Business

PM wants tea industry to modernise; Apparel expert sets out blueprint

By Charindra Chandrasena

At the recently concluded Tea Exporters Association (TEA) AGM 2018, Prime Minster Ranil Wickremesinghe called on the tea industry to pursue modernization, a theme echoed throughout the event, which also officially carried the theme ‘Out of the Box Thinking’.

Wickremesinghe urged the industry to look to the future instead of living on past glories and be equipped to capitalize on emerging trends and developments.

“We have to think of this industry and how we refashion ourselves. 150 years is a good history, but you can’t rest on your laurels. Look at what the demand for tea will be in 2030, in 2050. Let’s start changing for that. A cup of tea is very nice but will there be a cup of tea or a cup of anything in 2050?”

He pointed out that the tea industry is facing a labour shortage and that it must focus on higher productivity per employee by changing the “systems of training and education” for the industry.

Wickremesinghe said that a book called ‘Asia’s Dilemma’ details how Sri Lanka’s plantation industry was an early beneficiary of the industrial revolution, and that the tea industry must draw inspiration from this.

“The management systems of the industrial revolution were first applied to the agricultural sector in Sri Lanka. So as the systems change we must change with them.”

According to the TEA statistics, Sri Lanka is the 4th largest tea producer and 3rd largest tea exporter in the world.

The Prime Minister assured the tea industry of Government support, for both large plantations and smallholders, on the condition that the industry repays the Government’s investment by modernizing.

“The government will step in and help you. But in return we expect a modern tea industry. Let’s get together and see how you can modernize your factories. How much do you invest in solar power? What do you do in the night when solar is not available?”

The Prime Minister was backed up by a senior apparel industry professional, who laid out a modernization plan for the tea industry which draws from the experiences of other industries such as coffee, wine and his very own apparel.

MAS Holdings Chief Growth Officer and Director Nathan Sivagananathan, delivering the keynote address, firstly drew parallels between the two industries, which both have undiversified export markets. Sri Lanka’s tea exports are dependent on a few markets including Russia (15%) and the Middle East (50%), which are both facing crises and Sri Lanka’s apparel sector is traditionally dependent on the US and UK.

He said these shared issues necessitate an understanding of the end customer and catering to his or her needs, which is a practice firmly established in the local apparel industry.

“We have teams dedicated to consumer insights and consumer-centric design and innovation. We even hired a professional consultancy firm to help us put in place our strategy and oversee its implementation. The tea industry similarly needs to hire dedicated individuals to carry out research on consumers in their main markets, tracking their likes and dislikes, income levels and lifestyle changes, to adapt tea to suit customer needs.”

Turning to the coffee industry, he highlighted the example of Starbucks, which revolutionsed coffee in the 1990s through product innovation and aggressive expansion.

“It turned coffee from something people drank with breakfast at home, to a premium product with instant brand recognition. This has even been effective in traditional tea drinking countries like India, where domestic consumption of coffee has grown at almost double the rate of tea since Starbucks’ entry into the market.”

The inference was that the USA, a country which has traditionally preferred coffee, is currently experiencing with tea what India, a market traditionally dominated by tea, is experiencing with Coffee, with demand for tea booming among youth in the world’s largest economy.

“A key trend worth noting is the rise of millennials and Gen Z. Globally, tea is appealing to younger, wealthier, trendier consumers. The Tea Association of the USA estimated that as of 2018, 87% of millennials in the USA drink tea – far higher than other age groups. We can see this in the success of DAVIDsTEA, a high-end tea retailer that has expanded dramatically since 2008 by tapping into a growing tea boutique industry.”

DAVIDsTEA opened its first store in 2008 in Toronto, Canada, and today has over 240 stores across Canada and the United States, with a selection of over 150 types of tea, including what it claims is the largest collection of organic teas and infusions in North America.

Sivagananathan said that wine, which is traditionally seen as a sophisticated and elitist drink, has also reinvented itself to appeal to younger consumers.

“Winemakers have remained relevant in today’s beverage market by getting rid of the stereotype that wine is a fancy drink for refined palates only. By making branding trendier, they target millennials with modern label designs and differentiated packaging such as boxes and cans.”

Wine industry data released earlier this year showed that millennials, or people born between 1981 and 1996, accounted for around half the wine consumption of the US in 2017.

Sivagananathan went on to say that health and wellness, another major trend, has created an opportunity for herbal tea through increased awareness about its anti-inflammatory, anti-oxidant and weight loss effects.

“Sri Lanka is lucky enough to already grow many of the spices and herbs that the West now recognises for their medicinal qualities and there is a big opportunity to play in the wellness tea which has risen by more than 5.8% in the US market in 2018-2018 alone.”

Technology is an important component of modernization, and Sivagananathan urged the tea industry to expedite the automation of the tea auction system, which would be a key step towards revamping Sri Lanka’s tea export industry.

“This was proposed over 10 years ago and tasked to the Colombo Tea Traders’ Association but has not been established yet. India has already automated its tea auction and Sri Lanka too needs to move on to this system to access a wider selection of buyers around the world, as well as facilitate faster purchases and transparency, as well as better documentation. This also needs to link to the Electronic Data Interchange (EDI) system, which connects exporters to Sri Lanka Customs and Sri Lanka Tea Board. The apparel industry has already established
this link.”

This was a point that had been made earlier at the event by the Tea Exporters Association Chairman Jayantha Karunaratne as well, who said it would “lead to higher efficiency and reduction of cost.”

According to recent reports, tea production experienced a dip in 2018 as the production from January to July 2018 recorded 182.2 million Kg in comparison to 182.4 million kg, recorded over the same period in 2017. Tea exports too have been sluggish over the past few years, where the first 7 months of 2018 recorded 162.7 million kg in comparison to 165.3 million kg over the same period in the previous year. However, the tea industry’s revenue grew in the first seven months of 2018 to Rs. 134 Billion, a Rs. 2 billion increase year on year.