Diesel and electricity hikes send shock waves through struggling tea industry

By Elmo Leonard

Sri Lanka’s mid-February dual hike of diesel by 37 percent and electricity for industry by 15 percent sent shock waves through the gamut of the island’s tea industry.
As Sri Lanka celebrates 145 years of commercial tea plantations this year, the government’s boast is that the industry sustains 2 million of its population, directly and indirectly. The brag was echoed by Minister of Plantations Mahinda Samarasinghe early February when the Food and Agricultural Organization held its 20th IGG (Inter Government Group) sessions in Colombo, attended by over 100 delegates from 25 tea producer and trader countries.   

Middle East uncertainity brings price down
The twofold price jump comes when Iran, a main buyer of Ceylon low grown teas wants to buy more, but faces economic sanctions. Besides, Syria and the rest of the Middle East countries, which also account for the purchase of large quantities of Ceylon low grown teas, are caught up in political turmoil. In recent months the Middle Eastern political uncertainty has resulted in low grown teas at the weekly Colombo tea auction dipping to Rs.40 to Rs.50 per kilo. Smallholders had to be content with Rs.20 to Rs.30 per kilo lower than their cost of production (COP), Chairman, Sri Lanka Tea Factory Owners’ Association (SLTFOA), Kalana Dahayanake said. COP was around Rs.400 per kilo, a multinational said. SLTFOA made teas, which account for 70 percent of teas entering the Colombo auctions, have varying COP — some between Rs.360 to Rs.380 per kilo.
Yet another adverse external factor, the 27-nation European Union, also a sizable buyer of Ceylon tea is facing the Euro crisis. The rest of the world is grappling with an economic crisis; Japan is engaged in a struggle against its recent nuclear and natural catastrophes.
Sri Lanka’s cost of producing tea has long been the highest in the world, backed by the highest cost of electricity anywhere in the globe, continuing for decades past. What Sri Lanka needs is state assistance to prop up the industry, a small-timer based in Deniyaya said, and reechoed by Colombo’s tea trade. “Does the government think that Ceylon tea could, in the coming months, fetch premium prices overseas?” a broker inquired.
Growers, tea factory owners, tea blenders and packers, brokers, transport agents and export houses said the rise in fuel and electricity costs had brought them together and they were trying to negotiate diesel and electricity subsidies with the government. Such negotiations have thus far fallen on deaf ears, they said. The losses the industry will face if it fails to obtain subsidies, cannot be quantified, the Colombo tea trade say.  
Transportation of tea leaf to factories - from hundreds of miles away to Colombo, for blending and packing, and by container to the Colombo port, utilizes diesel and will now cost more.
In the event of electricity cuts, factories will use diesel to generate power which will send COP even higher.  
Then, President Planters’ Association of Ceylon, Lalith Obeysekera asserted that the then raise in wages to Rs.515 ($4.50) per day would require a further Rs.10 billion ($90m) per year for the next two years. At the end of the two years, that ‘ransom’ will again come up for review, as it has for decades, the plantation companies said.        
Dayan Madawala, CAO of Finlay plantations said at the time of the wage increases, that on the plantations practically everything was free - womb (midwife, ambulance, medicine) to tomb, water, land, vegetables and much more.
For Finlays, 23 tea estates in Hapugastanne and seven in Udapussalawa, with last year’s wage increase, their budgeted 10 percent increase in expenditure jumped to 30 percent, entailing Rs.650 in expenditure, Madawala said.{jcomments on}