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Call to give freedom to Sri Lanka tea producers; end auction monopoly

ECONOMYNEXT – Sri Lanka’s tea producers are losing out, and innovation and marketing have been stifled due to a restrictive auction system, which is a relic of the past, an economist and reformist who had played a key role in bringing private management to large tea plantations had said.

"The auction system that we have in place at present is problematic," Romesh Dias Bandaranaike was quoted as saying at a forum of the Planters Association of Ceylon.

"Especially in today’s world where we have such a large volume of transactions taking place online, it seems like a relic of a bygone era.

"We must look at ways of allowing producers to link-up with buyers more directly."

Sri Lanka’s large commercial tea farms are forced to sell most of their tea through an auction in Colombo run by the Ceylon Tea Traders Association.

Industry officials had called for freedom for the producers from complex by-laws of the auction system which was preventing them from selling directly to overseas buyers.

"There are instances when a single buyer will be able to purchase the entire produce of an estate if it is of a suitable quality and effectively marketed," Bandaranaike had said.

"We have to streamline our processes to cater directly to these types of niche opportunities while also adding more value locally."

Sri Lanka’s large tea companies are not just farms but have factories that produce a final ready-to-consume product.

At the moment, the factories are forced to produce a confusing array of products which are blended (mixed up) to produce a lesser number of grades.

Industry analysts have said producing a lesser number of grades in the first place, would allow the producers to create more value.

Producers have been pointing out that there is excessive state intervention and regulations covering tea which is not present in other sectors of the economy, and the time has come to end it.

Meanwhile, tea brokers and exporters also say they play a vital role.

For one thing, they make sure exporters all over the world knows about lots that are coming up for sale, though reducing the number of lots is part of reforms that have been proposed.

Exporters who blend and supply tea also provide credit to buyers in the Middle East and Africa which may help Sri Lanka get unusually high prices. They may also play a forward price-setting function.

While these arguments may have merit, they have not been tested because a restrictive auction system has taken the marketing freedom away from producers.

If they truly give value, they have nothing to fear as most producers will continue to patronize the auction on their own initiative and not through coercion, analysts say.

Meanwhile, Bandaranaike had also noted that giving freedom to plantations may not be as easy since there is a section that is now benefitting from the system.

"..[M]oving to a completely free market for tea sales without interference and regulations by the state is bound to be difficult to achieve because of the large number of parties, including in the private sector, with vested interest in continuing the present arrangements," he said. (COLOMBO, 30 August 2018)