Tea industry of Sri Lanka

 The tea industry is one of the main foreign exchange gaining industry in Sri Lanka also became the world’s leading exporter in 1995 shared 23% of the total export higher than Kenya shared 22%. The central highlands of the country, low temperature climate throughout the year, annual rainfall and the level of humidity are more favorable geographical factors for production in high quality tea. The industry was introduced to the country in 1867 by James Taylor, the British planter who arrived in 1852

Tea growing areas

v     Central Province – Kandy, Nuwara-eliya.

v     Southern Province – Galle, Matara and Mulkirigala.

v     Sabaragamuwa Province – Ratnapuraya, Kegalle



A. Tea sector and its economic importance to Sri Lanka

Tea, which was once Sri Lanka’s largest export commodity, has experienced intermittent crises over the past three decades. According to available statistics, in 1966 the value added of the tea sector as a percentage of the gross domestic product (GDP) was only 2.2 per cent. The contribution made by the tea sector to GDP in 1995 compared with other sectors of the economy is detailed in table

In 1996 the tea sector contributed 15 per cent of total export value. Manufactured garments have emerged as the leading single export product in Sri Lanka and accounted for 46.44 per cent of total exports in 1996. Export earnings of the tea sector in 1996 as compared to the other sectors is shown in table 2.

In absolute terms, the tea industry is a major export producer, particularly as its net foreign exchange earnings are very high. In 1991, Sri Lanka emerged as the largest exporter of tea to the world market. The share of Sri Lankan tea in international markets in 1995 was 23 per cent (figure I). However, Kenya was reported to have overtaken Sri Lanka in 1996 as the largest tea exporter. Nevertheless, as an exporter of tea in bulk form, Sri Lanka has now developed into the largest producer-cum-exporter of retail consumer packets and bags to the international market.

The tea sector provides direct and indirect employment to over 1 million people in Sri Lanka. Total labour employed on the tea estates in 1995 was 215,338. It is the most important agricultural product sector in Sri Lanka with respect to economic, social and environmental benefits. However, for sustainability, tea requires a long-term growth-oriented strategy with regard to land use.

Total tons of world exports which exports from Asia amounted to 65 per cent and 30 per cent from Africa.The total land area under tea cultivation in Sri Lanka has declined over the years as a result of the closure of uneconomic tea plantations. According to Department of Agriculture statistics, the land area under tea cultivation in 1996 totalled 192,730 hectares which constituted 9.1 per cent of the total land area under agriculture as indicated in table 3. Furthermore, the land area under accounted for 24.2 per cent of the total area taken up by the plantation of tea, rubber and coconuts.

Private sector smallholders, each with less than 20 hectares, hold 45 per cent of the area under tea plantation. The remaining 55 per cent is held by large tea estates. Tea plantations are distributed over three areas and are categorized in terms of elevation: high-grown tea which is grown mainly in the Central Hills; mid-grown tea; and low-grown tea. Approximately 65 per cent of the tea smallholders are located at low elevations. During the past decade, the share of tea smallholdersin total output increased from 39 per cent in 1987 to 57 per cent by 1996. Their productivity is also higher, compared to the well-established large tea estates. The extent of high-, medium- and low-grown teas and their distribution are detailed in table 4. Trends in production, exports and prices of Sri Lankan tea for 1989-1995 are given in table

The tea industry in Sri Lanka is following a policy of shifting from orthodox tea manufacturing to cut, tear and curl (CTC) teas, which have the advantage of being a faster brewing tea, to meet growing demand for CTC teas on the world market. In 1995 CTC teas accounted for 8 per cent of total production, and they are projected to rise further to 20 per cent by the year 2000.

Another feature of the tea industry in Sri Lanka is that the production of tea packets and tea bags is expanding. Furthermore, the product base has been diversified, with the production of instant tea, green tea, organic tea (which is an environmentally friendly product) and flavoured teas, albeit in limited quantities.

