Is Sri Lanka turning into a coffee-drinking nation from traditional tea-drinking? Pundits in the industry and some state officials seem to think so. Hence a new campaign to promote tea locally with the setting up of a chain of tea shops to promote the local drinking habit. One of the arguments being trotted out is [...]

The Sundaytimes Sri Lanka

Sri Lankans: Are we tea or coffee-drinkers?


Is Sri Lanka turning into a coffee-drinking nation from traditional tea-drinking? Pundits in the industry and some state officials seem to think so. Hence a new campaign to promote tea locally with the setting up of a chain of tea shops to promote the local drinking habit.
One of the arguments being trotted out is that tea industry authorities are worried about the proliferation of coffee cafes and the increasing consumption of coffee at funeral houses.

Is this an accurate assessment of beverage consumption trends in Sri Lanka or is this a Colombo-centric view?

While coffee houses are essentially in Colombo and the suburbs and rarely frequently by the ‘working’ class, ‘Nescafe’ is also not the drink of choice in funeral houses in rural homes.

If so are the authorities getting their ‘knickers in a twist’ and using funds from a promotional levy that was originally intended for the promotion of Ceylon Tea overseas?

According to the latest 2012 data, Sri Lanka produced 326.3 million kg of tea last year of which 319.9 million (320 million) was exported with six million being consumed locally. Four years ago in 2008, tea production was 318.7 million kg while exports, curiously, was more at 319.6 million kg, according to Central Bank data. This proves that consumption has increased in recent years while exports have remained unchanged. How does one explain local consumption trends in the 2008 data which reveals that all that Sri Lanka produced was exported? Two reasons (though this is not the focus of today’s column); Export figures could include carry-forward contracts while a large quantity of rubbishy and good tea sold in the ‘unofficial market’ is not captured in the official data. Hence the discrepancy in statistics which could also mean Sri Lankans must be consuming more than the 6 million kg reported in 2012.

Furthermore in the past decade, the tea industry has been more innovative and local brands like Dilmah and Mlesna have thrived in local markets after initial focus on branding and sales abroad.

Domestic consumption of tea, thus, hasn’t reduced as the figures show. Yes coffee drinking is threatening tea consumption … but overseas not locally. The other argument justifying the creation of tea shops is the influx of tourists in the country. The Sri Lanka Tea Board-owned shops to be managed by the private sector aims to capture the one million-plus tourists in the country and promote the tea-drinking habit. This is a reasonable assertion though a counter-argument is that the funds being used for all these campaigns were essentially for an overseas campaign.

On the other hand, rather than use funds intended for a global tea promotion campaign, a more practical option would have been for the Government to encourage the private sector to set up tea houses across the land similar to the ones that are available in the plantation areas, offering attraction tax concessions. By doing so, the tea trade would have been less taxed.

The intention of the new cess was reported in a Business Times story in September 2010 where the Sri Lanka Tea Board Director General said a new levy of Rs.3.50 per a kilo from tea sales would be collected to launch an aggressive and promotional campaign for Ceylon Tea. He was quoted as saying that a committee would be appointed to devise a strategy to rebuild the image of Sri Lankan tea in the world (global campaign).

The need for a new tax on tea sales came soon after the Treasury acquired sole rights to the tea cess levy of Rs.4 per kg which was earlier collected by the Tea Board and used for all its promotional activities including attending overseas trade fairs.A similar decision, at the time, was enforced on the Tourist Board with the cess being taken over by the Treasury, leaving state tourism authorities with zero funds for promotion. In both cases, the two agencies now have to approach the Treasury for funds for their work and as seen in the past; they get a pittance. While the Tourist Board has struggled under this new structure, the Tea Board came up with the new levy proposal to fund its promotions.

The call for global advertising agencies for a campaign to promote Ceylon Tea floundered after at least four advertising agencies were shortlisted. It appears that the final selected party was not too much to the liking of government politicians, arguing that this organisation was ‘close to the opposition’. A second advertisement appeared a few weeks back from the Tea Board calling for bids from local agencies. The ad didn’t give details. Is the pitch for a local, tea promotion campaign?

If this pitch is in line with the plan to set up tea shops across the island, with funds from the promotional levy, then one needs to ask a pertinent question: Is tea production increasing in Sri Lanka to meet this new ‘local’ demand that the authorities envisage to create with such a campaign?

Of would rising local consumption be at the risk of reduced exports? The plantation sector is struggling to survive with an archaic, wages-controlled model that is bursting at the seams. Tea output hasn’t also increased because the cost of production is high and fewer individuals or companies are entering this sector. Furthermore has the committee, charting a new course for Ceylon Tea, taken into account the rising cost of preparing a cup of tea in a household with today’s phenomenal energy rates (use of expensive firewood, LPG or electricity)? For the record, per capita consumption of tea in India is 0.71 kg while in Sri Lanka it is 0.35 kg. Tea here is now costlier to drink than some ready-to-make beverages.

For all these simple reasons, the rationale of tea houses to promote the local tea drinking habit doesn’t make any sense. The purpose, then and now, of the 2010 tea levy also needs to be clearly explained, as the strategy seems to be changing all the time.

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