Don't underestimate the economic significance of tea
The export earnings from tea and agricultural prodcuts appear to be much less significant than those from textiles and garments. In 2002 tea exports earned US$ 660 million while garments earned about four times as much - US $ 2424 million.

In the first ten months of last year, agricultural exports brought in US$ 789 million compared to US$ 3269 million from textiles and garments. The final figures for 2003 are likely to be somewhat less for tea and about 12 per cent more for industrial exports than in 2002.

These figures indicate a decline in the importance of tea in the economy. This is not quite correct. The statistics just quoted give a somewhat distorted picture of the relative importance of tea and industrial exports. This is owing to their widely different levels of import content.

In the case of tea its import content is around 30 per cent, while the import content of industrial exports are very high, averaging around 60 to 70 per cent. Therefore the gross value of export earnings do not give a valid comparison of the net export earnings to the country.

Consequently, the significance of tea in the Sri Lankan economy has tended to be underestimated. What then is the real relative significance of these exports?

When the gross exports of 2002 are converted to net earnings, tea exports are about US$ 460 million, while textiles and garments exports are about US$ 960 million. This means that the actual importance of tea exports is about half as much as garment exports.

There was a time when Sri Lanka depended on tea, rubber and coconut exports for much of its export income. For instance, in 1950 agricultural exports, of which tea was the most important, accounted for 94 per cent of export earnings. Even as late as 1975 agricultural exports accounted for as much as 79 per cent of export earnings.

All that has changed over the recent past. Today agricultural exports account for only about 20 per cent of export earnings, while industrial exports are about 75 per cent of total export earnings. Plantation crops account for only around 16 per cent of total export earnings and tea about 14 per cent. However as the earlier analysis pointed out tea exports are far more significant to the economy than these figures indicate.

The tea industry was plagued with many problems in the 1970s and 1980s. The nationalisation of the estates in 1974 resulted in a serious dislocation of the industry. Yields fell and production declined. Production fell from 228 million kilograms in 1965 to 188 million kilograms in 1982 and to 179 million kilograms in the troubled year of 1983. In 1988 tea production at 227 million kilograms came close to the level of production in 1965. It was as late as in 1990 that tea production exceeded the production level achieved in 1965, when the country produced 233 million kilograms.

Since 1992 tea production has displayed an up-trend. The change in management and ownership of the estates and the thriving smallholder cultivation of tea in the low country enabled this growth. The handing over of the estates to private firms to manage them in 1993 improved management of the estates to some extent. The significant up trend in production, however, began after the government privatised the estates in 1995.

Tea production increased from 232 million kilograms in 1993 to 242 million kilograms in 1994 and increased every year to reach 305 million kilograms in 2000. In 2002 tea production reached a record 310 million kilograms. The floods of last year affected tea production in the low grown areas. Consequently tea production declined last year to a little above 300 million kilograms.

Given good weather, tea production may once again reach 310 million kilograms this year. The growth in tea production on smallholdings has been more impressive than on the estates. Today smallholdings produce about 60 per cent of tea and their productivity is about twice that on the estates.

Although tea is no longer the highest foreign exchange earner, net foreign exchange earnings of tea are much more significant than what is suggested by the gross export statistics. It is certainly the second most important export, not that much behind that of garments.

Tea still continues to contribute about 2.5 per cent of GDP and employs a large labour force. There is further potential for production gains on both estates and on smallholdings. Low productivity on the estates, labour shortages, particularly for plucking, industrial strife and high management fees are the problematic issues that have to be resolved for the tea industry to continue to play an important role in the Sri Lankan economy.

Good international prices for tea would also be an important factor in strengthening Sri Lanka's capacity to increase the yield further.

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