Sri Lanka plans performance based incentives to push value-added tea exports

April 27, 2007 (LBO) – Sri Lanka’s state tea promotion agency is planning a new initiative based on performance incentives to boost flagging valued added tea exports, an official said. The incentive is to be based on exporters performance in increasing the volume and value of such teas, Sri Lanka Tea Board Chairman Lalith Hettiarachchi told LBO.

Value-added tea exports still account for less than half the island’s total tea exports and tend to fluctuate.

Although Ceylon tea export rose to a record 327 million kg in 2006, exports of value-added teas actually fell to 40 percent of total exports, compared with 43 percent in 2005.

“We’re trying to give an incentive to improve value-added tea exports to 55 percent,” Hettiarachchi said.

Exporters were finding it difficult to raise funds to buy equipment like tea bagging machines to make value-added products, he added.

“Machines for tea bagging cost 100-120 million rupees, which is too expensive,” he said.

“Some companies have got orders but their production capacity is too low. Some companies with excess capacity have leased out their machines to others who have orders.”

Brokers Asia Siyaka Commodities said in a recent report on the island’s export performance that”possibly the only significant negative number in the 2006 exports performance is the percentage of value added exports.”

Share of exports of tea in packets fell to 25 percent or 79 million kg in 2006 from 29 percent in 2005, as shipments to the Middle East fell sharply.

The volume of tea bag shipments increased to 19 million kg from 17.9 million kg in 2005 but their share of total exports remained at six percent.

Sri Lanka earned a record 883 million dollars from tea export in 2006, up from 814 million dollars in 2005.

The industry is keen to increase value-added tea exports as they fetch much higher prices than bulk shipments.

Hettiarachchi said funds for the proposed incentive would come from the cess fund, which is now spent on replanting, factory modernization and promotion.