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Sri Lanka tea floor price raises quality issues

COLOMBO (EconomyNext) – Sri Lankan small holders growing the bulk of the island’s tea have welcomed price support promised in a new government budget but believe only good quality leaf should qualify for the scheme.

The government’s interim budget presented on January 29, 2015, promised a minimum price of 80 rupees for a kilo of green tea leaf with the aim of providing support to farmers hit by lower international commodity prices.

The scheme is to be effective from February.

Neville Ratnayake, President of the Tea Small Holders Association, said the minimum price would help farmers meet high production costs while keeping a "reasonable" profit but noted differences in quality of green leaf could be a problem in giving all farmers the same price.

Tea factories to which small holders supply leaf pay more for good quality leaf while lower quality leaf fetches a lower price, he said.

Giving the same price for all leaf could create problems with both good and bad quality leaf getting the same price, he warned.

The government has not spelt out how the scheme will work but Ratnayake said most likely the government will have to step in with a subsidy for smallholder suppliers if the price of green leaf, calculated according to auction prices, falls below the 80-rupee floor.

Sri Lanka Tea Board officials said it would be better to give the minimum price only for better quality leaf, to ensure export quality production standards are maintained.

Ratnayake said cost of production of small holders, mainly in the south, is about 45 rupees a kilo and they need about 30 more for their profit and future growth.

Small holders usually grow tea on less than one acre and have about 300-400 kilos of production a month.

Ratnayake said that means a 30-rupee profit would ensure farmers a monthly income of around 9,000-12,000 rupees.