Sri Lanka’s tea industry appeared to be on the road to recovery around this time last year. This was due to the buoyancy created by production estimates of 310 mn kg and earnings is excess of US $ 1.5 billion. However this was not due to initiatives in production and marketing but was solely dependent on external market forces, said Regional Director & Senior Consultant of MTI consulting, Suraj Deen.

Tea prices soared on a general upswing in commodity prices which also benefited in part due to improved rainfall and fewer labour disruptions. A price correction was inevitable. Today as we face a global recession, factories have to cut production costs while labour unions are caught up in a debate over labour productivity.

Kenya, a primary competitor, has an advantage over us with a larger output of tea per hectare and a labour productivity which is nearly double that of ours.

Sri Lanka is at a greater risk than some of the African, Caribbean and Pacific (ACP) countries as these countries are able to assimilate technology and better yielding clones faster than Sri Lanka. Subsidies alone will therefore not help the tea industry recover, said Deen.

In todays competitive market space, non value added agricultural commodities are literally nonexistent. Sri Lanka has lived for too long on the assumption that buyers would seek out a quality tea through mechanisms such as auctions. With little or no "marketing investments" the notion is that a "good tea" will fetch a decent price at the auctions.

There are some Key pointers to the pitfalls that prevent Sri Lanka’s tea being competitive. Reducing costs to remain competitive, though popular is inadequate became the focus is not on demand led conditions. ILO studies indicate that the number of plants per hectare, the height, weight, age and experience of the plucker contribute to labour productivity.

While the internet does bring buyers and sellers closer, the traditional auction system will continue to play a significant role in the future. Producers, however, do not have access to the downstream distribution and retail channels and are dependent on importers from tea consuming countries. Therefore building channel integration and contral into business strategy is a Key factor, he said.

Sri Lanka is the largest single exporter of tea followed by Kenya. While we enjoy a significant volume share, we do not enjoy a corresponding share of revenue.

This is attributed to a lack of integration of production and marketing. Even with a total market for tea being US $ 47 billion and despite low per capital consumption, Americans paid a top dollar per cup. The most recent innovations of tea are also visible in the US market, however Sri Lanka has little or no presence in this market. While top producers of tea jostle for a market share in the US, Sri Lanka dominates the traditional markets in Europe, the CIS and the Middle East. These countries registered low single digit growth contributing to a poor market outlook.

Traditional markets will be always under pressure as the younger generations in these countries move away to more hip beverages and multinational giants such as coca-cola and Unilever position themselves to exploit there trends to the full, Deen added.

Sri Lanka has little or no role either in the upstream or downstream strategic marketing process. It is necessary to visualize the tea value chain as starting from the point of plucking the tea (bud and two leaves) till it reaches the consumer as a refreshing cup of tea. At every point along its journey, decisions are made that alter the product, adding value to it. Ideally these decisions must be made with the end customer in mind.

The choices made decide the profitability of the product. However auctions are viewed as the end point of the value chain by many producers. The assumption is that the producers need not play any role beyond the auctions. As long as this approach is adopted, producers will operate in a buyers market and will be dictated to by downward prices as world market prices continue their downward trend.

In order to secure its export markets, Unilever has begun integrating its supply chain through ownership of a large number of estates, particularly in Africa. Tata has begun to acquire and consolidate its front end marketing channels. Both companies have identified missing links in their supply chains and have acted to plug the lacunae in their strategy framework, one on the supply side and the other on the demand side. Both companies control their supply chains. Local producers will become increasingly vulnerable as these giants shift their sourcing to more productive and cost effective regions such as the ACP countries.

Lifestyle integrated marketing is another tool used by companies intent on creating niche market spaces in the natural beverages category. Consumers who live a fast paced life are becoming aware of the brands on offer and those brands which integrate with the lifestyle of the consumer are the ones that will survive. There is an evolving new market space for teas with an elitist appeal, new innovations are being rolled out as top quality teas in Pyramid tea bags, easy to use nylon mesh and other plungers that make brewing tea, fun.

Sri Lanka competes at two levels. The first at country level with producing countries such as India and China who may become net exporters together with a number of new countries emerging as exporters. At a firm level, Sri Lankan companies compete with established marketers such as Unilever and Tata. It is unlikely that Sri Lanka will be able to create brands similar to Lipton and Nestea in the foreseeable future. If we are unable to compete at brand level, will we be able to do so on price? The cost of production and better yields from competing countries will continue to push prices down. As a producing country where supply exceeds demands, Sri Lanka will always be a price taker. This position has to change. This can be done through strategic marketing.

Among the decisions that have to be taken on policy is that of the four percent norm for replanting. Replanting with better yielding varieties is a mode of increasing the yield. We cannot be saddled with aging plants that negatively impact yield, Deen said.

The introduction of good HR practices giving the worker a choice of improvement and grooming them to take up positions beyond the "Labour Category" is essential.

Similary action must be taken to meet international sustainability and compliance challenges including forestry and eco-system management. Taking control of the value chain system and protecting it is a another positive factor. Innovation is of importance since while Sri Lanka is still bound deeply in tradition, the rest of the world is forging ahead with new ideas and technology. As the largest single exporter of tea we must be in the forefront of innovation and new product development, concluded Deen.