Tea Hub or Perish?

One of the mainstays of the Sri Lankan economy is in trouble. Despite over 100 years of history, despite being world’s largest supplier of orthodox tea and the largest exporter of value added tea by a tea growing country, Sri Lankan tea is facing a bleak future. Although the country boasts some world-class tea companies, over the past decade and a half instead of growing its tea share Sri Lanka’s share of the world tea market has fallen from 21% to 17% (2000 to 2014). The retail value of the global tea market is around US$ 90 billion, but Sri Lanka’s share is a meager 1.7%.

But Budget 2016 announced a measure that could, even at this late stage, reverse this decline – the liberalisation of tea imports in order to become a tea-blending hub.

The Tea Hub concept is by no means new, and has been debated in Sri Lanka for a while now. Yet, we were too slow off the mark. Other cities seized the opportunity;  London, Hamburg, Rotterdam, and Dubai now occupy commanding positions in the global tea value chain as popular tea hubs. Dubai’s DTTC (Dubai Tea Trading Centre) is now widely regarded as the nexus of a lot of tea blending, processing, value adding activities utilising teas coming from the world over.

One of the major reasons cited by opponents of the tea import liberalisation and Tea Hub effort has been that the value of ‘Pure Ceylon Tea’ will be lost. “Lion Logo tea will lose its coveted place”, they argue. Yet Tea Board reports suggest that only 45% of tea that is exported from Sri Lanka as ‘Pure Ceylon Tea’ actually ends up with the final consumer in that same form. So while we cling on to the notion that ‘Pure Ceylon Tea’ still dominates globally, the reality is very different. The fact that less than half of tea retailed globally is ‘Pure Ceylon Tea’ sent in that form by our tea companies means that someone else is capturing much of the value added along the way. The Tea Hub, if implemented robustly, can ensure that more of that value gets captured here at home.

This article by the Tea Exporters Association provides an excellent insight into why this is important, why it should happen now, and what to consider when structuring a Tea Hub.

 

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2 thoughts on “Tea Hub or Perish?

  1. This a very late comment but to emphasize a point that may have been missed: does Sri Lanka have a future as a producer? The problems are:

    1. Lack of labour and low productivity of what is available.
    2. Low productivity in the cultivation – older tea, sloping fields (as opposed to the flat fields of Kenya) means costs are much higher.

    Long term there is no future as a bulk producer. There will be a limited quantity of tea that can be produced at high cost so trying to develop niche markets is the right strategy but for the bulk business blending will be essential.

    If costs become too high Ceylon Tea may go completely out of the market. What is Ceylon Tea’s market share globally and how has it trended? Its been in decline since the 1960’s I believe.

    Ensuring that licensing/labelling is in place is the issue – as long as bulk blended tea is not sold at Ceylon Tea then there can be no dilution of the brand image of Ceylon Tea.

    • agreed, Jack Point. SL’s future in growing and making tea is a big challenge weighing on the industry. This did not come out sufficiently during the convention, because the focus was mainly on the trade, export, branding side. But I believe the Planters Association is having a strategy day in November, and this will be the primary focus – looking at the future business model of tea in SL.

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