world market increase? Probably not. What will probably increase is consumers' awareness of the Ceylon brand. Will COPE, the Auditor General and you, the media, be content with that? I'm not so sure.
? The players in the value chain from the tea smallholders to the regional plantation companies, the brokers and the exporters and the shippers, have been in existence from time immemorial. But, is this model apt for tomorrow's world of marketing?
A: Ah, you forgot to mention brands and value-adders. They are the secret weapon of Ceylon tea, something that no other tea-producing country has managed to pull off. Yet, the survival of this industry depends on two things: producing the best-quality tea, and marketing it more effectively than our competitors. Everything else is gravy. And many of our brands are doing a great job of doubling and redoubling the value of the tea they export, through effective branding.
? Why has no new thinking emerged in the better marketing of Ceylon teas?
A: When I meet Indian and Kenyan tea producers, they always ask me how it is that Sri Lanka is so good in marketing its tea. I always tell them our tea tastes better! But the fact is, there is a huge premium in the Ceylon brand that the industry has built up over 150 years, and that is our most important selling point. And to be fair, today's exporters are just as protective of this brand and strive to preserve it as their common heritage. There is a lot of new thinking, and the innovations happening now in packaging and electronic marketing are among the many notable examples.
? Do you believe that the brand Ceylon Tea has devalued over the years?
A: On the contrary, I think the Ceylon origin has grown over the years. And this is despite the grave mistake the Bandaranaike Government made in the 1970s of changing the international name of our country to Sri Lanka for reasons of nationalism. Sri Lanka was always our name for our country. Why then, change the name by which the world knew us? Ceylon was a powerful brand. India, Switzerland, the Netherlands, Japan, Germany they all have their own names in their national languages but are known to the world by different international names. What is wrong with that? How much confusion there would be if India mandated that its finest Darjeeling, Assam and Nilgiri teas come not from India but from Bharat? Or that your Toyota Prius should be made in Nippon? Imagine how costly such rebranding would be!
? If so, is there lack of consumer awareness internationally?
A: The fact that Ceylon is the most aspired black-tea origin in the world says otherwise. Of course, we need to do more to get our message out there. Competing with the big international brands isn't easy. They have more leverage when it comes to shelf space in supermarkets. But we're carving out a niche for ourselves and our challenge is to grow that niche, not so much in terms of volume but in terms of value.
? How do you rate Ceylon tea in terms of acceptability/ marketability vis a vis the acceptability of teas new African states including Kenya and those from India's Darjeeling teas?
A: Well, India and Kenya produce mainly CTC teas whereas we specialize in orthodox teas, which offer a lot more diversity. This, together with the regional diversity our unique landscape and geography confer on us, with astonishingly distinctive teas from, for example, Dimbulla and Ruhuna, is a key character on which we capitalize. Unlike our biggest competitors, just as France is the aspired origin for wine, Ceylon is uniquely associated with tea in the minds of connoisseurs worldwide.
? Do you see some of the earlier formidable markets such as the UK and the US returning to Ceylon tea?
A: The US is a huge challenge and too complex for me to go into there. Ceylon tea has been trying to "break into" the US for more than a century, with mixed results. The loss of the UK is a great pity. In my personal opinion, having lived in the UK for many years, I think the problem is their very hard water, which makes it impossible to differentiate good tea from the terrible black beverage the English now call by that name. But as more houses fit water-softeners into their plumbing, I think this will change.
? How do you see the development of markets of byproducts of tea which include instant teas, teas in nutriceuticals, which go into creams and perfumes et al which go into health and wellness products?
A: Well, these markets are certainly growing. For the most parts, they do not depend on the higher, more expensive grades of tea. But they mop up some 12 million kg of tea from the market annually, and this is set to increase. Their ability to capitalize on the Ceylon brand too, gives them additional value.
? What reasons do you attribute for the decline of the tea industry particularly from 2014?
A: The tea industry has been a victim of prosperity. I know that sounds counter-intuitive, but as our economy grows, our cost of living rises and the cost of labour with it. The cost of labour in Sri Lanka is now double that in Kenya, and rising faster too. In my view, we can no longer look to being a mass producer of tea. We have to be a quality producer. I see volumes falling still further as our GDP continues to rise. Remember that 70 per cent of the production cost of tea is in labour. So, only high-value producers will prosper into the future, and this means volumes will continue to fall. To seek to prop up volumes by throwing subsidies at growers is something that needs to be thought through very carefully. I doubt if it will work. Our goal should be to produce the best tea in the world, not the most tea in the world.
