Hot coffee and cold tea
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During a recent meeting, some of us ordered tea while others opted for coffee. Prof. W.N. Wilson who is now retired from the university was also with us. While sipping a cup of tea, he started to share some thoughts on coffee. Listening to our older generation always brings new insights and in this context I was keen to hear what he had to say.
Prof. Wilson had done his postgraduate studies in the Netherlands in the late 1970s. A few years later, he had an opportunity to go back to Europe again and in doing so made a little detour to visit his Dutch friends in the Netherlands too.
As these friends were special and he was visiting them after some time, he wanted to take some special gifts for them. He knew that they were fond of coffee, not tea even if it is “Ceylon tea”. Besides, they were used to “tea bags” which were difficult to find those days in the local market. He then bought a few kilograms of coffee beans and, dried them, roasted, ground and, made pure coffee – “home-made pure Sri Lankan coffee”.
He took it as his special gift to the Dutch family, with whom he was going to stay a couple of days. After receiving the gift – home-made pure Sri Lankan coffee – they too were excited and, thought of sharing the excitement with neighbours. They immediately called their neighbours and invited them all for an “evening get-together with Sri Lankan coffee”.
At the Sri Lankan coffee evening, everyone was served with a cup of coffee. A first few sips and… Ooops! It didn’t go that well, because nobody liked the taste of coffee. Then, they tried it again and again with milk as well as various kinds of coffee cream, coffee liquor and coffee syrup. But, to the embarrassment of their young Sri Lankan friend – Prof. Wilson, it didn’t go down well at all.
Coffee for the rich
Prof. Wilson added his concluding remarks: “I am not sure whether we have a different coffee variety here, but definitely we don’t have the advanced coffee-processing technology. Although we are used to this ‘charcoal taste’ of Sri Lankan coffee, obviously it doesn’t go well with the international consumers who are used to the taste and aroma of international coffee brands.”
Europeans drink the best coffee in the world, which is produced in South American countries. Such coffee is rare in Sri Lanka, thanks to import controls. Just a cup of coffee from one of the few coffee shops in the town would cost Rs. 500 or even more on average, compared to Rs. 50 or less that we pay for a cup of Sri Lankan coffee. Even if imported coffee powder is available in a handful of supermarkets in the country, the average Sri Lankan consumer cannot afford to buy it. The price would be Rs. 2,000 – 3,000 for a 250-gram pack mainly due to high import taxes.
If we reduce import taxes on coffee, imported coffee would be cheaper and, some people may turn to drink high quality imported coffee. Then, local coffee prices may fall so that local coffee growers get affected and, the local coffee industry will have a hard time. For this reason, we must keep the import taxes high and, drink local coffee, leaving the imported coffee for the rich only.
Some high-end Sri Lankan coffee products.
The above is not the only outcome of reduced import taxes; there is another possibility to ensure the production of high quality coffee. Local coffee growers and coffee manufacturers might be able to learn how to produce high quality coffee. Perhaps, some of them might start producing high-quality coffee competing with Brazilian or Colombian coffee in the international market. But giving a hard time to the coffee industry is not a “politically correct” thing and thus its better to continue consuming our local coffee, leaving the imported coffee for the rich. However this would mean “Sri Lankan coffee” will never be a competitive product in the international markets.
Ceylon coffee versus Ceylon tea
The bad news for Sri Lankans is that coffee is more popular in the world than tea and, it is becoming even more popular among younger generations. There are “coffee shops” all over the world and, international chains of coffee shops too. But it is difficult to find “tea shops” on that scale. There are “coffee-brewing machines” which are very common at coffee shops as well as at homes, but we have never heard of a “tea-brewing machines”. In fact, coffee has become the second most-traded commodity in the world, after oil, while tea is not among even the top-10 most traded commodities.
There is, however, good news too: More than half the world’s tea is consumed in Asia, where tea demand has been rising with the Asian economic growth. However, we must also take into account the distinctions among green tea, black tea, and flavoured tea which are not close substitutes to each other.
British planters had actually commenced coffee plantations in Sri Lanka in the 1820s, before they introduced tea about 50 years later. Then, coffee plantations thrived making Sri Lanka one of the major coffee-producing nations in the world by the time it was devastated by the Hemileia disease in the 1860s. If not for Hemileia, Sri Lanka would have been known to the rest of the world for “Ceylon coffee” and not for “Ceylon tea”.
How did we succeed with Ceylon tea? In order to find an answer to that question, I had promised to meet Kamal and Ravi – two industry experts known to me.
From economics to politics
We met at the Colombo Golf Club, and ordered tea, not coffee. I asked : “How did we succeed with our Ceylon tea? Did we do well in the midst of global industry dynamics?”
In his comments, Kamal said we probably did well until 50 years ago. We were the best black tea supplier in the world under the name “Ceylon tea”. But things started to change after the 1970s. World demand-supply conditions changed, but we did not.
While we think that “Ceylon tea” is the best, on the contrary, international demand in this area has changed a lot.
According to old tea-drinking tradition, you take a few spoons of “loose tea” and prepare a “tea pot” enjoying its soothing aroma fragrance. After the 1970s, the world started moving into “ready-to-drink” (RTD) tea bags. It was also the time that Kenya emerged as a new competitor. Kenya produced RTD tea which was quicker in strength and colour in brewing a cup of tea.
International demand changed: New competitors emerged catering to new international demand. But we were still confined to our traditional bulk tea sales.
It was during the same time that we nationalized our tea estates, chasing away British plantations companies and creating two issues: The government-appointed new managements didn’t know much about tea. We continued to lose our brand name – Ceylon Tea, against the new competitors who were changing with world market dynamics.
The second was that we made our tea industry a political problem. Changes in world market prices, use of agrochemicals, plantation wages – all are more political than economic issues which meant the government and the tax payers were brought into the picture to deal with these issues. It has become an industry working for the politics of the country and not for economics of the country.
Attempts to change in order to cater to the changing world market demand have also been subject to politics. Some companies which started to produce blended RTD tea bags closed down their factories and left the country and relocated in West Asia, just because of the regulatory barriers against blended tea.
Neither coffee, nor tea
There have been a few initiatives by some local companies to move into value added and diversified tea markets. However, their contribution is marginal in the given size of the international tea market today.
Even though the international coffee market is much bigger than the tea market, tea is still a big market for Sri Lanka. However, for Sri Lanka to remain a significant player in the global tea market, it has to be in line with changing global demand on the one hand and, be free from the grip of politics on the other hand.
(The writer is a Professor of Economics at the University of Colombo and can be reached at sirimal@econ.cmb.ac.lk and follow on Twitter @SirimalAshoka).