Sri Lanka’s tea factories are facing continued pressure to cease operations with 62 factories already being forced to shut down since 2018, driven by the dwindling tea prices and stagnant green leaf production, which is further exacerbated by the self-inflicted industry malpractices compromising the quality of Ceylon Tea. “As per the Colombo Tea Brokers Association data, there were 707 factories in operation in 2018. Out of which, approximately 62 factories have ceased to operate as at to date.
In response to this dire situation, now some factories operate only two or three days per week. Some are servicing only the bought leaf suppliers and not the debt repayments. Often, leaf payments are delayed and there are unpaid green leaf payments, unpaid bank loans and loss of employment, etc.” Sri Lanka Tea Factory Owners Association (SLFOA).Immediate Past President Harith Ranasinghe said.
He pointed out that the main factor for this crisis is lower auction prices, which has declined by Rs.146 within a span of 16 months. During the same period, the average auction price for low country teas had also declined by Rs.130.
The static green leaf production levels have also contributed to the current crisis in the industry as the tea production remained stagnant after peaking to 338 million kilos in 2014.
“Industry malpractices and indiscipline amongst most stakeholders, including some factory owners, must have contributed to this huge downturn. We have to reluctantly accept that the quality is not good as what was a decade ago,” Ranasinghe acknowledged.
He made these remarks addressing the 29th Annual General Meeting of the SLFOA, in Colombo,last Saturday.
Tea factory owners borrowed billions of rupees when the lending interest rates were on single digits and they now struggle to service their debts.
“We invested heavily on our factories to develop the infrastructure and facilities, to upgrade our factories to international food manufacturing standards by obtaining loans. Few years back, the loan interests were less than 10 percent and some low-interest loan schemes were also available.As of now, the interest rates have gone up more than double it was. As such, most of the loans have become unserviceable,” Ranasinghe said.
However, the authorities allege that considerable portions of these loans were utilised to acquire personal assets to support the lifestyles of the tea factory owners.
It has also been pointed out that there is a substantial imbalance between the availability of green leaf and facilities available for processing with a notable increase in issuance of licences for new tea factories prior to 2015.
“It is often said by some that there are too many factories in operation. This applies not only to the smallholder sector but also to the corporate sector. While the corporate sector can amalgamate factories and achieve efficiency, we have no such option. We cannot afford to cease the operations. Closure of factory is not an option for us,” Ranasinghe stressed.
He pointed out that inadequate leaf availability has led to an unhealthy competition among factories increasing the demand for poor-quality green leaf resulting in the manufacture of poor-quality tea.
“This is destroying the name of Ceylon Tea,” he said.
Further, Ranasinghe went on to note that the advances extended by tea brokers have led to “uncontrolled borrowing practices” and many malpractices among certain tea factory owners are deteriorating financial discipline.
“The easily accessible advances came very handy into the hands of the manufactures, which led to many malpractices by some of the manufactures, such as paying unrealistic prices for green leaf and creating unhealthy competition.
Some factory owners have got used to these uncontrolled borrowing practices. It is like an addiction very difficult to escape. We urge the brokers to bring some control to their financing activities. Otherwise we will all run a very high risk. The broker must concentrate on selling the teas than giving advances to the manufacturers,” he elaborated.
Moving forward, Ranasinghe urged the government to reduce taxation and form a low-cost funding scheme for tea factory development.
Further, he also proposed the government to grant a ‘sustenance allowance’ for the smallholders sector during the replanting period in addition to the replanting subsidy to encourage replanting, leading to a boost green leaf production(NF).