The Colombo Tea Traders’ Association and Sri Lanka Tea Board will host the Colombo International Tea Convention (CITC) at the Cinnamon Grand Hotel from July 24 to 26.
The convention theme is “Tea: A Lifestyle & A Livelihood.” The event will explore Ceylon tea’s pivotal role, spark conversations, and inspire action toward a sustainable tea industry.
The program includes 50 speakers and will unfold in eight sessions over three days. Events include an outcry auction, gala dinner, and beach party on closing night. A Ceylon Tea Tasting Experience will introduce attendees to Sri Lanka’s growing regions.
Sessions include “Fair Price as a Global Challenge,” a topic of utmost relevance in today’s tea industry; an “Ozone Friendly to Zero Carbon” session on climate; and a conversation about the “Value of Tea.” Sri Lanka has emerged from financial, political, and social turmoil, addressed in a session on “The Resilience of Tea & Its Legacy.”
BIZ INSIGHT — I will moderate the Friday discussion on “Innovation,” which features a panel of ag technology experts presenting innovations such as streamlining financial transactions, online markets, new traceability tools, digital identification, and cloud-based analysis of tea as a service.
Colombo International Tea Convention | Episode 161
Usambara Tanzania 2023
Dan Bolton
Dan is a niche content creator who fosters genuine connections globally through informative, educational, and captivating conversations centered around tea. Host | Tea Biz Blog | Podcast
Romesh Walpola, Chief Executive Officer of Tea Smallholder Factories, Ltd. (TSFL) in Sri Lanka, explains how the Colombo-based firm taps the output of one to 10-acre farms to produce approximately three million kilos of tea annually. Investing in smallholder training, wellness, and educational programs, including internships for second-generation farmers, earns the loyalty of thousands of small tea growers and top dollar for teas sold at auction.
Caption: One way that Tea Smallholders Factories, a division of John Keells Group, invests in smallholders is by hosting events, including free health checkups pictured above, at which healthcare providers prescribe medicine to 1,021 factory employees and nearby community members supporting the Neluwa Tea Factory.
Tea Smallholder Factories Earn Loyalty that Maintains Competitive Quality Teas
By Dan Bolton
In aggregate, farms of 10 acres or less contribute 77% of Sri Lanka’s total tea crop, according to Plantations Minister Ramesh Pathirana. That percentage has increased over time. Bought leaf factories purchase an estimated 70% of the tea grown by smallholders.
Large estates own 56% of the 202,985 hectares under tea, according to the Sri Lanka Tea Board’s annual report, but contribute only a quarter of the 250 to 300 million kilos of tea processed annually. Sri Lankan smallholders cultivate about 44% of the land under tea, selling to large estates and bought-leaf factories. Only 18% of Sri Lanka’s factories process tea exclusively grown on their estate.
All sectors compete at the weekly Colombo Tea Auction, under the aegis of the Ceylon Chamber of Commerce. Around 6.5 million kilos of tea are sold weekly at this global marketplace where quality is rewarded with the world’s highest average auction prices for black tea.
Tea Smallholders Factories, Ltd. is an example of a successful public-private partnership, explains CEO Romesh Walpola. The company, which employs 411 workers, processes green leaf procured from 8,698 tea smallholders and green leaf collectors. In the fiscal year ending March 31, 2023, TSFL reported an 85% increase in revenue totaling LKRs. 3.74 billion compared to 2021-22 and a profit before taxes of Rs. 440 million (growth of 1,845% YOY with a dividend per share of Rs. 6.67). TSFL accomplished these strong results during a year in which Sri Lanka’s total gross domestic product (GDP) contracted by 7.8%.
Tea Smallholder Factories Output
Neluwa Tea Factory: annual production 883,000 kgs | 1,413 suppliers Halwitigala Tea Factory: annual production 888,000 kgs | 956 suppliers Hingalgoda Tea Factory: annual production 1,075,000 kgs. | 892 suppliers Kurupanawa Tea Factory: annual production 888,000 kgs | 925 suppliers New Panawenna Tea Factory: annual production 1,115,000 kgs | 1,473 suppliers Broadlands Tea Factory: annual production 952,000 kgs. | 3,100 suppliers Link to 2022 Annual Report | 2023 Annual Report
Dan Bolton: Romesh, how competitive are bought-leaf factories in a premium black tea market like Sri Lanka?
Romesh Walpola: We compete heads-up with some of the key private factories. Competition is fierce, as you would know. We are located mainly in Galle and Ratnapura and have one factory in Ginigathhena. The competition is in Galle, and Ratnapura is quite tenacious and very competitive. Most are private factories owned and operated by listed companies.
Dan: The Sri Lanka Tea Board estimates growers earn about $6,000 (LKRs 2 million) per hectare annually. Yields average 4,000 to 5,000 kilograms per hectare. Input costs vary, and labor expenses are far lower for smallholders. Will you describe the typical smallholders that sell your factories green leaf?
Romesh: On average, they own about an acre or less outright.
