Lackadaisical approach of Tea Board Secretariat and lack of innovation

(Excerpted from the autobiography of Merrill J. Fernando)

(continued from last week)

The remit of this committee covered, not only the formulation of proposals in respect of the Middle East market, but also included a complete re-evaluation of the existing promotional strategy and the submission of recommendations for the development of a comprehensive promotional plan covering all the important overseas markets. In fact, its scope was wider than that of the Advisory Committee appointed by Minister Jayawickrema in 1980.

The intention was to develop a broad promotional plan, valid for three years initially, to be extended for five years after a review at the end of three years, with amendments introduced, subject to market developments which may have occurred in the interim.

This committee, which met in late 1983, proposed a series of wide-ranging reforms, commencing with the organizational structure of the Promotional Division in the SLTB Head Office and the demarcation of specific priority overseas markets for development. It advocated a system for trade liaison between principal exporters and the promotional division, locations, and functions of overseas bureaus, the restructuring of the overseas tea centres, as well as promotional strategies in respect of each marketing region, based on marketing history and informed projections of future trends. The recommendations were based on a comprehensive analysis of both historical data and current performance.

The committee also evaluated the rules and regulations applicable to tea exports, first set out during the colonial era, and proposed reforms to meet new developments and requirements in marketing tea internationally. One of the key issues was the need for differentiation between bulk exports and value-added, private label exports, especially those destined for sophisticated markets, where Ceylon Tea was waging a difficult battle with already-established multinational brands. What was recommended was undiminished regulatory control, combined with adaptation and innovation where necessary, to market environment dynamics.

However, the absolutely lackadaisical approach of the Secretariat, with its instinctive rejection of innovation, ensured that the proposal submitted by the sub-committee to the Board in April 1984 was not implemented. Finally, it proved to be a futile exercise.

Knowledge is strength

When Egypt, Iraq, Syria, and Libya were free markets, the buying in Colombo, on behalf of these countries, was carried out by several parties in each case. This system generated a healthy competition, resulting in good quality tea, especially the low-grown varieties, fetching attractive prices with benefits to the grower as well. Eventually, in most of these countries the tea buying was assigned to central, government corporations, each representing 20 to 30 importers.

Egypt and Iraq established their own buying offices in Colombo, whilst others sent out sourcing delegations from time to time. Tea was frequently purchased through tender procedures. The general result was an unhealthy competition in the country, with local exporters vying with each other to secure the business by lowering prices. The system of large forward contracts, which then came into being, resulted in significant volumes being offered at below prevailing prices, with no consideration for potential price movement dynamics, thus guaranteeing an auction price depression for several months in to the future.

Had we established a common marketing initiative for Ceylon Tea, at the time that the Gulf Corporation Council came in to being, many of the adverse impacts on our tea prices, as described

above, would have been countered by the influence of a combined front, representing Ceylon Tea in the Gulf region.

Consumption patterns vary from region to region, subject to historical preferences, lifestyle, and economic power and, in recent decades, the overpowering influence of multinational traders with persuasive brand promotion strategies. Variations in the latter factors stimulate changes in consumption habits, and an intimate, up-to-date knowledge of such market dynamics is essential, in order for any exporter to stay in the competition. Unfortunately, neither the SLTPB nor the SLTB possessed either awareness or capability, in-house, for them to be able to advise the local exporter on effective overseas marketing strategy.

Given that of all the major tea growing nations, Sri Lanka exports the maximum proportion of its production an average of over 90% annually overseas marketing expertise had to be both a primary focus and a major strength, of our State tea trade regulatory bodies. However, what should have been our greatest strengths were, in reality, our most glaring weaknesses.

The inability to identify and prioritize promotional opportunities and to exploit them at the correct time were among the main shortcomings of both our private tea sector entities and the State bodies responsible for overseeing and regulating the tea industry. This absence of enterprise also reflected our ignorance of market realities. The lack of both foresight and initiative demonstrated in the case of the Middle East market, when it was ripe for development, and later in the case of the Russian market, are very good examples of a submissive, overcautious, and uninformed mindset.

The Tea Board in particular was, for years, quite comfortable in frittering away paltry sums on a multitude of insignificant projects, but balked at allocating even a reasonable budget for a single large project with potential.

Suicidal strategies

Most of our larger exporters were local agents or representatives of multinational or foreign-owned brands, which were then moving from loose-leaf packaging to tea bags, in order to meet a consumer demand created by the multinational giants themselves. As the CTC (Crush, Tear and Curl) type tea, with its strength, uniformity of particle size, and general homogeneity, lent itself easily to tea bag packaging, there was a proposal by members of the CTTA (Ceylon Tea Traders Association) to convert a sizeable proportion of our national production, from Orthodox to CTC.

