Once a dominant force in global tea exports, Sri Lanka has seen a dramatic drop in production, falling behind its neighbourhood competitor, India, in 2024.
According to an article published by The Times of India in March, India surpassed Sri Lanka by 24 million kg to become the second largest tea exporter to the world.
According to tea industry veteran and Tea Exporters’ Association Sri Lanka member Jayantha Karunaratne, the country’s tea output has plummeted since 2019, falling from an average of 300 million kg to just 245 million kg, a staggering 15-16% decline over the past six years.
Similar sentiments were echoed by Deputy Minister of Trade, Commerce, and Food Security R.M. Jayawardana, speaking to The Sunday Morning Business, in relation to the Government’s response to the decline.
“Discussions are ongoing but no long-term plans have been developed yet. The issues within the tea export and production sector are deeply rooted in long-term structural challenges. At present, the Government lacks sufficient information to make informed decisions in order to arrive at a consensus and figure out an actionable plan,” he said.
“The roots of this decline can be traced back to 2019, when the Government implemented a controversial ban on chemical fertilisers, which was intended to shift the country towards organic farming,” Karunaratne explained, speaking to The Sunday Morning Business. “Although the ban was eventually reversed, the consequences of the decision were far more critical, leading to disruptions that soon became deeply rooted.”
Farmers, unable to access essential fertilisers, saw a marked decline in crop yields. Despite the Government reversing the ban in 2022, the damage had already been done and recovery has proven elusive.
As Karunaratne noted, the tea sector’s struggles were further compounded by the broader economic crisis in Sri Lanka, which included fuel shortages, surging electricity costs, and rising wages, all of which put immense pressure on the tea industry.
Falling behind competitors
Frontier Research Senior Research Lead Arshad Ismail however offered a slightly different perspective on the situation, suggesting that while Sri Lanka’s tea yields had undoubtedly fallen, the country’s focus on producing high-quality tea, rather than prioritising quantity, had always been a defining characteristic of its tea industry.
Speaking to The Sunday Morning Business, Ismail acknowledged that Sri Lanka’s yields were lower: around 1,500-1,600 kg per hectare compared to India and Kenya’s 2,000 kg per hectare. However, he argued that the quality of Sri Lankan tea, particularly the older tea bushes that had been cultivated for over a century, was a major asset.
“Our tea bushes are older: some over 100 years, while Kenya’s industry, developed in the 1990s, has younger, higher-yielding plants. The fertiliser ban hurt, but our terrain also limits automation. Manual plucking on steep hillsides is part of why Ceylon Tea retains its premium character,” Ismail explained.
While Sri Lanka’s limited production struggles, India’s tea industry has flourished in recent years. Based on the initiatives made by the Union Government to bolster production and drive exports, India has not only benefited from its larger domestic market but has also been able to expand its production capacity, further cementing its position as one of the world’s largest tea producers, now coming in second place, taking Sri Lanka’s spot.
“India’s output surpasses 1 billion kg annually, far outstripping Sri Lanka’s production of just 245 million kg,” Karunaratne noted. India’s advantage, given the country’s large local market, allows it to produce tea at a much greater scale, with exports representing only a small portion of its overall tea production.
Yet, the real difference lies in the strategic investments India has made in its tea industry, which have given it a clear edge over Sri Lanka. “The Indian Government collects huge sums from the industry but reinvests in infrastructure and subsidies,” Karunaratne said. “In Sri Lanka, the money goes to the consolidated fund, but producers receive little support.”
The role of government support is a significant factor in the disparity between the two countries. While private producers in Sri Lanka shoulder most of the rising costs associated with production, the Indian tea industry benefits from State-backed initiatives that help mitigate these challenges. This includes substantial Government investment in infrastructure, as well as subsidies that help reduce costs for producers.
In contrast, according to Karunaratne, Sri Lankan tea producers face a fragmented industry with limited access to such support, which only exacerbates the financial pressures they already face.
In addition to these structural challenges, Sri Lanka’s tea industry faced logistical hurdles, such as port delays and rising energy costs, Karunaratne noted. He pointed to the congestion at the Port of Colombo in 2023 as a major disruption to tea shipments, further complicating the country’s ability to meet demand.
