Rohan Pethiyagoda, Chairman, Sri Lanka Tea Board: Interview

Interview: Rohan Pethiyagoda

How can Sri Lanka insulate its value chains from volatility in global markets?

ROHAN PETHIYAGODA: Because tea is treated like a commodity, it is affected by global trends, which in turn impact our industry. So long as tea remains a commodity, getting a better foothold in global markets will be difficult. We must transform it into a specialty beverage, something coffee producers have been able to do because they have associated themselves with large buyers like Starbucks, which are raising coffee expectations higher. A third of our tea exports are now value-added and we have some truly global brands: but we need more. So Sri Lanka needs to find itself a niche or multiple niches in the global beverage market, instead of manufacturing bulk tea and putting it on the market. This is a crude way of going about our business, and we have done it for a century and a half, but we need to adapt to a new way of operating. We have to encourage producers to tell consumers what is special about their tea. Sri Lanka is well positioned to do this compared to a country like Kenya. They have about the same acreage of tea as us, but each factory there services about 1500 ha of tea. In Sri Lanka it is only 255 ha per factory, so you have a lot more control of local variables and a large number of factories with the same amount of land. We have 700 potential labels for Sri Lankan teas, very few of which translate into brands. In the future we must have identifiable brands, which will be treated with respect rather than as mass-market commodities.

Do you see the potential for the true liberalisation of the tea industry in Sri Lanka?

PETHIYAGODA: There are two very understandable arguments. I would like to see markets as free as possible because I believe market forces work, and the industry needs a little creative destruction. The worst thing we can do is try and become protectionist and think only in terms of the interests of one group.

However, you have to balance that reality with the fact that there are hundreds of thousands of people whose livelihoods depend on this industry, and these are not rich people. You have to be socially conscious enough to not damage too many people as a result of allowing market forces to flourish. I think the answer to all these questions is to try them piecemeal and see what the reactions are. We can control it and learn, and if things go well, open up the system a little more. Everyone from regional plantation companies to buyers has their own interests to protect. The job of the Sri Lanka Tea Board is to protect them all.

How can Sri Lanka compete against low-cost producers like those found in Kenya?

PETHIYAGODA: There is not a way out on cost of production. Kenya has a huge productivity advantage. Part of that advantage is that Kenyans pluck nearly 50 kg a day, which is two and a half times the Sri Lankan average, and they can achieve that because they are mechanised. They are growing tea on easier terrain, whereas we have tea growing on steep hillsides. Kenyan tea workers also earn substantially less than their Sri Lankan counterparts, especially considering that our industry provides free housing, health and education. So our main competitor incurs much lower labour costs while enjoying more than double our productivity, which puts us at a huge disadvantage.

What are the biggest priorities for the disbursement of the Tea Promotion Fund?

PETHIYAGODA: The Tea Promotion Fund presently stands at LKR5.5bn ($39.6m). It has accumulated over many years, due to careful management. Later this year we plan to launch a global television, digital-media and PR campaign across the principal markets in which we are looking at strong growth, with a view to reinforcing the brand-image of Ceylon Tea, focusing on the fact that this is the purest tea in the world.