By Feizal Samath
GALLE, Sri Lanka, May 26 1999 (IPS)

These days, Seelawathi Liyanage and her middle-aged husband mostly sit around drinking tea and discussing the hard times ahead with other neighbours instead of tending tea bushes in Sri Lanka’s southern region.

“Tea prices are down and times are hard for us,” Liyanage says, breaking off from a discussion on politics and the future of smallholders or the small tea growers.

Globalisation is hurting them, with international prices on a downward spiral ever since the financial crisis in Russia, from late-1998, a situation further exacerbated by the global economic downturn and falling demand among the Gulf states.

Smallholders account for the bulk of Sri Lanka’s thriving tea industry, the world’s biggest exporter, annually producing more than 250 million kgs of the brew.

They, much more than the giant plantation companies that grow tea over acres of land in the high and mid-country zones of the country, have been hard hit by the tumbling tea market.

Small cultivators like Liyanage, from the village of Ihala Malidu, not far from Galle on the southern tip of the island, are getting some 14 or 15 rupees per kg this year. (The Sri Lankan rupee sells at 69 for one U.S dollar.)

In mid-1998 the price was 22 and 27 rupees. At the same time, they are having to pay more for fertiliser and to farm workers. “Even if prices fall, we have to pay the same wages to workers or even more and apply high-cost fertiliser,” shrugs H. D. Francis.

He said many growers were cutting costs this year by using less fertiliser and picking the leaves themselves. Tea plucking is a specialised job and women are normally hired to do the work.

Meanwhile in Colombo, government officials insist tea prices have risen this month after falling in February and March.

“Low grown tea (cultivated by smallholders) at last week’s auction fetched an average of 129 rupees (1.8 dollars) per kg compared to 100 rupees in February and March. So things are improving,” says Rohana Illangaratne, chairman of the state- owned Tea Small Holdings Development Authority (TSHDA).

Small tea growers who own around half an acre of land on the average depend on the TSHDA. They produce 62 percent of total production and earn 74 percent of the country’s annual tea income.

Low grown tea fetches high prices in the Gulf, where it is the favourite tea. But better known are the teas sold by the big plantation companies owned by large Colombo firms, some of whom have foreign partners.

They also have the cash liquidity to weather the periodic price turbulence in the global tea market, unlike the larger numbers of small growers.

The TSHDA had hoped to persuade the privately-owned factories that grind the tea into various super grades to financially bail out the small growers. But that has only turned into a tussle between the two with the factories claiming government funding.

Private factories appealed to the government to release funds to offset their losses but though the government promised to release about 700 million rupees, it has not been disbursed.

“I would have lost at least three million rupees in the past two or three months,” grumbles Herman Gunaratne, owner of the 100-acre Hadunagoda estate and tea factory, which lies about 20 km from Galle.

Gunaratne, who is also spokesman for the Private Tea Factory Owners Association, said he could not understand why the government was prevaricating on funds to factories.

“This is a crisis for the entire industry. I have stopped purchasing leaf from small growers and I am only processing leaf from my own plantations because I can’t afford to pay the growers,” he said.

Inhibiting factory owners like him is the minimum price scheme, in existence for some 40 years, by which small growers are entitled to receive 68 percent of the price per kg at the Colombo auction while the factory collects the remaining amount.

Factory owners balk that the process is complicated because it takes anything between six and eight weeks – from the day the tea is plucked – before the tea is sold at the auction.

According to the formula, growers are entitled to the auction price that prevailed at the time they supplied the leaf to the

factory, not when it is sold at the Colombo auction weeks later.

“In a rising market we don’t lose. But in a declining market, we lose a lot,” points out Gunaratne, whose association has appealed to the authorities to scrap the formula system and adopt free market practices.

TSHDA’s Illangaratne challenges the argument saying the factories made massive profits in the past in a rising market but were now not prepared to take a few losses. “When prices were high they benefited and did not complain,” he said. Thus far Sri Lanka’s small growers have not enjoyed the wealth reaped by the tea industry.

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