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A collective decision by private tea factory owners to cut Rs.

2 on the price for green leaf paid to smallholders, has prompted a threat of legal action.

" The move by the factory owners is completely irregular and unlawful.

It is illegal to pay less than the price determined by the reasonable price formula and if there is indication that it has been implemented, we will be forced to take legal action" , Tea Commissioner Hemaratne waed. The Private Tea Factory Owners Association (PTFOA) announced last week that a collective decision had been made to reduce the amount paid to smallholders for their leaf for January.



This would reportedly save Rs. 100 mn a month, to help tide them over the sharp escalation in running costs during this ongoing period of falling prices and the build-up of a backlog of unsold tea. Tensions in the Middle East has seen auction prices for tea fall each consecutive week since January, as Middle Easte buyers keep away from the auction.


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" Through a public notice, we have advised all tea smallholders to make complaints to the tea commissioner if they are paid less, so that follow up legal action can be taken" , Hemaratne told Lanka Business Online. Under the Tea Control Act, prices for leaf bought from smallholders are goveed under a specific green-leaf formula. The way the formula works, green leaf suppliers are paid 68 percent of the national sale average (NSA) for tea and factory owners 32 percent.

But the NSA in calculation is that of the week before; and tea prices have been dropping each consecutive week since the start of January Factory owners have pointed out that the restrictive formula is part of the problem for the need for concessionary lending and support in these times of low prices. Critics have argued that the formula seems to work well when prices are high and profits roll in as last year showed, but is an issue and needs addressing when prices hit a slump. Efforts to revise the green-leaf formula in the past six months have repeatedly met in a stalemate, with the issue now tued over to the Tea Association of Sri Lanka.

The Private Tea Factory Owners Association (PTFOA) could not be reached for comment.