Bleak future for SL tea smallholders
Sri Lanka’s 150-year old tea industry is heading towards a bleak future as fresh cash problems loom among tea smallholders and factory owners. Smallholders and factory owners warned that if the government authorities fail to address their problems it would result in the downfall of the country’s second largest net foreign exchange earner. The tea industry accounts for over 12% of Sri Lanka’s annual export earnings, a loss that would greatly affect the troubled economy, they said
“Increased costs of transport, labour wages and factory operations have greatly reduced the profit margins of tea small holders. On top of that the turmoil in the Middle East has seen the price of tea driven down,” one official said.
Neville Ratnayake, Chairman of the Sri Lanka Federation of Tea Small Holder Development Societies told the Business Times, that smallholders are facing some serious problems that will directly contribute towards reducing national tea output in the future. “Unless mechanisms are developed to resolve these problems, Sri Lanka’s tea industry is at risk,” he said.
Increasing cost of production, due to rising high wages is making the sector unsustainable. This is also preventing re-investment in land development and replanting. “According to the Tea Research Institute, the production cost of one kilo of green leaf, in the smallholder sector is Rs. 43.19 and the current price for high and mid grown green leaf, is Rs. 40 per kilo, on average, which means smallholders in the mid and high grown areas are actually making a loss of Rs. 3.19 per kilo,” said Mr. Ratnayake.
Low grown tea on the other hand, is generating a small profit for smallholders with prices in the range of Rs. 50 per kilo. However, he said that this Rs. 7 per kilo profit is insufficient, given the cost of living in Sri Lanka. The yield from an acre of tea is around 250 to 300 kilos per month. A majority of Sri Lanka’s tea smallholdings ( approximately 80%) are below one acre. Many tea smallholdings are half acre or quarter acre plots, being primary sources of income for families. Therefore the monthly income of a tea smallholder is around Rs. 2,100. Sri Lanka has about 400,000 tea smallholders who support close to two million people. The second generation of small tea cultivators will move away from tea planting as it is not generating a sufficient income, said Mr. Ratnayake.
Tea factories have been affected by the increase in cost of production by 30% since mid 2011, Sri Lanka Tea Factory Owners Association ( SLTFOA) Chairman Kalana Dahanayake told a media conference at its headquarters in Nawala on Monday. “Tea factories are operating under a price formula introduced by the Government, and we get only 32% from the revenue. The balance 68% goes to smallholders. With the increases in costs, especially labour, fuel, electricity and wood, man- ufacturing costs have increased up to Rs. 110- Rs. 120 per kg,” he said.
Mr. Dahanayake revealed that wages had risen from Rs. 200 in 2005 to Rs. 515 in 2012. Cost of a yard of wood has increased to Rs. 1,100- Rs. 1,200 from Rs. 850. Electricity costs have risen to Rs. 10.47- Rs. 13.50 per unit this year from Rs. 8.17 per unit in 2005 while a litre of diesel has gone up to Rs. 115.30 this year from Rs. 42.20 in 2005.
He disclosed that over 700 factories produce more than 328 million kgs annually. There are 400 tea factories of smallholders in the low country. They are constantly competing with each other to purchase the leaves produced. This has resulted in the qualiy of the tea leaves gradually diminishing, he said. The US sanctions on Iran, was one of the reasons for lower demand at the Colombo Auctions. Compared to 2011, low country tea is now priced at Rs. 45- 50 lower than the previous year, he disclosed. “To face the rising costs, the industry must increase productivity and look for new tea export markets,” he suggested.
Dr. Sarath Samaraweeraa, a former director of John Keells Tea sector, said that the tea price drop generally remains for two to three months and picks up, but this time it has not picked up for about a year and it came down by almost Rs. 40. Even with the rupee depreciation there were no major price increases, he said.
“Due to uncertainty in the exchange rate, traders are hesitant to pass this benefit to factory owners,” he said.
Immediate SLTFOA past president, Pani Dias said that the other main issue was the constant request of tea purchasing countries like Russia and Iran for long- term credit up to about six months. He said that the Tea Small Holdings Development Authority should give at least one good quality tea plant to the smallholders as they do with coconut and cinnamon to encourage quality replanting for the future.