The INSEAD Social Innovation Centre recently undertook a series of studies on Sri Lankan companies focusing on various aspects of their operations and in particular corporate responsibility. Last week we published a study on Hayleys PLC in 2009 and this week is the INSEAD study on Kelani Valley Plantations.
INSEAD quotes Kavi Seneviratne, Managing Director of Kelani Valley Plantations PLC (KVPL) as saying that ‘the full value of Ceylon tea’ has not been captured.
The company also believed that to support their sustainable strategy, they would have to get more value to support their initiatives. Inasmuch as Ceylon tea was already selling at a minimum 30% premium over tea from other producing countries at commodity auctions, greater value could not be captured at the commodity level. Therefore, a premium brand and control of the value chain from plantation to export markets was required.
The study says that this insight led KVPL to establish a strategic alliance with Mabroc Teas, a Sri Lankan branded tea exporter, through the acquisition of a substantial equity interest. The joint KVPL/Mabroc Teas team engaged Ravi Fernando, Director of Corporate Branding and Strategic Sustainability for the Sri Lankan multinational MAS Holdings, as a consultant.
Mr. Fernando proposed two key ideas. The first came from comparing teas to wines: “You don’t blend wines from two different countries. But that’s what multinationals were doing with teas, making blends focused on price. I said, ‘Let’s do the opposite and sell ‘single garden’ teas,’ from a unique origin.”
The second concept, he said was to use the brand as a platform to position it as ‘the world’s ethical tea brand’.
According to the case study, Mr. Fernando recalled that the initial response at KVPL was that Unilever, whose Lipton tea brand was the world’s largest seller, would bury the new brand. Their concern was reasonable – Lipton had begun sustainable agricultural and social practices on plantations in Kenya as early as 1997. However, Mr. Fernando argued that KVPL could apply far higher standards to its product on certain points than any multinational could attain: “They source from thousands of suppliers. They can never have the control (over practices and products) that we can. None of them can take this position away from us.”
The starting point would be purity – including the environment where the product was grown and the product itself. In the study, Mr. Seneviratne elaborated: “We give the guarantee of purity from the time you pluck the leaf to the factory floor till it goes to the exporter.” The ‘single garden’ concept of teas grown only one plantation, unlike the blends sold by global brands, reinforced the image of purity. It also drew attention to the unique flavour attributes of teas from specific estates, not unlike the difference among wines grown on different soils at different altitudes.
To turn purity into the foundation for an international brand, KVPL sought international certification of its environmental practices. KVPL’s food manufacturing systems were certified ISO 22000:2005. Land management practices for 13 different estates and food quality procedures at the firm’s tea processing centre were certified by SGS, a private organization based in Switzerland that calls itself ‘the world’s leading inspection, verification, testing and certification company.’
The case study says that KVPL also obtained Hazard Analysis and Critical Control Points (HACCP) certification, which accredits systems that focus on preventing physical, chemical and biological hazards rather than on finished product inspections.
Checking compliance with international ethical standards
KVPL’s General Manager for Business Development, Sutheash Balasubramaniam and Mr. Fernando focused on the 10 principles of the United Nations Global Compact as the basis for the new brand’s ethical platform. The Compact encourages businesses to voluntarily align policies and practices with the ten ‘universally accepted princples.’ These principles focus on human rights, labour standards, the environment and anti-corruption
Businesses should support and respect the protection of internationally proclaimed human rights; and
Make sure that they are not complicit in human rights abuses.
Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
The elimination of all forms of forced and compulsory labour;
The effective abolition of child labour; and
The elimination of discrimination in respect of employment and occupation.
Businesses should support a precautionary approach to environmental challenges;
Underytake initiatives to promote greater environmental responsibility; and
Encourage the development and diffusion of environmentally friendly technologies.
Businesses should work against corruption in all its forms, including extortion and bribery.
Partnering with the UN
The case study states that Mr. Fernando approached the United Nations (UN) with a proposal for conveying the Global Compact to all customers of Mabroc Kelani Valley teas by putting a leaflet inside each packet and using the programme’s logo on the outside. The leaflet would include the 10 Global Compact principles, the product’s pledge of purity and information on the ‘A Home for Every Plantation Worker’ programme. A share of the revenues from tea sales would be pledged to the programme.
The UN accepted. Tanky Wickremeratne, Chairman of Hayleys PLC, Bandula Jayasekera, Executive Chairman of Mabroc Teas and Mr. Fernando were invited to New York on March 19, 2007 to launch Mabroc Kelani Valley Plantations ‘Ethical Tea Brand of the World’.
Georg Kell, Executive Director of the Global Compact Office, called KVPL’s campaign ‘of global significance,’ adding that it ‘breaks new ground for us in many different ways. It is social marketing and ethical marketing but combined with implementation.’ Subsequently, KVPL set up a centre at Pedro Estate where visitors could review its environmental and social initiatives and sample six different single garden teas. The centre was named after one of those teas: ‘The Lovers Leap Ethical Tea Boutique.’