Contents

Introduction to the Sri Lankan tea industry.................................................................................................2

Current strengths and values in tea industry in Sri Lanka............................................................................2
Global Competitiveness...............................................................................................................................3
Future Potential of the Industry...................................................................................................................5
Patterns and Trends of Tea production.........................................................................................................6
Role of the Government............................................................................................................................10

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Introduction to the Sri Lankan tea industry

Tea industry in Sri Lanka begins over 200 years ago. In 1824 a tea plant was brought to Ceylon
by the British from china and was planted in the royal Botanical gardens in Peradeniya for non-
commercial purpose. The Scotsman, James Taylor started Commercial Cultivation of tea in Sri
Lanka by 1867, in a 19 acre tea plantation in Loolecondera estate. Taylor started a fully equipped tea
factory in Loolecondera estate in 1872. In 1875 Taylor managed to send the first shipment of Ceylon tea
to London tea auction.As Ceylon tea plantations gained popularity in the world, by 1965 Sri Lanka
became the worlds largest tea exporter.From there onwards Ceylon tea moved in to great
heights.
Sri Lanka produces tea throughout the year and the total tea production is about 340 million
kilograms per annum. The total export volume reached 325 million kilograms out of the total
production in year 2012. The tea growing areas are mainly concentrated in the central highlands
and southern inland areas of the island. They are broadly grouped under these headings
according to their elevations, with high grown ranging from 1200 m upwards, medium grown
covering between 600 m. to 1200 m. and low grown from sea level up to 600 m.
Currently the industry is facing many challenges and some of the critical challenges are low
levels of productivity, rapidly aging tea bushes, high input costs and worker shortage,
maintaining Sri Lanka's reputation as a high quality tea producer/ exporter and meet new and
stringent sanitary (HACCP) and other standards (eg. MRLs, environmental and social etc.) Set
by the importing countries. Here in this report we have discussed global competitiveness, export
potential, domestic constraints, using the theories in international trade. And also we have
suggested policy reforms to the government, which are required by the relevant industry to
harness its fullest potential.

Current strengths and values in tea industry in Sri Lanka

The Sri Lankan tea industry is one of the major sources of income for the country. Dominant
position is held by Sri Lanka as a leading exporter of black tea and has strong presence in major
markets such as the Russian republic and CIS countries, Jordan, Egypt and the UAE. Sri Lanka
has reasonably diversified product line, producing both orthodox and CTC tea. It has recently
developed a type of Ortho-CTC tea with some of the more desirable features of both forms.Sri
Lanka has made some progress in the production and export different forms of value added tea

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such as decaffeinated tea, instant tea and flavored tea. Most of the private producers have
targeted the health food segment of the world with their organically grown tea and are trying to
establish direct sales linkages with overseas and distributors.The Sri Lankan tea industry is
operating in a diversified geographical market which gives it the strength to sustain future
demand fluctuations. Sri Lankan tea board is carrying out special quality controlling methods.
Due to that low quality tea want get into the international market, where such situations can
tarnish the image of Ceylon tea in international market.
Due to such kind of preventive measure Sri Lanka has been able to maintain a good image for
Ceylon tea among international community.

Global Competitiveness

Sri Lanka has been position in the world as one of leading tea manufactures and it
has more than 100 years of experience for Sri Lankan tea industry. The world tea market has
been rapidly growing with newly emerging customer needs. The major international tea industry
competitors such as Kenya, China, India, Indonesia, Vietnam and Argentina are also aggressively
involve to capture the market. They are high technological capable countries as well as they have
much more land area for tea plantation. Sri Lanka have to face for a huge challenge to be survive
in tea industry.

Early stages of Sri Lankan tea industry, there were cheap labor as well as high demand for
Ceylon tea and plenty of competition for the market. Although Sri Lankan tea industry had been
mainly focused on bulk tea from the beginning now, Sri Lankan tea sector is being diversified
into value added trends with some value added strategies in terms of value features, new product
levels, packaging and branding too. Because competitors introduce diversified products for the
international market instead of bulk tea. Ceylon tea brand image is the most competitive
advantage and get more profit for low production because of higher payment for the Sri Lankan
tea.

China and India produce the highest tea production, but they cant be exported as that
much because of high population in country and they consume high portion of production within
the country. But Kenya, Vietnam and Indonesia highly export tea out of total production. Other
competitive countries such as Kenya have use machinery to improve the productivity and

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minimize the production cost to get maximum profit. But Sri Lankan labor cost is very high and
because of that the production cost also getting high, then it is directly effect for the profitability.
Sri Lanka have to give up the cost leadership strategy and improve the diversified strategies with
innovation in industry.

Bellow table shows the tea Import / Export countries with their $ Values.

Country Exported Value (1000 $) in 2016

Sri Lanka 1,476,881
China 965,080
India 867,143
Kenya 858,250
United Kingdom 262,959
Germany 229,383
Vietnam 204,018
UAE 191,814
Indonesia 166,717
Poland 139,393
Table 2.1 Tea Export Countries with exported $ Value

Country Imported Value (million $) in 2016

Russia 548.3
United States 483.2
United Kingdom 363.3
Egypt 282.3
Iran 261.9
Saudi Arabia 256.4
Germany 226.5
Morocco 199.4
Japan 165.1
France 161.6
United Arab Emirates 142.4
Canada 140.9
Vietnam 130.3
Netherlands 125.2
Kazakhstan 112.2
Table 2.2 Tea Import Countries

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Future Potential of the Industry
The global tea sector faces a host of different future challenges, including climate change,
competition for land use, increased demand for energy and water, and rapidly changing markets
for tea. All competitors recognized above factors and try to address those in different angles. Sri
Lanka utilized the maximum land area for tea crop and comparatively labor cost also not cheap
as earlier; There are lot of small and medium scale tea farmers which they have 10,15 acara of
tea crop lands but they cant apply technology for their plantation because of land size. So better
to take those under large scale tea farmers and should apply high technology to minimize the
production cost, increase the productivity and improve the quality of product.