Sector Land area

(hectares) Percentage of total agricultural land

Tea 192,730 9.1

Rubber 162,098 7.6

Coconuts 442,288 20.8

Paddy 915,000 43.1

Sugar cane 24,862 1.2

Other field crops (except fruit and vegetables, cereals and groundnuts) 173,288 8.1

Fruit and vegetables 213,952 10.1


Table 4. Areas of tea cultivation in Sri Lanka


Category Height above sea level

(metres) Districts Area

(ha.) Percentage of total

High-grown Above 1,200 Nuwara Eliya, Badulla 52,272 27.66

Mid-grown 600 – 1,200 Kandy, Ratnapura 56,863 30.00

Low-grown Up to 600 Galle, Matara 79,836 42.25


Source:Tea Lands Survey, 1994-1995, by the Tea Commissioners Division of the Sri Lanka Tea Board.


Table 5. Trends in production, exports and prices of Sri Lankan tea, 1989-1995


Year Production

(Million kg) Exports(SL Rs billion) Earnings

(SDR million) FOB

(SL Rs/kg) FOB

(SDR/ kg)

1989 207 204 13.7 296 66.91 1.45

1990 213 216 19.8 364 91.78 1.69

1991 241 212 17.9 316 84.12 1.49

1992 179 182 14.9 241 81.97 1.33

1993 232 218 19.9 296 91.16 1.36

1994 242 230 20.9 296 91.32 1.26

1995 246 241 24.6 316 102.31 1.32

*1996 258 244 34.1 425 139.56 1.64


Source: Public Investment Programme 1996-2000, Department of National Planning, Ministry of Finance and Planning.


* Figures for 1996 are from the Central Bank of Sri Lanka annual report, 1996.


After the nationalization of large local and foreign-owned tea plantations in the early 1970s, management was continued under two large State-owned corporations: the Sri Lanka State Plantations Corporation (SLSPC) and the Janatha Estates Development Board (JEDB). However, that management approach appeared inadequate to meet the new challenges of improving productivity and maintaining competitiveness. When compared with competitors, SLSPC and JEDB labour productivity and plantation yields were the lowest despite the fact that wages were higher than those paid by other tea-growing employers in the country at that time. As a result, the cost of tea production is highest in Sri Lanka.

The lack of labour mobility is another constraint faced by the tea sector. There is a labour shortage in certain regions of the low-country estates and some high-country estates face the same problem. In addition, the wage-setting mechanism bears no relation to productivity growth.

Nevertheless, Sri Lankan tea is reputed to be of high quality and is one of the cleanest teas on the world markets. Analysis shows that residue levels of pesticides, weedicides etc. are insignificant. Countries such as Germany impose strict standards and the quality of Sri Lankan teas are within such standards. An example of that recognition was provided recently by the Chairman of the European Tea Technical Committee at the seventeenth meeting of the Technical Committee on Tea of the International Standards Organization (ISO/TC), held in Colombo, when he noted that Sri Lankan tea was the cleanest in the world because pesticide residues in Sri Lanka tea were of no significance.

In the late 1970s, Sri Lanka became the first country in South Asia to adopt an outward looking economic policy. The most important feature of that policy was an export-led growth strategy aimed at promoting and sustaining rapid economic growth. Since then, successive governments have been firmly committed to that policy and have recognized the private sector as the engine of growth for rapid and sustainable economic development.Consequent to that policy, in 1992 the government decided on a programme for restructuring the tea industry. Initially, the management of a majority of the State-owned plantations was handed over to private management companies on five-year contracts. As the management companies did not have a stake in the ownership, and as the leases were short term, there was no incentive for capital investment. In 1995, the government took the courageous decision to privatize State-owned regional plantation companies on a long-term lease basis (50 years) through the sale of 51 per cent ownership of the companies. Several regional plantation companies were privatized in 1996 and the remaining companies were to be privatized during 1997.





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