Romesh Walpola, CEO of the Tea Smallholders Factory, a division of John Keells Group
Dan: May I summarize the basics? Tea is grown as a cash crop mainly for export. Plantations and smallholders alike plant at a density of 5,000 to 6,000 bushes per acre. Smallholders manage a mixed use property acquiring and apply fertilizer and inputs for tea as well as home-grown food. Smallholders often involve their children and extended families in farming to lower labor expenses.
Do the thousands of growers you work with produce tea in disciplined rounds? Or do they pluck on occasions when they’re not doing something else?
Romesh: Yeah, they maintain between seven to 10 days of plucking rounds.
Dan: Are they third-party certified? Organic?
Romesh: Not really, not organic. There are a few smallholders who own organic acres as well. But very few.
Regeneration is the process of renewal, restoration, and growth that makes cells, organisms, and ecosystems resilient to natural fluctuations and damaging events. Sea stars, or starfish, exhibit this behaviour – displaying incredible resilience in the face of change.
Dan: You explained that training and quality control are a big part of your contribution to their success.
Romesh: Yes. We have our extension officers in the field on a daily basis. And they have little pocket groups that are educated on basic soil management, the type of fertilizer to apply, pruning cycles, and recommended plucking rounds, all that is needed to maintain their plots. We give that service to the smallholders, but apart from that, they do their own thing as well.
Dan: It sounds like you are empowering these growers to become rural entrepreneurs, right? They control their fate. As growers, they maintain leaf quality. They must deliver a high percentage of fine-plucked leaves from each round.
Romesh: That is one area that we are very particular. I mean, we don’t take just any leaf. We are very selective. We encourage them to bring a decent standard because, as you know, if you put some garbage in, you get garbage out, right, so you have to make sure your raw material is good for you to have an end product so we’re very picky in terms of you know, selecting a reasonably good standard of leaf.
Dan: Do you incentivize quality.
Romesh: Yes. We give them a small incentive for what we call super leaf. Let’s say the current standard of fine leaf pluck (two leaves and a bud) is at about 50 to 55% of what they pluck when you get something over 60 to 65%; then, we give them an incentive for that amount of leaf they bring.
So that it’s, you know, encouraging them to raise the bar for themselves and get something back in turn. We teach them that the higher the tea price at the auctions, the higher the green leaf payment according to the tea board’s formula. So that’s the positive of this vicious cycle, we keep telling them.
Dan: Have you established a minimum rate for green leaf, a price floor?
Romesh: Most of the time, but there are instances we are not during the rush period. We look at what the competition is doing when there are lean months. And we try not to overpay because we don’t believe in, you know, just because the neighbor pays X, you go and try to match that? Because it has to make sense financially.
Dan: It’s a business.
Romesh: Exactly.
Dan: And the nature of the business is that your costs fluctuate, as does the price at auction.
Romesh: In the long run, if you go down that path of paying a rate based on what the neighbor is paying, it doesn’t make real business sense.
What we do is add a lot of value to their livelihoods.
The Smallholder Tea Factories process 3 million kilos annually
Neluwa Tea Factory weigh station
Smallholder at Neluwa Tea Factory weigh station
Modern sorters ensure consistency in finished tea
Key Performance Indicators (2023 Annual Report)
2023
2022
2021
Tea production in kilos
2,463,000
2,966,000
3,631,000
Net sale average USD | Rs./kg
$4.82 | 1,554.58
$2.03 | 653.67
$2.06 | 664.54
Revenue from Customers (USD)
$11,614,000
$6,262,000
$7,278,000
Profit after Tax (PAT) (USD)
$864,000
$47,500
$206,400
TSFL reported a 17.2% return on equity for the year ending March 31, 2023. Bought leaf is the single highest cost of sales, increasing by 96% YOY in line with the increase in the tea auction price. The price payable for green leaf is regulated by the Tea Board through the Tea Commissioner’s formula. TSFL purchased 12 million kilograms of green leaf during the fiscal year year while paying Rs. 2.88 billion to the green leaf suppliers. In 2021/22, TSFL incurred a cost of Rs. 1.47 billion to capture a green leaf supply of 14.5 million kilograms.
Loyal Smallholders
Romesh: We’ve identified that group of loyal smallholders who don’t go to any competition if they offer a few more rupees.
I will give you some examples of what we are doing for them. Last year we completed 20 projects and initiatives to positively impact the communities surrounding our business operations.
Just a month ago, we arranged the region’s largest health camp on our premises, so we had roughly 1,000 plus villagers and smallholders coming in to get their health checks. And that was a huge deal for them because some of them had never even had a simple blood sugar test so you could detect problems. Then this is what we do for the community.
They are concerned about the next generation in tea, their children.
There are scholarship programs that we are conducting for the schoolchildren in the vicinity, and for the next generation of smallholders, we offer internships to study the whole factory process and learn about manufacturing. Plus, we explain what happens after the dispatch so that they understand the sampling and laboratory testing that happens between the broker and buyer. Then we take them to a buyer and give them that full experience and exposure. And after completing that cycle, we will find them employment within the industry. They could eventually become a buyer or brokers — even own their own factories. So that’s the educational part that we’re doing.