The stated intent was to eventually convert, over a five-year period, a volume equivalent to about 25% of the national production, drawn from the Low and Mid-Country regions, to CTC. The proponents based their reasoning on the uncritical emulation of the Kenyan model but, actually, were driven by the need to promote the interests of the foreign labels being serviced in the country.

At a meeting of the Sri Lnka Tea Bord (SLTB) at which this matter was first discussed, the then Minister of Plantations, Dr. Colvin R de Silva, and his Secretary. Doric de Souza, were also present. At that point of time I had had no previous acquaintance with either of them. The dominant opinion at the meeting, underwritten and driven by multinational interests, was that we should go with the conversion to CTC manufacture.

Surprisingly, the Minister turned to me and asked me for my opinion. I explained to him in detail the reasons for my opposition to the proposal, but suggested that we could perhaps convert 10% of our

production to CTC, to test the market, and thereafter assess the impact it would have on both prices and selling patterns, of our Orthodox tea.

The Minister immediately requested the Ceylon Tea Propaganda Board to talk to the agency houses and, through them, offer the plantation companies an incentive to manufacture a limited proportion of CTC tea. In fact, the Tea Board provided handsome subsidies for the purchase of machinery.

Had we succumbed to the blandishments of the local servants of the multinational tea bag retailers then, and gone ahead with a large-scale conversion to CTC tea, our wide range of Orthodox tea, which continues to fetch premium prices even today, would have been obliterated by the boring sameness of the CTC product. Prices too would have declined proportionately and, in any event, eventually, we would have lost out to the Kenyan and Indonesian producers, who manufacture and bring the same type of tea to the market at a much lower cost than ours.

It is the artisanal aspect of a large proportion of our manufacture, that is responsible for the variations of style and appearance, which separates Pure Ceylon Tea from the herd. An unregulated conversion of a large proportion of our production to CTC, would have eliminated those features of attractiveness altogether from the Ceylon Tea portfolio.

In this issue as well, the hasty decision making was the result of a combination of flawed logic, ignorance of market realities, and either a lack of understanding of, or a lack of consideration, for the long term impact on our tea industry arising from a sudden, large-scale conversion of our national production to CTC style.

The proposal to convert marginal Mid- and Low-Country plantations to CTC made no sense as, in any event, having failed to produce decent Orthodox tea, the CTC product from such factories would have fared very poorly against the already-established high-elevation competition from North India. Kenya, and some of the other smaller African producers.

Ideally and logically, our CTC production should have been confined to select High-Grown plantations, if it were to offer meaningful competition to then current international market leaders of that type of tea. Since that meeting, in several instances, Doric de Souza sought my opinion on a number of tea industry issues. One such matter was the restriction on auction quantities, which then was limited to 3-3.5 million kilos per auction, leading to accumulation of stocks on plantations, especially during high cropping periods.

The Minister called a meeting of the major exporters to discuss this issue and though I was not in that category then, I attended the meeting at the request of Kenneth Ratwatte, then Chairman of the CTTA. He insisted that I attend at least for a short period, even though at that time I was confined to my home due to ill-health, as he wanted me to explain to the Minister the issues involved.

The Brook Bond and Lipton representatives were totally opposed to an increase of auction quantities, insisting on the continuity of the prevailing limitation of three million kg per auction. Major buyers were also completely supportive of the CTTA position to volume limitation. Finally, the Association relented and, with my total support, the motion to increase volumes to at least 4.5 million kg initially, and to five million kg during cropping months, finally carried the day.

There was no oversupply situation as a result and, subsequently, even larger volumes were disposed of without serious problem. To me, this was another example of the hidebound thinking of the multinationals and their associates, who resisted any kind of change, especially if the change carried even an implied threat to their dominance.

The sad reality is that there has never been a nationally-articulated marketing plan for Ceylon Tea, to place its image before the world, using the unique selling points of singularity of origin, wide grade spectrum, traditional orthodoxy, purity, and quality. Had there been a sustained promotional programme commencing from the 1960s, when Ceylonese-owned firms started to emerge from the daunting shadow of the multinationals, many locally-owned brands would today be out in the international marketplace, competing successfully with the biggest multinationals.

My disillusionment with the Tea Propaganda Board and subsequently with the Tea Board is relevant to their activities of the 1970s and ’80s and is confined to a handful of the bureaucrats in service then. The appointed members of successive boards were, by and large, men of integrity, competence, and vision. In the years following the events described in this narrative, the SLTB, as a body, has been far more proactive and, overall, demonstrated sound judgment in respect of all major issues.