It is good to move for new value added products to focus on different market segments.
We all know carbonated drinks are not good for you for a number of reasons, including the fact
too much sugar can lead to liver toxicity, soda decays teeth, and studies indicate that even diet
carbonated drinks can increase your risk of a heart attack. There is a huge market going to be
open and should be able to fill that gap by introducing tea products like ready to drink and iced
tea.

Tea is the most affordable, simple and pleasant way to refresh, enhance natural immune
mechanisms, preserve health and beauty. Each cup of tea is a perfectly balanced combination of
vitamins, minerals, enzymes, biologically active substances that increase vitality and improve
health. It seems to be tea is a frequently use beverage and If it is possible to produce reusable tea
product then it can be marketed as high price items.

Bellow table will shows the Sri Lankan tea buying comparison for last 2 years

Country 2016 2015 Variance

QTY %
Russia 32,149,494 34,911,906 (2,762412) -8
Iran 31,352,402 26458229 4894173 18
Iraq 30800874 28060756 2740118 10
Turkey 24771615 31899686 (7128071) -22
U.A.E 17526895 21635231 (4108336) -19
Syria 11100846 10215574 885273 9
Libya 10421245 8613090 1808155 21
Azerbaijan 9534579 10451390 (916811) -9
Japan 7036969 7856387 (819418) -10
China 6919752 6637619 282133 4

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 Germany 6488703 6342796 145907 2
Chile 5960318 6500272 (539954) -8
USA 4776538 3961991 814547 21
Ukraine 4463421 3739667 723754 19
Hong kong 4132335 4477435 (345100) -8
Saudi Arabia 4121434 4556403 (434969) -10
Jordan 3771696 5129481 1(357785) -26
Kuwait 3312275 8127132 (4814857) -59
Lebanon 3163418 2168568 994850 46
Egypt 2,891,594 3,484,494 (592900) -17
Table 3.1 Sri Lanka Tea export countries

According to above table, there is a risk for tea market because of some countries reduce to
import tea because of financial crisis and violence situation of their countries. It is wise to find
new tea export countries other than existing clients with parallel to increase the production.

Patterns and Trends of Tea production

1. It is observed that tea production has grown in the world continuously over the years.
When analysis the International Tea Committee records, the tea production from 1995 to 2015
can be visualized from following graph.

2. With the growth of Global tea production, Sri Lankas tea production also has increased
and it reached annual production of 340 Million Kgs in the year 2013 being the highest harvest.
But next consecutive years, world tea production has gradually decreased and Sri Lankan tea

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production also reduced by 40 Million Kgs mainly due to uncertain climatic conditions. The
greater proportion of the production loss has come from the low country tea production and other
high elevation productions also have declined considerably. The export performance of Sri
Lankan tea industry can be shown in following chart.

3. The La-Nina effect, failure of north east monsoon in fourth quarter of 2016, poor/
delayed agricultural practices and low application of fertilizer could have an impact of the short
fall of production too. Further withdrawal/ curtailing of fertilizer subsidies for regional plantation
companies (RPCS) could further affect the tea production.

4. Sri Lankas tea exports are mainly focused on following countries at present.

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5. However among them, all the Arabic countries are under the cold war situation and this
will badly affect Sri Lankas tea exports. However migration of Arabs/ Syrians in to west,
European Union can expand the tea production. This may lead to find new markets in the world
as these tea users will project their basic needs in migrated areas too. However tea consuming
market in the rest of the world is growing and Sri Lankan exports have not focused on the
exports to those markets to gain competitive advantage.

6. When we analysis the exports to USA and Canadian markets, there is no considerable
increase in the tea exports within 10 years and it illustrate considerable declining. This is a new
market for the tea products and still Sri Lanka can explore possibilities for exporting.

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Role of the Government
7. Improvement in productivity and quality are the major factor to be competitive in the
global market. Both land and labour productivity are lower in Sri Lanka when compared to other
global competitors in the tea industry. Therefore, Sri Lankan government can influence/
encourage Regional planting Companies and small scale planters to increase new plantings upon
providing new lands for plantation. Further new replanting techniques and planting high yielding
varieties can be introduced to local planters through the Tea Research Institute of Sri Lanka.

8. Government has introduced fertilizer subsidy scheme which encourage small- holders to
apply adequate fertilizer to their plants and thereby increase both productivity and production.
Government can allocate further subsidy schemes on fertilizer and other hormones to increase
production output.

9. At present Sri Lanka export higher percentage of tea as value added form. The
government can create new policies that will encourage local firms to export more tea in the
value added form. For this purpose, expensive machineries are essential to blend and government
can provide bank loans at concessionary rates. Further positioning of Sri Lankan Black tea in the
global market offering differentiated products can generate high income. For this purpose,
government backed exhibitions, awareness programs in potential markets; involvement for
international fires can create greater opportunity.

10. The multinational tea companies are dominating the tea market at present. This keeps the
producers at a disadvantage due to that companies are collecting in bulk at lower prices from
auctions and market them after blending at very high prices. The influence of multinational
companies can be minimized upon promoting local companies with the providing of government
support.

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