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Tea Industry in Sri Lanka

It’s been a roller coaster ride for Sri Lanka’s tea industry in the last few years. Nevertheless, 2007 witnessed tea export revenues topping $1 billion for the first time in history despite the lower production levels. It was the favorable demand conditions experienced in Sri Lanka’s export destinations that were the driving factor in the record breaking performance where many teas fetched all-time high prices.
 Essentially, sustained increases in the price of oil resulted in a massive hike in foreign reserves in oil exporting nations which also resulted in an increase in consumer spending. Particular reference could be made to the Middle East / Gulf region, North Africa and Russia along with the Common Wealth of Independent States (CIS) which together absorbs some 75 per cent of total tea exports from Sri Lanka.
The popularity of Sri Lanka’s tea amongst oil rich nations had been on an incline despite losing market share to Kenya in the heavy tea consuming destinations of UK, Pakistan and Egypt in recent times. Therefore, Sri Lankan tea was in a much better position to gain from the global economic conditions characterized by high oil prices between 2004 and 2008 than any other tea exporting country.
The globalization process has offered unlimited opportunities as well as challenges for the tea producing countries. Global tea production is now dominated by four countries, China, Sri Lanka, India and Kenya.
Much of the growth boost in low grown tea production is attributed to the rise of the smallholders who are concentrated in the low-country. Tea crop productivity in Sri Lanka is a different story altogether. Strategies lack professionalism notably in the corporate sector.
The story of the disparity in yields between the corporate sector and smallholder sector has been recorded. Yield among the smallholdings are much higher than the corporate sector. Skilled worker out-migration in plantations is another challenge to the corporate sector. This is affecting productivity.
Harvesting technology, a skilled operation, is known to play a key role in determining production, productivity and quality standards in the tea industry. In order to mitigate the situation, the corporate sector has been attempting to introduce partial mechanization of some field operations and other labor saving and incentive measures. But, it appears that the entire plantation system needs re-vamping to eliminate this deep-rooted perennial problem. The labor situation in the plantation has gone from one of surplus to deficit.
The profitability of Sri Lanka tea industry like any other plantation industry rests heavily on the movement of global market and production costs. Sri Lanka’s Cost of Production (COP) has been recording steady increases. Three possible ways available for the producer to enhance profitability are to fetch attractive prices for their produce, increase their productivity level and to reduce the COP. The potential for the corporate sector to rise even above the levels of the smallholdings in terms of crop and worker productivity is substantial. In addition, better quality of tea would greatly enhance the scope for better prices.

Last Updated on: 17-05-2010

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