Again as in yesteryear, tea cargo travels by zipline, saving long trips by truck. The old system has been revived at Bearwell Tea Estate to save on scarce petrol. Photo courtesy of PMD Tea.
In the daily operations of Sri Lanka’s second-biggest export industry, the gravity of the nation’s crisis is illustrated both figuratively and literally.
Up in the hillside tea farms, lack of gasoline has idled trucks used to transport the harvest, threatening the value of a crop that demands immediate processing to ensure quality. And so plantations have revived their pre-modern method of transport. Workers hang sacks of tea from pulleys on long ziplines, letting the crop glide downhill by force of gravity.
As the nation confronts its worst economic upheaval since independence in 1948, the resourcefulness of its tea farmers, tea workers and tea merchants is a beacon of hope. Since January, high inflation and lack of foreign exchange to pay for imports of food, medicine, and fuel have thrown daily life into havoc, forcing Sri Lankans to cope with intermittent power blackouts, unaffordable groceries, long queues for cooking gas and petrol, and shuttered transport.
But this year’s tea exports could earn as much as the 2021 total of $1.3 billion. That will not only help pay for imports but might also help assure international lenders that Sri Lanka, after defaulting on payments on its $51 billion in sovereign debt in May, now merits a bailout.
Steering to stability
Conditions have slowly stabilized since July, when protests brought an end to the 20-year, quasi-dynastic rule of the Rajapaksa family, with the resignation of President Gotabaya Rajapaksa. Ranil Wickremesinghe, formerly prime minister, was named president and began to work on economic reforms to reassure lenders like the International Monetary Fund.
With or without IMF help, dollars from tea are needed because other sources have faltered. The Covid-19 pandemic collapsed Sri Lanka’s huge tourism industry, It also sank monthly remittances from Sri Lankans working overseas, the primary source of foreign cash. Exports of apparel have fallen by double-digit rates.
But the tea industry has kept going. “The weekly tea auctions continue to function as usual, the port of Colombo is working without interruption, and shipments continue worldwide,” said Anel de Silva, managing director of Heritage Group, a leading tea exporter. “Despite the challenges, the sector continues to function smoothly across the supply chain.”
Industry resilience
Several factors helped inoculate the tea business against this year’s crisis. During the Covid-19 pandemic, the government prioritized the tea sector as essential to exports and employment. This helped operations to continue. Colombo’s traditional-style live auctions, held each week for 125 years, were digitalized in 2020 to cope with the pandemic. Now that travel to and within Sri Lanka has faltered, tea continues to change hands online.
Already in 2019, the industry had begun planning for transformation with the announcement of the Ceylon Tea Road Map 2030. Led by the Colombo Tea Traders Association, the plan aims to more than double tea export revenues to $3 billion within ten years.
In May 2021, the tea sector was galvanized when the government announced a disastrous plan to conserve foreign exchange by halting imports of fertilizer and other agricultural chemicals while shifting farms to organic methods immediately — far sooner than feasible. This policy bungle rallied tea planters and other farm sectors to protect their interests, forcing the plan to be dropped in October.
Then in May 2022, as the economic and political crisis reached a peak, influential planters, brokers, and exporters pushed for new leadership at the Sri Lanka Tea Board to help steer the government toward better policies and performance. This led to the appointment of industry veteran Niraj de Mel as chair in June, his second stint in that post. During his 45 years in tea, de Mel has worked as a taster, broker, exporter, and educator.
“First and foremost, we need to steady the ship,” said de Mel. He worried that media attention on the crisis would mislead buyers to assume the tea industry was failing. Under his leadership, the Board has focused on crisis management measures like getting fuel and power to tea processors and packagers and ensuring that farms have access to nitrogen fertilizers.
Sri Lanka imported some 1.3 million metric tons of fertilizer in 2020, spending about $400 million. But Ukraine, a major supplier, halted fertilizer shipments in February 2022 due to the war. Sri Lanka’s supplies were already low after the failed mandate on organic farming. Lack of dollars worsened the problem.
In mid-July, India delivered 44,000 metric tons of urea under a credit line extended to Sri Lanka. Sri Lanka’s tea board promptly delivered the fertilizer to more than 100 factories for distribution to smallholders and local estates.
De Mel estimated that it will take months to replenish stocks. Farms and factories have responded to crisis pressures.
