Consequent to the nationalisation of the plantation sector commencing with the Land Reform Law No.1 of 1972 followed with the Land Reform (Amendment) Law No. 39 of 1975, the agricultural sector failed to meet up with the challenges required to raise productivity and competitiveness. The tenure during the state ownership was characterised by huge financial losses, increasing costs, and a marked decline in production.

It was to remedy these ills, that the government took this courageous step. The initial decision was only a partial relinquishment of the two major state plantation corporations. Contracts signed in June 1992 were the first steps towards full-fledged privatisation. The initial five-year arrangement limited long-term investment, but the issue was finally settled in 1995. The period of the lease was extended to 50 years with the option for further renewal. The 20 plantations, has now settled down to face the winds of change.

Tea is labour intensity, horticultural industry where million of people in the developing world procure their livelihood. The price hike spiral that seems to have engulfed almost all consumer products appear to have left tea intact and unaffected. All inputs required for its propagation on the other hand have been on a steady rise. Tea prices that should have moved up in sympathy unfortunately have remained static and in some instances they have declined. This situation has remained a virtual nightmare to tea producers as their foreign exchange is on a constant decline.

Nature too has been exceptionally kind to Sri Lanka and has imparted to the country two well- defined monsoons that help in the production of a variety of teas that cannot be produced elsewhere. The rich soil, cool climate, pure water, the geographical position of the country, the terrain of the land all combined has provided this country with all the ingredients if properly used could service the top end of the global quality market.

It is most unfortunate that this aspect is not fully exploited by the producers. They have failed to trap the vast variety of flavours and aromas, which is synonymous with quality. Our skills in the production and manufacture of tea is appreciated but we have in most instances failed to benefit from nature’s gift in offering a diversity of teas that could be exploited by man. Sri Lanka is capable of producing some of the most sought after teas in the world. If a comparison is drawn, Tea is like a Wine”, a living commodity, but the assertive difference is the price tea is obtaining at the present moment. It needs to be taken to a higher plane. This could only be achieved by offering a better product that is unique to Sri Lanka.

Consequent to the nationalisation of the plantation sector commencing with the Land Reform Law No.1 of 1972 followed with the Land Reform (Amendment) Law No. 39 of 1975, the agricultural sector failed to meet up with the challenges required to raise productivity and competitiveness. The tenure during the state ownership was characterised by huge financial losses, increasing costs, and a marked decline in production.

It was to remedy these ills, that the government took this courageous step. The initial decision was only a partial relinquishment of the two major state plantation corporations. Contracts signed in June 1992 were the first step towards full-fledged privatisation. The initial five-year arrangement limited long-term investment, but the issue was finally settled in 1995. The period of the lease was extended to 50 years with the option for further renewal. The 20 plantations, has now settled down to face the winds of change.

The prime concern of the new management companies was to bring back the fields from the stagnant levels of the mid 1980’s. This involved the adoption of a package of improved agricultural practices. This has resulted in a definite upsurge in tea production following privatisation. The accomplishment of the field technology practised so far though not spectacular are nevertheless encouraging, and records an almost 2 % increase over the past six years. It must however be stressed that the systematic replanting and infilling that has taken place over the past six years, will yield results only at a later date and remains a long-term investment.

Improvements in factory technology were the next consequential task undertaken by the management companies. Extension of factory capacity was a necessity, but the most daunting task ahead of them was to re-establish the image of Sri Lanka teas in world markets. They are very much into it now, and the introduction of modern machinery with new processing management systems, will ensure product consistency in the long run, and before long these measures taken will help to enhance the quality aspect in Sri Lanka teas.

Another healthy impact on the ownership change is the increasing dependence by the tea sector to market forces and the tearing down of the regulatory framework introduced by the government previously.

A disappointing feature in the prevailing marketing structure of the management companies however is the indifference expressed so far in reworking their marketing strategies in the face of strong competition from other producers.

This subject should serve as a determining factor that calls for immediate action. In other developing countries, deliberations involving privatisation, always lead to the promotion of more dynamic approaches to marketing. The essence of these changes is to do away with or at least reduce the dependence on intermediary agencies with a view to reaching the ultimate consumer direct through value-addition at source, brand promotions and joint ventures.

It is most unfortunate that very little has happened at the macro-corporate level in this regard. Sri Lanka’s status in the world market, as an exporter of bulk tea needs to be altered in favour of one that is associated as an exporter of high quality value-added teas. This crucial step forward, amidst foreseeable changes to consumer preferences and lifestyles, is essential for the future stability of Sri Lanka’s tea industry.

Past trading patterns highlight a bias towards trading teas in world markets as opposed to marketing of tea. With globalisation and its ensuring changes, there is an immediate need for Sri Lanka to respond to newly emerging international trends. The failure to do so may lead to a gradual decline of the country’s export status.

