Sri Lanka May Lower Import Barriers

COLOMBO, Sri Lanka

Ceylon is both an island and a brand synonymous with premium teas.

The Democratic Socialist Republic of Sri Lanka is witnessing a national debate this year on whether to ease import restrictions on lesser quality teas.

Exporters lobbying to ease import restrictions hope to make the country into a lucrative “tea hub” for blending teas from China, India and Kenya. They argue the high cost of pure Ceylon tea, compared to blends, puts them at a competitive disadvantage with international brands.

There are many business reasons to consider easing import restrictions. The production of tea, rubber, coffee and sugar are evolving from commodity businesses to more industrialized sectors that include food processing, textiles, telecommunications and finance. Tea employs more than one million workers and is the country’s main source of foreign exchange. Revenue from tea is critical to employment and the nation’s financial well being. Sri Lanka’s service economy accounts for 60 percent of the gross domestic product with agriculture contributing 12 percent and manufacturing 28 percent. Tea growing and manufacture represents 15 percent of GDP.

Competitors in the region such as the United Arab Emirates last year exported 45 million kilos of blended and packaged teas. Sri Lanka exported 320 million kilos last year but Dubai’s value-added teas sell for three to four times more than unprocessed tea sold at the Colombo Tea Auction. In the late 1990s Unilever announced plans for an extensive blending and packaging operation in Sri Lanka but chose the Jebal Ali industrial zone outside Dubai because of Colombo’s import restrictions.

The heart of the debate centers on the brand which is symbolized by an ornate lion. Will importing teas from around the world and blending, packaging and marketing them dilute brand value? Or will it enhance and strengthen Sri Lanka’s position among the world’s great tea producers.

Liberalizing imports is strongly favored by the Tea Exporters Association (TEA) whose members represent 83 percent of tea exports. At a Tuesday press conference TEA Chairman Miraj de Mel told reporters "The government has plans to increase the current $11 billion exports to $20 billion by 2020. That means tea, as the country's highest foreign exchange earning crop, has to hit the $5 billion mark."

Tea exports were $1.5 billion in 2012. Sri Lanka cannot achieve $5 billion in sales simply growing more tea, said De Mel “We all know that is not practical. Making Sri Lanka a tea hub to manufacture value-added tea would solve this issue, he said. Rubber manufacturing on the island has followed this route, permitting imports of raw product that led major tire manufacturers to establish factories.

Merril J. Fernando, founder of of MJF Group, owners of the Dilmah brand, insists that Sri Lanka preserve its reputation for single-origin orthodox leaf teas. He opposes the idea of a tea hub and expressed concern that the priceless image of “Pure Ceylon Tea” established over more than a century, will be irreparably damaged with free importation of black teas.

The government currently permits import of CTC (crush-tear-curl) teas blended in tea bags along with green and specialty whole leaf teas but all orthodox tea is charged a high import duty. Sri Lanka imported 1.6 million kgs from other origins to use in blended teas and re-exported 22 million kgs of blended tea under special rules.

“We should uncompromisingly preserve and protect Sri Lankan tea,” said Dr. P.B. Jayasundera, Secretary to the Ministry of Finance and Planning. “Dilmah has shown that all facets can be developed locally. We believe Sri Lanka has a tremendous comparative advantage in tea and can make it a three billion dollar industry in the next 10 years.”

"Our association has no intention whatsoever of destroying this industry from which we make our living," De Mel told Lanka Business Online.  "We fully support the assertion that the reputation of pure Ceylon tea be protected at all costs."

A reputation for excellence

Sri Lanka, located a few miles off the southern coast of India, is blessed with some of the finest tea growing lands on earth.

Maintaining quality has long been a concern. In 1893 Ceylon tea established a record price of 36.15 pounds sterling in the London Tea Auctions. A 1934 law prohibited the export of poor quality tea and that sentiment remains.

Currently there is a high barrier erected to protect local growers and an export market that from 1962 through 1995 ranked top in the world. That baton has passed to Kenya but the quality and reputation of Ceylon tea dates to 1867 with the first planting of tea by James Taylor and the worldwide popularity of Sir Thomas Lipton's Yellow Label, the world’s most widely recognized and lucrative tea brand.

Heladive Tea Chairman Rohan Fernando, who attended the press conference in support of liberalization, told reporters that “not all can afford pure Ceylon tea. There’s a huge market which consumes teas which are considered as mediocre and sold at lower prices. By making Sri Lanka a tea hub we can serve these customer segments. These teas will not be sold as ‘Pure Ceylon Tea’ with the Lion symbol, which Tea Board gives for high quality Sri Lankan tea. But still the export earnings will come to Sri Lanka” he said.

Ideal location

Since its independence in 1948 Sri Lanka has excelled as a trading partner with much of the world. It is situated near shipping lanes connecting China, India and Africa. It has deep water ports and one of the world’s largest auction centers.

Between 1962 and 1995 Sri Lanka led the world in tea exports but nationalization of its tea gardens in the early 1970s, a civil war and restrictions that prevented land owners from cultivating large estates wreaked havoc on the tea industry.

Government tea estates were once again returned to private owners in 1992. By that time buyers had developed gardens in Africa to fill the void. Kenya is now the world’s top exporter of black tea.

Foreign teas for blending and re-export were first permitted in 1981. Green teas were introduced in 1982 with CTC following in 1983. Ten years later the Export Duty and Ad Valorem Tax were abolished.

Today green tea in bulk packs weighing less than 3 kg accounts for 14 percent of exports.

Janaki Kuruppu, Chairman of the Sri Lanka Tea Board (SLTB), told the Daily News a decision on whether to establish a tea hub is likely late in the year.

“We are still evaluating the pros and cons of the proposals given by the TEA and a neutral committee has been appointed to study this. We will soon give our recommendations to President Rajapaksa and other authorities who will then take a decision on the matter,” said Tea Board Chairman, adding that whatever decision is taken, the government will definitely protect ‘Pure Ceylon Tea’.

Sources: Lankan Business Online, The Nation

Dan Bolton

About Dan Bolton

Dan Bolton edits STiR Tea & Coffee Industry International. He was formerly editor and publisher of World Tea News and former editor and publisher of Tea Magazine and former editor-in-chief of Specialty Coffee Retailer. He is a beverage retail consultant and frequent speaker at industry seminars and conferences. His work has appeared in many beverage publications. He was a newspaper reporter and editor for 20 years prior to his career in magazines. Dan is the founding editor of Natural Food magazine and has led six publishing ventures since 1995. He lives in Winnipeg, Canada.