They have suspended absenteeism rules so that women can wait in line for food. They use delivery trucks to pick up distant workers who can no longer take public transport. Producers loan gasoline to their delivery contractors to ensure that tea reaches auction houses on time.
Ongoing risks
But dire challenges remain. Chula Amarathunga, general manager at Malwatte Valley Plantations, told STiR that the “lack of fertilizer and chemicals initially due to government policy decisions [in May 2021] and now due to the dollar issue have reduced the crops drastically. Fertilizer and chemicals are now available in small quantities but are not economical to apply. The smallholder farmers who produce the largest proportion of crops have lost the living income which kept their family going for decades.” Smallholders produce 75% of Sri Lanka’s tea.
“The present cost of inputs is clearly unaffordable, which will further reduce the crops in the future. The reduction of crops in the smallholder sector will result in reduced income and will create more social issues in the future and the opportunity to expand the crop will be stopped,” Amarathunga warned.
Production totals for the year through July were down by 20% compared to 2021. A decline in plucking rounds (10 to 13 days apart, compared to 7 to 8 days previously) meant less raw material was reaching factories, which face power shortages and were therefore buying less raw leaf. Yield per hectare was falling because workers were undernourished and demoralized or unable to afford transport.
A continuing failure to feed the tea plants with timely application of nitrogen would degrade quality. Maintenance routines critical for long-term plant health such as pruning, weeding, fighting off pests, and mitigating climate threats — building windbreaks and rain catchments, for example — have been abandoned. Plant regeneration, i.e., replacing old plants with new ones, has stopped.
Tea quality declined during the worst of the crisis because the leaves, once plucked, must be processed within four hours. Transport was difficult due to a lack of petrol and absent drivers, who were working elsewhere since they could not afford gas and diesel. Other drivers were tasked with ferrying workers to the fields from pickup locations instead of timely delivery of leaves to the factories.
A shortage of diesel and petrol hampered production and transportation at the factory level, Amarathunga, the manager at Alwatte Valley Plantation, told STiR. “Some fuel is distributed on a token system to factories but is not sufficient to run full-scale operations. Some fuel-related operations such as plucking machines, weeding machines, and firewood cutting machines, were halted too,” he said.
Dananjaya Silva, managing director of PMD Tea, told STiR that tea estates anticipated this situation, however, and stockpiled diesel from last year. “Diesel can still be bought within the country if paid in dollars. The sticky point for the estates is that many of their contractors are out of diesel. For example, the tea haulers that move teas from our Dimbula Valley estate to Colombo do not have fuel. Thus, the estates are providing them with fuel from their stocks.” Workers have resorted to using bicycles to get to their jobs.
The crisis has impacted not only the rural tea sector. Service providers reported difficulties obtaining reliable electrical power in Colombo, Sri Lanka’s hub for blending, packaging, and shipping tea. Sanjay Coorey, chief operating officer at Continental Tea, said that power cuts of three hours per day, which began on June 27, hindered packers that lacked enough diesel to run their own power generators.
“There are long delays in getting material, whether that be for a particular ink to arrive with a supplier, or for them to be able to run a print run of your designs, as they are short staffed due to staff either not being able to arrive at work due to fuel or being stuck in queues for basic provisions,” Dananjaya Silva said.
Strong demand, high prices
Amid these difficult conditions, the tea industry has seen one upside: higher prices, partly due to declining supply. Auction prices were up 66 cents per kilogram in July, averaging $5.17 per kilogram, a new record, according to the Tea Exporters Association of Sri Lanka (TEA). Prices during the first half of the year averaged $3.87 per kilogram, up year-on-year. In 2021, Sri Lanka exported 300 million kilograms of tea, most of it high-value, orthodox tea.
Demand is strong from Middle Eastern buyers, who have windfall profits from higher oil prices. Through mid-year, Iraq was the top buyer, purchasing 28 million kilograms, while the United Arab Emirates bought 13 million kilograms. Russian buyers are back, after having disappeared from the market following the invasion of Ukraine in February. Russian tea companies bought 12.3 million kilograms through July. That’s about 3.5 million less than during the same period in 2021, but they have been paying top prices — often with payment up front.
“We strongly feel that Sri Lanka is now on the path to a gradual recovery, and the challenges faced in the past will soon be behind us,” said Heritage Group’s de Silva. “Most importantly, the people of Sri Lanka have now a sense of unity which augurs well for the future of our country.” The new governor of Sri Lanka’s central bank has told media that the country will emerge from its current challenges by the end of the year.