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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Sri Lanka exporter warns against tea nationalism

Sri Lanka exporter warns against tea nationalism

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Malika1990

Malika1990
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Aug 27, 2012 (LBO) - An exporter of branded teas that has catered to emerging global consumer needs has warned that nationalism and protectionism in tea was losing Sri Lanka an opportunity to play a bigger role in the global tea industry.

"The tea industry in Sri Lanka has unfortunately got stuck in a time capsule and vested interests have prevailed upon decision market to adopt a protectionist policy to stop any Sri Lankan brand builder from becoming a multinational operating out of Sri Lanka," Rohan Fernado, head of HVA Foods, told shareholders in the firm's annual report.
"This will perhaps make Sri Lanka ship more bulk tea in the years to come and branding activities under pure Ceylon tea will be limited only to the best quality Ceylon Tea, totaling not more than 100 million kilograms of 30 percent of the national production."

HVA Foods already makes 'Heladiv' branded ready to drink tea and said it is researching the sale of ready to dilute and drink (RTDD) tea.

Sri Lanka has banned the import of orthodox teas to the country using a legislating system and law enforcement systems including customs authorities inherited from Europe.

Protectionism is a type of economic nationalism that downgrades producers located outside the geographical borders of a country by robbing the freedom of choice of the citizens within the national borders of that country using trade controls.

Sri Lanka saw a raft of trade controls in under the Mercantilist Dutch East India Company. Mercantilists used state mandated controls to earn excessive profits (rents) at the expense of mainly poorer consumers.

Economic analysts say that British civil servants who ran the country during the 19th century progressively dismantled many trade controls.

Residents of Sri Lanka - then Ceylon - therefore enjoyed much more economic freedoms than India, which was under the grip of the British East India Company, an exponent of Mercantilism and trade controls.

But trade restrictions saw a revival in Sri Lanka after independence from British rule, especially after the establishment of soft-pegged central bank created 'foreign exchange shortages' restraining Sri Lankan citizen's economic freedoms.

When individual citizen's freedoms are restricted a country lags behind other nations where citizens have more freedom.

Most of Sri Lanka's tea exporters, including HVA have been pressing the state to lift an import ban on orthodox tea so that they could blend and export multi origin tea. However some pure Ceylon Tea exporters fear that it could damage their reputation have been blocking the move.

But exporters like HVA insist that both types of tea can exist side by side.

HVA said amid a global economic downturn, manufacturers were looking for ways to be efficient and make products more affordable to the consumer.

"Refusal to accept the changes brought out by modern day consumer demands will push the traditionalists to demand a protectionist cocoon for survival," Fernando sid.

Fernando said tea exports worldwide have increased from 14 billion kilograms in 2011 to 1.87 billion kilograms in 2010. Tea production has increased from 3.05 to 4.16 billion kilograms.

"Any entrepreneur who would like to expand his business in the tea industry will not turn a blind eye to these stark figures indicating potential to grow bypassing the objectives set up bureaucrats of the local tea industry compelling exporters to focus on the local tea crop of 300 million kilograms or less than 10 percent of the world tea crop."

Fernando said industry stakeholders should find a mechanism to protect the good image of pure Ceylon tea "without making irrational assessments on a nationalistic" basis.

He said special export hub could be established to allow import and blending of multi-origin tea. Sri Lankan now had to go to other countries to do that.

He said demands to ban such an export hub will require Sri Lankans to set up operations in a third country to achieve that objective.
http://www.lbo.lk/fullstory.php?nid=476613528

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