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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Sri Lankan tea – big fish in a small pond: Hilmy Cader

Sri Lankan tea – big fish in a small pond: Hilmy Cader

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Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
By Buminda Jayasuriya

"We are only about eight per cent of the global consumption, but I would say the Sri Lankan tea industry is a 'big fish in a small pond'. Why I would say so is because our tea has a considerable demand when taking into account the market it caters to. But the more 'posh' the market is, the more we get pushed out of the market. To be precise, the more sophisticated the market becomes, the more Sri Lankan tea loses its place and gets pushed out," said MTI Consulting CEO and Lead Consultant, Hilmy Cader speaking at the Strategy Tea Forum held recently at The Kingsbury, Colombo.

Explaining to the audience the current status and trends of the global tea market in his detailed presentation, Cader pointed out that in order to achieve an increase of profits with minimum expenditure we need increase of efficiency and productivity. He mentioned the four types of markets in the world – Regularized, Rough, Ripe and Raw which is referred to as the '4R model' and analyzed Sri Lanka's position in the respective markets. He brought to light the fact that the 'ripe' market which consists of the Middle East, North Africa, Russia and the Commonwealth of Independent States (CIS), and amounts to 23% of the global consumption, is where Sri Lankan tea dominates with a striking 78% of exports comprising the market. He also stated that there is a marked preference for Ceylon Tea in these countries and regional packing and lower cost options need to be looked into.

"At present there is lesser taste for our tea and more 'taste' for packaging in the market, and 'branding' has become a significant factor; it is not just some sort of 'tea' that people look for, nowadays. Other major concerns are 'health' and convenience. In order to maintain our position in the global market and cater to the demand, we need to somehow overcome the challenges such as the high cost of packaging and transport," he said.

The importance of value addition and promotion of 'Ceylon Tea' as a brand and strengthening the links between all parties involved, i.e. consumers, retailers, brand owners and packers, the dire need for replanting and barriers to invest were among the key topics discussed at the forum. Emergence of ripe markets and growth of modern trade were issues in concern, with the panel of experts in the field expressing their views and suggestions on how to improve standards and quality of the industry.

According to the experts, lacking critical mass, rising labour costs, lower cost competition, lower plantation productivity and continuity of labour supply are the main problems the industry in Sri Lanka is faced with. "Although 1.2 million people in our country depend on the tea industry, the inability to attract talent is a major problem the industry has faced. Hence there are many strategic decisions to be made in achieving our ultimate target of making Sri Lanka the 'desteanation' by increasing the demand for our tea around the world," Cader said.

"Our industry is highly fragmented, with 883 buyers, 700+ factories, 400,000 small holders and 23 RPCs. The number of factories keeps increasing but whether it really contributes to an increase in productivity is a question. Kenya produces more tea than Sri Lanka, with only 105 factories," he added.

Speaking at the forum, Mlesna (Ceylon) Ltd. Managing Director, Anslem Perera who has over 40 years of experience in the industry, said, "More than three billion kilogrammes of tea is consumed around the world. We are only 300 million which is just 10% of that huge consumption. Ceylon Tea had a niche in the market, but since 1973 we have moved downhill due to nationalization of the industry."

"We need to bring down the number of factories which I think we are unable to do due to political influence on the industry. If we continue this way, production will decline and we would not be a reliable supplier," he said, stressing on the fact that politics should not interfere with any industry, if Sri Lanka is to move forward as a country.

Further speaking Perera added, "The industry we have here is a legacy. There is a huge market for 'quality' out there, and it is a need of the moment to improve the quality of our tea. There was a time we were considered to have the cleanest tea in the world. It is sad that some of the exporters today include 'saw dust' and sand in packs to increase quantity. Consequently the worst possible thing that can happen in future is that the next generations will stop drinking tea!"
http://ceylontoday.lk/22-27823-news-detail-sri-lankan-tea-big-fish-in-a-small-pond-hilmy-cader.html

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