Friday, October 31, 2008

the tea smallhoder is in shits creek due to the credit crisis

I am writing this at Paradise Farm in Kitulgala, which is an organic plantation, that grows the World’s best Green Tea. All the people who live around the farm are Tea Smallholders who grow tea on their little plots and sell their leaf to the local factories. 60% of Sri Lanka’s tea is grown by them, and have seen a significant price and production increase over the past few years owing to the increase in the demand for low grown teas that go to the Russian, Ukrainian, Middle Eastern and Iranian markets, which have seen an increase in their purchasing power.

As I noted in an earlier article written a week earlier, but published on Oct 27th the international buyers of tea have stayed away from the Sri Lankan auctions, due to their inability to obtain bank financing to purchase. The unsold tea has resulted in a substantial reduction in the price of this tea.

These people who I just saw waiting anxiously with their bags of cut tea leaf for the van to pick them up, have seen a drop of over 50% in price. The faces clearly show the fact that the van may not accept their tea if the quality is substandard. When prices were high rejections were low, now factory owners are demanding better quality of leaf, to make better grades of OP teas that still have a market. So the double whammy of price and quantity reduction, have reduced some of them small holders to penury, as the local factory have delayed payment for the leaf by over a month, citing that they have yet to receive payment, with no assurance when payment may arrive.

I know some of these small holders, a few work on the farm and one is a retiree from the farm, who now grows and sells his tea this way. They have never been faced with this kind of sudden price reduction, so sudden and then a refusal to buy tea plucked. They are in a real quandary. It is not like losing a job with some kind of relief albeit in temporarily. Here there is no relief, especially if this is their only source of income. Additionally in agriculture one invests for the long term, as it takes three years for a tea bush to mature to the stage of plucking. So money borrowed to plant and maintain, as well as the very high cost of fertilizer, has left many people with debts they are unable to service and in some cases, of repossessions of motorcycles, tractors, and vans by the leasing companies. One local person had all five of his vans used to pick up leaf and take to factories, repossessed for non payment of his lease, as he did not receive the funds owed to him for tea from the factories who have either defaulted or deferred payment.
It is interesting to note, that the President called a meeting to discuss this issue and no small holder was there to present the subsistence farmer’s plight. He instead made an asinine comment like, if he had known about this problem he would have called his buddy Ahmadinejad(President) of Iran and ask him to increase the purchases of tea, just like he did the other day to ask him to extend credit on Sri Lanka’s oil purchases. He said he will call his friend the largest tea buyers in Sri Lanka(I presume Akbarally) and ask him to increase the amount of tea he buys as a special favor!

This problem is temporary, but for the small guy, all it takes is one missed payment for his small tractor to be repossessed. The factory owner can close the factory and so not buy any more tea, till demand picks up. He can reschedule debt as banks don’t want to own non-producing factories. Those such as brokers who have lent on the strength of the consignment at auction, can recover their money when the Tea Board buys the unsold 1Million KG.

I repeat, the Smallholder bears both the brunt of the lower prices and also the non-payment for tea sold to the factory and also even worse the prospect of his tea remaining unsold, which he can do nothing else with. The direct help for this person was what my earlier article was about, and this is the one area the government has not been able to give relief. The Rs5000/- per bag of Urea is beyond anyone and this lack of sales means there will be little fertilizer being used, so the future crop will also reduce accordingly.

We here at Paradise Farm are trying to give temporary relief for the next two months to buy the tea from those in our village only, namely Ganepalla, Thaligama. We will use this tea to make Green Tea. The problem lies with the procedures and bureaucratic red tape to enable us to do this. Tea leaf purchases are tightly controlled by red tape, so I can’t buy your green leaf which no one else will buy from you! If this clearance takes time, the whole objective of the exercise, to help those in need, will be worthless.

I say don’t waste money getting the Tea Board to buy our teas as bargain hunters will buy it at a lower price. Those who really need help are the Smallholders, and due to their circumstances differing from person to person and the numbers needing help, so large, the government is impotent in not knowing how to help so many. I say give an immediate once only subsidy based on volume to each who can show how much tea was sold by him in August, before the crisis erupted, with a cap on the extent of the total subsidy at say Rs50K.

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