Sri Lanka’s Tea exporters are to be blamed for tea export reduction: Dilmah Chief


Aug 13, 2015 (LBO) – Sri Lanka’s Tea exporter, Dilmah says tea exporters who create various brand names at very cheap price levels in the global market are to be blamed on the lesser demand for “Ceylon Tea”.
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However, the importance of Russia and other CIS countries to Ceylon tea continues, though on reduced volumes of bulk tea and value added exports, Chairman of Dilmah, Merrill J Fernando said.
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“This trend is likely to continue,” Fernando told shareholders in Tea bag exporter Ceylon Tea Services Ltd annual report.
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“As I pointed out in several of my previous reports, this misfortune is our exporters own creation; developing importers’ own brand names at very cheap price levels which are extremely harmful to long-term interests of our tea industry,” “My warnings, sounded year after year, on this pending danger were not heeded by tea interests or by the government,” “Now, we have begun to pay the penalty for this neglect resulting in far less demand for bulk tea resulting in lower prices and negligible demand for value added tea from the very sources that benefited from our exporters’ generosity towards establishing their own brand names at low cost,” “Those brand names now purchase cheaper tea from other sources such as Vietnam, Indonesia, China, causing serious harm to the quality and image of Ceylon tea by supplying under the same brand names and labeling cheap blends as “CEYLON TEA”." Fernando says these exporters inflict even greater harm by re exporting their “CEYLON TEA” to other countries at price levels which are 40 percent to 50 percent below the genuine Ceylon Tea exported from Sri Lanka. “Such are the rewards reaped by our exporters, who helped build Russian brand names at the expense of our own Ceylon Tea!,” “All exporters, as well as Ceylon tea, are paying the penalty for the folly of a few tea traders,” “Government and semi government bodies as well as private sector institutions watch helplessly while our most valuable industry is destroyed.” Sri Lanka’s Tea exports, which were severely affected by the lower demand from Russia and the Middle East, declined for the eight consecutive month in May 2015, recording a drop of 12.1 per cent in May 2015. Official data shows Sri Lanka exported 123.
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6 million US dollar worth tea in May 2015 compared to the 140.

6 million US dollar tea exports in the same month last year. Tea exports to Russia and the Middle East declined by 19.
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2 per cent and 9.7 per cent, respectively, during May 2015 compared to the corresponding month of 2014.
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Fernando says the company hopes to seek government cooperation and understanding of the need to extend assistance to everyone’s entrepreneurial efforts and protection from abuse of the industry and the trade. “Unless such government cooperation is forthcoming, there is little hope for rescuing the trade from the deep pit it has fallen into,” Fernando told shareholders.
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“I sincerely hope the new government, we elect in August, will realize the desperate need to salvage Ceylon tea from the deep pit it has been driven into by exploitation, not only by foreign traders but also by our own traders, our own producers and by our own governments too,” “Your company is making serious, very costly inroads into new markets to enhance the image of Ceylon Tea which remains tarnished by activities of unscrupulous traders.” Fernando added that the Government should completely review the lease extensions of Regional Plantation Companies as “Several estates have been leased out at high rates, completely disproportionate to the lease rentals paid to government by RPCs.” He says the plantations require complete restructuring today following successive governments’ failure to monitor their progress although tools for doing so are in place. “As a result, while some regional plantation companies have done well by investing in the development of their properties, others have ruthlessly exploited theirs,” Fernando said. “Lease extensions to RPCs should be reviewed, based on performance and on specific terms and conditions which should be monitored by a very experienced, competent management body formed from the private sector.” Tea bag exporter Ceylon Tea Services Ltd., part of the Dilmah brand group, said net profit fell 5.
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8 percent to 801 million rupees for the financial year ended March 31, 2015. Revenue fell 1.7 percent to 7,357 million rupees in the same period, according to Company’s annual report results. The company is one of the largest exporters of tea bags in Sri Lanka and promotes single origin Ceylon teas.
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Its Dilmah brand is the most successful of the value-added Ceylon tea brands in overseas beverage markets. The group is also a big supplier of bulk teas to blenders and packers overseas.
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Sumudu Dhanapala
Sumudu Dhanapala
8 years ago

As an importer of Sri Lankan tea, to me the fault lies with exporters who blend Ceylon Tea with other origins and piggy back that into markets on the packed in Sri Lanka basis. My 100% Pure Ceylon is having to compete with teas using the ‘Packed in Sri Lanka’ tag which contain as little as 30% Ceylon’s!

In developing markets where Dilma is in demand by middle and upper class segments, the lower class cannot afford it which is where a cheaper option has a place. To protect this segment there needs to be a clear indication of yhe amount of Ceylon in a blend at least, or at least insist on a minimum of 70% in the blend.

8 years ago

Very interesting analysis & comments.Lot of people seems to be using centuries old name of SL for a song.As per the comment 70% of foreign tea sometimes is used to sell 30% SL tea under ceylon name.Same plight can happen to Rubber too.Possibility of Rubber imports using comparatively higher rupee/against the ringgitt(latter is @ 17 year low after China devaluation) under the principle of value addition might need careful evaluation .Also an Issue that may need attenton concurently could  be the govt price supprt to local small holders (Timely intervention by govt)
Any delay in reaching it to small holder (due to what ever reason) means retard in local supply resulting in more imports.

Athula Dissanayake
Athula Dissanayake
8 years ago

Marketing strategies adopted for promoting single origin tea brand as Ceylon Tea is also played a key role, especially in the regions where we can expect very high tea consumption i.e. Middle East. Local consumers in such effluent markets are willing to pay even above the average market price if we correctly place the Brand in the right marketplace. We don’t see such exclusive promotions (tea cafes, AV promotions, PoP comsumer relevant activities etc) exist. Sri Lanka tea board can play a magnificent role in here. Promotions should be not only in 5-star, 7-star hotels, it must step down to the real market place with trade partners, especially to promote value added tea such as tea bags.

Denesh Nava
Denesh Nava
8 years ago

The point made by Dilmah chief is applicable to a small segment of market. Dilmah was established in early 1980’s and promoted their own brand using the funds given by Tea board to promote ‘Ceylon Tea’ brand. The market was less competitive and Sri Lanka was producing the best teas in the world.

Now the trend has changed and all other Tea producing countries have improved the quality of their crop at much lower Cost of Production. We need to compete with all International Tea producing countries. If only try to focus in high end market, we will sell approx 30% of our total production and balance we have to through in the sea. So, we can easily shut tea factories and close the tea factories…

Some big companies really do not want small people to grow in the industry. So, they give a different picture to Authorities. Actually we need to see this in broader spectrum to improve the Industry, competing with other tea producing countries.

Current draw back in Tea Industry is due to political/Economic crisis is Middle East and CIS countries. Russia currency fallen bad against US$. War in Syria, Iraq region. Africa is down with Economy, Greece is down. These countries are main buyers of Ceylon tea.

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