Good news about the economy is rare. One should add good factual news about the economy is rarer, for often there are views and optimistic assessments that are no more than political rhetoric in the garb of authentic and professional expert views.
The good news we celebrate in this column is not news of what may happen, not views of the economy, not a dubious statistic as for instance, the economic growth rate that has been questioned, but an actual good performance in the economy that is indisputable. It is also good news that may auger well for the future of the country.
In the first half of this year, tea production increased by nearly 20 percent from that of last year. Tea production during the first half of this year reached 171.3 million kilograms surpassing the 143.6 million kilograms for the first half of last year by 19.3 per cent. If this level of production can be kept up in the second half of the year, a new peak production of around 340 million kilograms could be expected. The previous peak tea production was in 2005 when it reached 317 million kilograms. Such an increase in production at a time when export prices for Sri Lankan teas are rising would do much for the trade balance and balance of payments.
 Tea prices have been buoyant from last year and contributed to most of the increase in agricultural export income. The net sales average of Rs. 337 in 2007 was 23 per cent higher than in 2006. The net sales average has increased in the first six months of this year to exceed Rs. 400 per kilogram. The most important increase in export earnings this year was agricultural exports and the increase in tea export earnings was prominent among these. Agricultural export earnings increased substantially by 34.9 per cent in the first five months of this year with tea export earnings contributing most to it by an increase of 42.6 per cent. A lower volume of exports from Kenya due to a decline in tea production caused mainly by political upheavals was an important contributory factor in increasing international tea prices. The demand for tea from oil producing Middle Eastern countries, Russia and East European countries were other significant factors in the increase of tea prices.
A growth in tea production would have a beneficial impact on the economy’s growth both directly and indirectly. Tea production contributes about 4 per cent to GDP and is a significant part of the country’s agricultural output. Tea has had a chequered history. In the 1960’s the tea industry reached its summit and soon after there was a continuous trend for decline. This is particularly so in respect to tea grown on the plantations. Then, since 1990 with the privatisation of the management of the plantations there was a revival. The main boost to tea production has however come from tea smallholdings that now produce about 65 per cent of the country’s tea.
In 1963 the country produced 233 million kilograms that dwindled to 209 million kilograms by 1989. Since then there has been an upward trend both due to better management of estates by private companies and the development of tea smallholdings. It continued to increase and in 2005 a peak production of 317 million kilograms was reached. Tea production remained around the 300 million kilogram level since then, with changes mainly accounted for by weather conditions and labour unrest. Last year’s tea production was 307 million kilograms. If tea production reaches 340 million kilograms this year it would be 7 per cent higher than the record tea production of 2005. The larger contribution to tea production on the small holdings has been one of the stabilising influences on the economy.
These small holdings are more productive than the average estate and their teas command high prices. The current high average price for teas at US$ 4 or over Rs. 400 per kilogram is one of the benefits of the oil price increase. Tea consumption has gone up in oil exporting countries many of which are tea consuming countries. Besides this the rapid economic growth and higher per capita incomes have led to an increase in tea consumption that has benefited the international tea maket. Nevertheless, China, a traditional tea consuming country has witnessed an increase in the consumption of coffee as well, especially among youth. Political instability in tea producing African countries has also helped in restraining an increase in the supply of tea.
These favourable developments mask serious problems in the plantations. There are several problems on the plantations that result in their productivity being low. Yields on tea estates are much lower than the yields in other countries. The senility of tea bushes, low rate of replanting with the higher yielding vegetatively propagated varieties (VP), and low density of tea bushes owing to difficulties of finding labour for infilling, are among the problems. Labour problems abound on the estates. There is a shortage of labour and high rates of absenteeism.
The required investments in tea replanting should be made at the time when the industry can afford it. However replanting of senile tea areas with VP teas involves a loss of income. When prices are high there is a disincentive to undertake these due to the higher losses in income. The government must therefore make replanting attractive by increasing the replanting subsidy and adopting other policies that ensure high yields in the future. A more effective subsidy for replanting tea should be devised to ensure long run viability of tea estates that are only about one half as productive as small holdings and less than those of other countries like Kenya and India.
The current good performance in tea production and high international prices for tea should not blind us to the serious problems of the tea industry. These include the low productivity on many estates, problems of labour shortages and labour unrest, lack of long term development programmes and inadequate research and extension to ensure continuous increases in productivity to decrease production costs and increase profit margins. There are of course serious social problems on the plantations, where poverty is highest, alcoholism is endemic and social and human development levels are unacceptably low. The boom in tea prices is an opportunity to invest in the industry and undertake reforms that would make the industry viable and sustainable not only in economic terms but socially as well. Despite the high prices for tea and record earnings from tea exports, the long-run viability of the plantations is in question. The government and the tea industry must turn its attention to the fundamental problems facing the industry. |
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