However, Ismail argued that tea, particularly Ceylon Tea, was not easily replaceable. “Buyers might delay orders, but they can’t fully cut Ceylon Tea from blends,” he explained, suggesting that while delays may hurt Sri Lanka’s ability to fulfil orders promptly, the unique qualities of its tea ensured that demand remained.
On the issue of energy costs, Ismail acknowledged that Sri Lanka still faced significant challenges, but noted that there had been improvements in recent years. The introduction of tariff reductions has helped lower factory costs, although Sri Lanka still spends 20-30% of production costs on energy, double India’s 10-15%. Modernising factories, Ismail suggested, could help close this gap and improve the industry’s competitiveness.
Multiple challenges
Despite the challenges, Sri Lankan tea remains prized for its premium quality. The average auction price of Sri Lankan tea exceeds $ 4 per kg, which is significantly higher than the prices of tea from countries like Kenya or India.
However, as Sri Lanka’s tea production continues to shrink, global buyers are beginning to turn elsewhere. Karunaratne noted that in response to the reduced supply, buyers were increasingly reducing the percentage of Ceylon Tea in their blends.
“If a blend once had 75% Sri Lankan tea, buyers now reduce it to 60%, then 50%. They can’t wait for us, so they will use other teas,” Karunaratne lamented. This shift in demand is a direct consequence of Sri Lanka’s declining production and it signals a potential erosion of the country’s market share in the global tea industry.
One of the most significant challenges facing Sri Lanka’s tea sector is its reliance on bulk tea exports to low-margin markets, such as Russia. Ismail argued that the country’s tea industry had failed to capitalise on high-value segments of the global market, particularly the growing demand for premium, value-added teas.
While a handful of large players in Sri Lanka export artisanal and organic teas to premium markets like Tokyo and Berlin, the industry as a whole remains fragmented, with 700-800 small-scale factories that lack the resources to innovate and expand into these lucrative markets.
Ismail pointed out: “We are still shipping too much bulk tea to low-margin markets.” This lack of focus on higher-value exports limits Sri Lanka’s ability to compete in an increasingly specialised global market.
Another key issue contributing to the sector’s stagnation is the unpredictable nature of Sri Lanka’s policies. The fertiliser ban, for example, was just the beginning of a series of policy shifts that have destabilised the industry, according to Karunaratne.
Sudden wage hikes, inconsistent subsidies, and other abrupt policy changes have made it difficult for producers to plan for the long term. “Subsidies help, but what growers really need is predictability,” Ismail insisted.
“If wage increases were announced five years in advance, factories could adapt. Right now, they are making investment decisions in the dark,” he added. The lack of policy stability, he argued, had prevented the necessary modernisation and innovation that could help revitalise the industry.
Cautious optimism
However, despite these challenges, there is reason for cautious optimism. Ismail expressed the belief that Sri Lanka’s tea industry still had a future, but that future depended on strategic reforms and a renewed focus on quality over quantity.
“The world isn’t abandoning our tea, it is blending slightly less of it,” Ismail noted. “That’s a warning, not a death knell.”
Moving forward, the key to Sri Lanka’s success will be balancing the preservation of its premium tea identity with the need for modernisation and policy stability.
Replanting ageing tea bushes, supporting small factories in entering premium markets, and ensuring a predictable policy environment will be critical steps in safeguarding the industry’s future.
Karunaratne, for his part, remained cautiously optimistic, projecting that Sri Lanka would still manage to export between $ 1.4-1.5 billion worth of tea in 2024. However, he stressed that unless the country addressed its structural issues, such as the high cost of production, worker wages, and policy instability, Sri Lanka risked losing its place in the global tea market.
“The Government must help us survive first,” he warned. “If producers can’t sustain their businesses, there won’t be a Ceylon Tea industry left to save.”
While India capitalises on its tea boom, Sri Lanka must confront a range of structural, economic, and policy challenges. Without urgent reforms and long-term planning, Sri Lanka may continue to lose its share of the global tea market, one cup at a time.
The road ahead will require careful consideration, preserving the country’s tea heritage while adapting to the demands of a rapidly changing global market.