They should now focus their attention on blending, packaging, and labelling, and branding the tea export products. These down-stream operations are expected to enhance the export earnings of the country. In addition, this move should also provide employment opportunities at the same time develop a string of feeder industries that are new to the country.

Another burning issue that is freely discussed today is the implications of liberalising tea imports. At the present moment, speciality teas not produced in the country can be imported for blending to enrich Sri Lankan products. Orthodox teas that are produced locally are not allowed to be imported as a section of the tea trade and industry feel that such imports will have a negative impact on the very attractive prices currently fetched by the local teas at the market place.

It is argued that blending imported and local teas and re-exporting multi-origin teas of a diverse range of tastes, and prices will result in an increase in the net foreign exchange earnings. The argument goes further to state that there will be a series of macro-level benefits accruing to a string of auxiliary industries that are bound to grow as a result, such as packaging, advertising, transport, as well as banking and shipping thereby bringing about an overall increase in the employment potential in the tea and parallel industries.

This subject emerged as a major topic during the post-privatisation era. This topic has been the subject of several studies undertaken by the Central Bank, the Colombo Tea Trade, and the Institute of Policy Studies, but all these investigations remain inconclusive for arriving at a policy determination. The opinions among the stakeholders remain strongly divided. Pending a policy decision, the only option available to the trade is to concentrate its efforts on value addition to Sri Lanka teas and focus on the possibilities of brand development to uphold the competitive advantage derived from the image and quality of Ceylon teas.

All seems well for the tea industry, but it must not be forgotten that tea is an internationally traded commodity, and the future of the tea industry depends to a great extent on factors that may not be visible on the outer surface in the international arena, but factors that will affect the marketing of our teas.

One cannot expect radical changes to take place overnight, but with the vast developments taking place in the field of communication, the old age marketing systems could get a battering. All this has to be studied in relation to the economic order we are living in today. We cannot expect bread to fall from heaven in the next century, and financial markets to remain turbulent until the economies of the major countries improve.

The Far East is very much into a depression, and the West is slowly but surely heading towards a recession. As we look into this tangled outline of world affairs, all one can see is a hazy picture, as though the world is suffering from an epileptic fit. The world seems to be in disorder, and vast changes are taking place in the world’s major economics.

As for Sri Lanka, we are caught up in an entanglement of international repercussions, and our salvation depends on our ability to disentangle ourselves from this web through our own native resourcefulness.

When 1998 dawned, the future of our agricultural products looked prosperous, and ambitious plans were drawn up for its future stability. Prospects looked absolutely bright, but the few months of prosperity came to an abrupt end during the second quarter. The Rouble crisis that was simmering for some time boiled over in June. With this crisis all hopes for the future were shuttered, and the tea producers in particular were forced to view the events that were going to unfold differently. In addition to sending disturbing signals to the local tea trade, the world financial markets that were already in a weak state got into a spin.

The tea industry struck a bad patch, from about June 1998 through to the better part of 1999. The year 2000 was a favourable year for the tea industry, but the tea prices had once again started to dip. In addition, tea producers are called upon to face wage hikes so very often. The labour needs to be looked after, but a relationship must exist between wages and productivity.

Costs are on a steady rise, in all operational areas. In addition to spiralling costs, the latest blow is the GST introduced in 1998,which pushes the cost of production by almost Rs, 2.00 per kilo. The GST currently in force has placed further burdens on the industry and has caused a negative impact on cost of production, as the Regional Plantation Companies are unable to claim the GST charged on the inputs.

The steady depreciation of the local rupee in relation to our main trading currencies made our teas appear very competitive in world market but these prices could not however be matched with an equivalent improvement in dollar terms. With all these price increases in rupee terms, Sri Lanka has still failed to reach the unite price of $ 2 with the total average for our best seller, low grown moving up to Rs. 158.23 in December last. It appears as though the depreciation of the local rupee has failed to obtain the desired results. Today, teas are available for less than a dollar at the Colombo auctions.

The international marketing configuration has changed considerably in the recent past, and the rank order of our major buyers is continually changing. From a fairly consistent order that existed two decades ago, we are now encountering a complete change to the profile that existed earlier.

Producers in Sri Lanka are very sensitive to the slightest downward pressure on tea prises at the market place. Our cost of production is about the highest in the world; with the result our local tea producers are working within narrow margins. Although our tea prices are commanding exceptionally good prices in relation to teas of other origins, the current situation could drive most producers into financial difficulties.

Trading has got more diversified in the recent past, and under such conditions' markets can get extremely flighty, resulting in remarkable price discrepancies. Tea prices have now reached depressed levels, but salvation is still possible provided costs remain constant and productivity is made to increase.

There is however a silver lining to this dark cloud. According to a FAO projection, the supply demand equations that had been lop-sided during the past few years are expected to correct itself over the next five years. World production of tea is expected to increase by 3.1% by the year 2005 mainly due to higher yields. Tea consumption on the other hand in the developing world is expected to outstrip the intakes of the developed world and counted upon to record a more than 3% increase.