Financial Times

The cut-back in fertilizer subsidies by the government for sections of the tea industry, among other crops, has already begun to have an affect, but for the moment auction prices remain upbeat, even though there was a drop last month. But how seriously should the subsidy factor be taken and what else is happening in the industry as the half-year mark passes?

Both quantity and quality is being affected, said Malin Goonetileke, Secretary-General, Planters Association of Ceylon. “Since the subsidy decision, the recommended usage of fertilizer has dropped, leading to quantity and quality reductions. On the quality side the drop means nitrogen is not being replaced into the soil to the usual levels, affecting the number of leaves, while it also affects how succulent the leaves are; whereas now they are beginning to appear flaky and lacking a full flavour,” he said.

It seems, to get the combination right there should be 10 kilograms of nitrogen for 100 kg of harvest. “Even with a 5 percent drop, the loss to the industry more outweighs the subsidy savings. For those farming less than five acres, they have given up on the subsidy so things can only get worse,” Goonetileke said, adding that there had been progress in the talks with the government, but due to the escalation of security matters, subsidy talks have been put on hold.

As for rethinking the subsidy, Lalith Ramanayake, Chairman of the Tea Brokers Association, said without it the expected fall in production and quality is likely show a drop in foreign exchange earnings, more than in the subsidy payment. “If the benefit from the output is greater than the input, it would be prudent to continue with the subsidy,” he said.

Talks of a crisis are not unfounded, according to V. J. C. N. Udugampola, Tea Commissioner at the Sri Lankan Tea Board. “Since the announcement of the subsidy reduction, a lot of growers have postponed their application for grants to cover the cost of fertilizer, which has already had an affect on quality,” he said.

For Ramanayake, such moves (subsidy cuts) have meant that production did drop last month after a fairly healthy first quarter of the year. “And further impacts will be seen as we progress. At present the market has begun to ascend, which is customary in the third quarter,” he said.

If the lessening of fertilizer use continues, “production is expected to be affected as growth in the bushes will be retarded. The price for teas will be affected as quality declines. But at present there will not be a significant change due to the market,” Ramanayake said.

During the first period production grew by 6.1 percent overall, with low-grown districts leading the way, with slight drops for medium and high areas. Another factor to be remembered is that the second quarter usually sees a larger crop of slightly lower quality.

“The second quarter performance is naturally not up to the first quarter [where there is a 7 percent drop]. However, it is better than the second quarter of last year [a 6 percent improvement against all tea averages],” Ramanayake said.

The first quarter also saw a growth for CTC (crush, tear, and curl) and green tea, but according to David Jansz, a tea consultant at the Ceylon Chamber of Commerce, there was more emphasis being put on green tea due to the continuing growing demand for the crop.

"Sri Lankan green tea is pretty well accepted in the world market, whereas CTC tea is not. The country's main crop, 90-95 percent is orthodox black tea,” Jansz said.

After being first introduced in the Second World War, CTC these days has become the norm for use in tea bags as it lets the tea flow more quickly than normal, but the process makes the tea lose a certain amount of its delicate flavour as a result.

When it comes to value-added products, tea bags are still to the front, but as Jansz said: “The governments over the years have been promoting the product by offering concessions to encourage the growth of the value-added sector. The facilities available are first-class due to around 30 years of promotion, thus making the country these days probably one of the most developed for this product,” he said.

Ramanayake said that at present tea bags give the highest margin, where next is packetted tea, followed by small-value additions made to bulk teas.

When asked about developments over the European Union (EU)'s Hazard Analysis and Critical Control Point (HACCP) certification priorities, Janze said that the EU was, at this time, not being stringent of certification for produce that is of non-animal origin.

"The EU has indicated that it would like to see more adoptions to the regime, but presently not necessarily to certification,” he said, adding that as for the number of those actually with certification, that was difficult to know, but maybe 15 to 20. “There is no premise at the moment for the HACCP, but it will be reviewed at a future date, meaning those not certified will be ignored by importers.”

The figure of those certified is low because the majority of factories in the country are old and ill-equipped to make the jump to the certified level without incurring huge financial debt that they would not be able to afford, without grants. “There are none to help facilitate the process at this time”, Jansz said. (RI)

Udugampola agreed over the number certified, but he put it even lower at around 12. “The reason it is difficult getting the right figure is that even when a factory gets certified it doesn't necessarily let us know.” And there is more than one certifier out there.

Another problem facing the industry, and here you can include spice, rubber and coconut, is a labour shortage due to younger generations these days not wanting to follow their parents into the plantation, but rather move to the cities or “better” jobs.

"There is a grave concern here, but there is little that can be done. The industry is looking at upgrading the status for those working, changing the job titles to sound more appealing, and so on, but it's difficult,” Jansz said, adding that even trying to use mechanised equipment was difficult due to the very undulating terrain where the tea is grown.

"For Kenya this is a lot simpler as the majority of tea is grown on a plateau. We are not so lucky,” he said.

And talking of Kenya, Jansz expected Sri Lanka to reclaim its place as the world's second larger producer, after India, by the end of the year.

.”But the last word goes to Ramanayake. When asked about the outlook for the coming quarter. “The market looks bullish and attractive for the third quarter.