Tea crisis brews
in the south
GALLE - Smallholders
and private tea factory owners who produce the low growns that are
the mainstay of the Ceylon tea industry are still in difficulty
although prices have revived at the Colombo auctions following the
end of the Gulf war and renewed demand from Middle Eastern buyers.
The cash flow
crisis brought on by the sudden slump in demand in the run-up to
the US-led war against Iraq that resulted in large quantities of
teas being unsold and a sharp fall in prices is yet to end.
fear that some of the effects of the shocks triggered by the war
would only be felt towards the end of May and early June when payment
is made for leaf supplied in the previous month under the peculiar
payment formula governing the sale of green leaf and manufacture
of black tea.
complain that many bought leaf factories are not accepting or have
reduced their intake of green leaf, partly because of the crisis
caused by the Gulf war and partly because of rush crops following
the April holidays. Private tea factory owners say they are deeply
in debt and are struggling to survive.
factories have not been accepting leaf after March and pay only
Rs. 15 a kilo for green leaf - less than half that paid in April
2002," said E.G. Ratnapala, a smallholder in Neluwa.
were forced to throw leaf on the ground since some factories were
not accepting even two leaves and a bud, he said. He charged that
green leaf collectors and bought leaf factories cheat smallholders
by not weighing the leaf properly and making excessive deductions
for moisture, transport costs, and the weight of the gunny bag -
a perennial complaint in these parts.
a labourer plucking half an acre on land owned by the local temple,
said he needs to earn around Rs. 26 a kilo of green leaf to make
a profit, given rising costs, especially that of fertiliser. But
he is thankful that at least the factories in his area are buying
Tea is the
mainstay of the economy in the south with small plots of tea in
the gardens of homes even in Galle town. Elsewhere in the district,
as one travels along narrow winding roads towards the interior and
up into the hills bordering the Sinharaja rain forest reserve, one
can see homes surrounded by tea bushes - at the front, back, on
either side of the pathway leading to the front door.
In the morning
smallholders or hired labour - both men and women - can be seen
amidst the leech-infested tea bushes, plucking leaf. The plucked
leaf is taken to collection centres or factories in the evenings
- carried on the shoulder, on motorcycles or in vehicles. Or else,
smallholders wait for the trucks or tractor-trailers sent by bought
leaf factories to pick up their green leaf.
The money earned
is not grand but enough to live on, especially since most villagers
also have their own small plots of vegetables and fruit trees.
of Pelawatte, a town that becomes a hive of activity in the evenings
when smallholders bring their leaf for collection, said the factories
to which he supplies leaf had not paid him since February because
they had been unable to sell their teas at the auctions owing to
the Gulf war crisis.
a middleman who collects green leaf from smallholders and sells
it to factories, said smallholders got only Rs. 15 a kilo in March
for leaf supplied in February and that factories which used to accept
40,000 kg now limit their intake to 10,000 kg. Payment for leaf
supplied now would only be on June 10. Many smallholders had been
throwing away their crop since the New Year because factories were
not accepting green leaf. He estimated that up to 80 percent of
smallholders in his area had stopped plucking.
prices may have recovered in the Colombo auctions but the recovery
is still not felt in the villages," he said. "The next
few weeks are going to be critical unless there is some relief from
of the district were more badly affected than others. Smallholders
supplying leaf to factories that get good prices at the auctions
for black tea are better paid. Elsewhere, smallholders are struggling
with much lower income and factories not accepting leaf.
a private tea factory owner who processes mostly his own leaf at
the Handunugoda Tea Factory near Dikkumbura, said tea brings a lot
of cash into the villages.
burden of some factory owners is so high that it is barely serviceable,"
he said. "If banks move to recall their loans the industry
will collapse. Some people are so deeply in debt that if they stop
manufacturing for a day they're finished."
Part of the
problem is the excess manufacturing capacity in the district. There
are 160 factories in the Galle district alone and many are not doing
more than 40 percent of capacity.
have already closed while others are being offered for sale.
have gone up while the sale averages have come down," Gunaratne
Dr. Sarath Samaraweera, chairman of the Private Tea Factory Owners'
Association, estimates the industry lost Rs. 600-700 million because
fairly big quantities of tea remained unsold or sold for low prices
either for lack of orders or bids that were too low.
of people got into difficulties. Some factories either closed down
or cut back production," Samaraweera said.
offered to subsidise half the interest cost on working capital loans
but many factory owners already indebted to banks were not able
to make use of the facility.
Now the market
is full of tea and factories are flooded with green leaf especially
with the rush crops following the New Year holidays in mid-April
when there was no harvest for over a week.
are not accepting leaf because of the excessive quantities on offer
and the poor quality of the leaf.
also want to be careful," said Samaraweera. "Profit margins
are so low that we do not want to buy poor leaf."
signs of the crisis in the southern tea districts were evident during
a recent visit. It is not uncommon to see tea bushes not plucked
for weeks growing taller than usual, with uneven tops. Factories
are insisting on good quality leaf - only the two leaves and a bud
- whereas they might have accepted more leaves previously. As a
result, not only are smallholders selling fewer leaves they are
getting paid less for better quality leaf.
former chairman of the Tea Smallholdings Development Authority,
warned that low prices earned by smallholders could create social
problems in the villages.
will be felt by smallholders only towards the end of May and the
first week of June when payment is made for leaf supplied the previous
month," he explained.
trees, which can be abandoned in times of low prices, tea bushes
need to be plucked in a regular 5-7 day cycle. If not the bush grows
tall and produces fewer buds, becoming less productive.
a former tea factory owner and exporter, said that many in the industry
might find it difficult to recover when the market picks up later
on unless government support is immediately made available in the
form of working capital loans to factory owners so money can go
are wound up smallholders would not be able to sell their leaf.
"Then it would be too late to help them," he said.
that the privatised regional plantation companies, which previously
did not manufacture bought leaf, were now competing with private
tea factory owners. Furthermore, the competition was unequal since
the RPCs have access to low cost funds from foreign donor credit
should be liberated from government controls," he said. "We
can sort out the crisis but let us sell in the open market without
need to be lower and some degree of subsidy must be provided for
smallholders, he added. "The RPCs got aid when they were privatized.
So now the government must support smallholders."