Sri Lankan Tea: a primary product?

Tea exports bring in around $2500 million annually to Sri Lanka and account for around 14% of exports by value. True, export earnings have fluctated but the overall direction of revenue is up.

Tea is one of Sri Lanka’s success stories not just because it produces arguably the best tea in the world but because when you take a closer look, the Sri Lankan tea industry doesn’t conform to the stereotypes of primary production.

The stereotype

Tea is a commodity; a primary product. We tend to think that primary products are produced at low cost, and sold in bulk at relatively low prices. Little value is added by the producer. Instead the product is exported to more advanced economies where value is added. So the processing companies mostly in the developed world buy in cheap and sell at a big profit: and, of course, it is all “unfair because the poorer producer countries are being exploited but are unable to do much about it.”

Time to re-evaluate

When I was an examiner I read this kind of stuff on a regular basis; but how true is it in the modern global context? I think it is a generalisation based on a eurocentric view of the world and, in the case of Sri Lanka, it is wide of the mark.

For a start only about 35%  by value of Sri Lankan tea is exported in bulk. The rest is sent in packets and tea bags not just as black tea but as fruit tea, instant tea, single estate varieties, organic tea and so on. In all cases it is obvious that value is being added not at the point of consumption but at the point of production. So what that suggests is that teachers and exam boards in particular need to re-examine the old stereotypes of primary products, at least where tea is concerned

Increasingly within the tea trade the emphasis is adding value before export and that is certainly the case with Sri Lankan tea. What that does is enable Sri Lankan companies to compete successfully in the global market.

An example

Let’s just consider one example; a company trading and succeeding in a highly competitive global market: Eswaran Brothers, which is based in Colombo.

The company was founded in 1963 and has become one of the leading value added tea exporters in Sri Lanka. Why are they successful?

  • they place a strong emphasis on high quality tea blends using tea from Sri Lanka and Kenya
  • they package their own tea creating a number of different brands to appeal to different markets and age groups (for instance iced tea, lemon tea fruit tea for the younger age groups)

todays_brand         jolly_sun_brandolinda_brand

A cup of freshness                       Tea of the tropics!                   The elegant cup

golden_brand-1  jolly_brand

Pure Ceylon Tea                     Cups of Fun!

 

  • the management are across current trends in tea drinking and are flexible in their ability to respond
  • they market a wide range of blends which are each aimed at particular markets. So the tea exported to the Russian federation is different from the tea sent to the Middle East or to the UK
  • tea is exported increasingly in tea bags which further adds value (bigger margin available)
  • the company is carbon neutral certificated, something which appeals to the middle class markets in Europe and the USA
  • the company supports sustainable practices wherever possible and thas made significant reductions in energy and water consumption aand waste generated throughout the company
  • they have their own packaging plant which is part of the value added process

Because it specialises in specific areas of the market for tea the company has found a very successful niche to slot into and numbers amongst its customers global heavyweights such as Tesco.

There are challenges.

  • customers will always try to get the best/lowest price they can. Quality, reliability, and market savvy are key attributes in this particular game
  • quality standards are constantly evolving and the company has to be able to meet the highest current kite mark standards and to adapt to them
  • changing environmental factors both in the short medium and long term mean that tea crops are not uniformly the same year in year out either in quality or quantity
  • the market itself is dynamic and volatile

The key is to stay ahead of the game. Because Eswaran Brothers:

  1. are not exporters of a bulk primary product
  2. have a sophisticated marketing set up which can adapt to changing tastes in the market place,
  3. do not depend on just one market but are able to supply to many
  4. sell high quality tea
  5. are still a family concern, run by committed and knowledgeable people

the company is not as vulnerable as we might suppose. Eswaran brothers are just one of a number of highly successful tea producers based in Sri Lanka.

My point is that, at least in the case of tea, the times changed quite a while ago. Rather than make sweeping generalisations about primary products in classroom teaching, it is time to accept that this one size fits all stereotype is out of date; time to look at each commodity and each country in turn and time to see what is really happening.

 

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