? Do you believe that there are too many players involved in each of the stakeholder groups such as too many producers and exporters?
A: Yes. We have too many factories for the quantity of leaf we produce. I think this industry will do far better with 500 factories rather than the present 700 plus. Since I was appointed to the Tea Board two years ago, we have not approved any new factories. New factories would simply drive the existing ones out of business. When old factories drop out, they should not be replaced until there is a surfeit of leaf.
? Do you think that the current auction system is the method and way forward for the tea industry?
A: An auction is certainly not the ideal way to market a product as diverse as tea. Just think what would happen to French wine if it were all sold through an auction! But for various regulatory reasons, principally to safeguard the smallholder-producers, an auction is the most transparent mechanism for now. Besides, producers wishing to bypass the auction may do so with the consent of the Tea Board, and many do.
? Don't you think that the Colombo tea auctions should also conduct dollar auctions like the Mumbasa tea auctions in Kenya which is ahead of Ceylon teas in terms of supplies?
A: This idea comes up from time to time, but I don't want to offer an opinion because I haven't given it enough thought.
? Do you think that this is an area worthwhile thinking about?
A: Every innovation is worth thinking about! But countries that have pinned their economies to foreign currencies, such as Argentina, didn't do well from it. Like inflation, currency devaluation, as unpleasant as it is, is an important and necessary mechanism for producing economic stability. I saw a Gazette notification recently, in which the Health Ministry has fixed its fees in US dollars. In my opinion this kind of dodge is a shameless copout and an insult to our people.
? What are your thoughts on the liberalization of tea imports where teas are imported for blending, packaging and re exporting?
A: This is too complex and nuanced an issue to deal with here. Let's dedicate a separate interview to blending. Reserve a page or two in "Ceylon tea" and bring it on!
? Chairman of the Colombo Tea Traders Association Anslem Perera in an interview with this newspaper (From the Boardrooms – Ceylon Finance Today – Friday 30 June 2017) said that liberalization should be done but under strict supervision. Will you agree?
A: I am not sure what he could have meant. More supervision means more bureaucracy, and I am not sure what good that will do. Besides, the system is already very liberal. Just about any main-grade of either CTC or orthodox tea can be imported and blended. For the latter, we have a 25 per cent tariff to protect our industry from dumping by foreign competitors. I think that is only fair.
? In the backdrop of the decline in the traditional export markets such as Russia, Syria, Iran and Iraq due to sanctions and war, it is indeed heartening that tea exports to China have increased over the last five years. Can more be done?
A: Yes it can. E-marketing is growing very strongly in China, and I am hoping our exporters will take advantage of that. I have offered the exporters a logistics hub in China to facilitate this, at Tea Board expense, but they haven't taken me up on it yet. They know marketing better than me, so I must leave it to them to decide. But the Tea Board will support them regardless. China's black-tea market is small, but growing, and we need to be positioned front and centre of this.
? There was an elusive target of US $ 5 billion for tea exports by 2020 which was set by former Treasury Secretary Dr. P.B. Jayasundera. But statistics reveal that from a high of US $1.6 billion in 2014, Sri Lanka's tea exports have dipped to US $ 1.34 billion in 2015 and US $ 1.28 in 2016. With trends of declining tea production against the backdrop of high tea prices, will you revise the projections or will you say that the targets would be realistic?
A: I believe that $5 billion figure was contingent on our 'liberalizing' imports and establishing a blending hub. In any case I have no idea who dreamed that number up, or on what basis. In my view the principal way in which we can lift net export revenues is by giving all possible support to local brands that export shelf-ready value-added tea. They are the future. Arbitrary targets often amount to little more than wishful thinking.
? Having been widely acknowledged as being one of the best Chairmen of the Sri Lanka Tea Board in recent times but, being the vociferous critic of the systems including the red tape in the bureaucracy, are you hoping to last for at least a year more?
A: The corridor that leads to my office is lined with the portraits of the many men and the one woman that led the Tea Board from its inception. No false modesty, but they remind me that I am certainly not the best. Not by a long chalk. But I do believe in saying what I think. I am not known to be shy. And if I get fired for it, that's fine by me. I think I'd quite enjoy being a martyr!
(Pic by Ashan Gamage)
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