We do this on a regular basis training 11 interns last year. And once they finish, we give them a certificate. Young people leave our farms otherwise.
Smallholder Profile
Smallholder Mrs. Chandra Jayasingha, 62, farms an acre of tea on land where she and her husband also grow several cash crops, including spices, pepper, coconut, and bananas. The approximately 5,000 tea plants (Cultivar D2026) are not certified organic but are cultivated using organic practices.
Neluwa Tea Factories Smallholder Supplier Mrs. Chandra Jayasingha. Photo by Dan Bolton
“The significance of social and relationship capital as a valuable asset for creating value will continue into the future, playing a crucial role in driving the sustainable growth and performance. Accordingly TSFL’s primary focus will be on sustaining our green leaf suppliers, especially small holder partners by providing value-added services to support sustainable agricultural practices and environmentally friendly approaches.”
– TSFL 2023 Annual Report
Dan: Sri Lanka’s tea industry, led by the tea board, plantation owners, and growers’ associations, have signaled their intent to make tea production sustainable.
Romesh: Sustainability is something that we are also looking at. Smallholders are fully aware of, you know, its importance. Sustainable practices at the factories and by the company contribute to stickiness amongst loyal smallholders.
So for us, it’s not about paying something a little bit more than the competition when taking leaf; it’s about actually deep diving into, you know, looking at enhancing the livelihood of the community and the smallholders.
Smallholder Profile
Dayananda Matarage, 67, owns the 10-acre Gulanahena Estate in Thiniyawala in the foothills of the Sinharaja Rainforest. The son of a planter, he produces 3,000 kilos of green leaves on six acres planted in TRI 2022-27 and 4042-49 cultivars. He first planted tea on 1.5 acres in 2001, expanding gradually, recently adding two acres. The main fertilizer is an organic compost, to which he adds bioliquids to enhance micronutrients. He does not use plant protection chemicals or herbicides. He hires local field workers part-time to pluck tea and harvest coconut, pepper, pineapple, sopa, rubber, papaya, and bananas, and he offers a homestay through Sinharaja Holiday Bungalows. Tea generates 75% of the farm’s revenue. A retired engineer, he makes a delicious homemade kombucha he shared with us in his kitchen with rice and coconut milk welithalapa and oil cakes.
Neluwa Smallholder Dayananda Matarage
“The COVID-19 pandemic and the worst economic crisis in Sri Lanka’s post-independence history resulted in an increase in poverty rates of up to 25% in 2022, a dramatic increase from 11.3% in 2019. Although one fourth of the country’s population has fallen into poverty, many do not receive monetary support from the government, largely due to the weaknesses of social welfare schemes. More than 50% of Sri Lanka’s poorest population is not covered by the government welfare programs”
The International Labour Organization describes Sri Lanka smallholders as farming 10 acres (four hectares) or less. As defined in the Tea Control Act, Small Tea Holdings produced approximately 95% of the low-country tea, 59% of the middle-country tea, and 15% of Sri Lanka’s up-country tea in 2014.
Dan traveled more than 1,500 kilometers during a 10–day visit to Sri Lanka in May 2023. My travels were sponsored by the Sri Lanka Tea Board, chaired by Naraj de Mel, with accommodations at the Tea Research Institute courtesy of Dr. K.M. Mohotti. “I’m deeply grateful for the joyful days spent with Pavithri Peiris, the tea board’s Director of Promotion, Gayan Samaraweera, Market Promotion Officer, and Chathura Fernando, Market Analyst. Gayan and Chathura photographed the scenes above.
This fascinating book illuminates the all too often overlooked tea region of Ceylon, present-day Sri Lanka. The authors draw on the letters of James Taylor, pioneer and founding father of the Ceylon tea industry, to explore the life of a Scottish migrant who, through experimentation and determination, forged a new industry out of the ruins of the coffee blight. This uniquely complete collection of correspondence reveals this pivotal time in tea history through the eyes, thoughts, and actions of a key player. Some of the standards (two leaves and a bud) and machines that Taylor developed are still in use worldwide today.
We learn about the decline of the former plantation crops over several years and the fight to find a viable replacement: tea. James Taylor’s letters home to family, to local friends, and newspaper articles of the time are explored and expounded upon by the authors to offer a historical account by someone for whom the creation of tea was not just a vocation but an avocation too. Uniquely the story is told “as is.” That is to say, it is told in and of its time with explanation and exploration of the who, how, and why things were as they were, centered around the direct views, thoughts, and experiences of James Taylor. Unlike other works that look at this period, this book seeks not to offer judgment or rear-view mirror thinking but merely to show us what was happening at the time and why. First-hand accounts serve to explain and illuminate the period and the people as they were, as they lived, as they thought and spoke. This is the story and experiences of one man who lived through and shaped the birth of an industry. Not because he set out to change the world or get rich but because he was there because he worked with and in response to the situations, the place, and the time in which he found himself.
More broadly, this book also explores the legacy of Scottish education and the thought that the Scottish diaspora played such a significant role in the colonial world, particularly in Ceylon. It also looks at the legacy and, indeed, rediscovery of the legacy of James Taylor and his place in both the history of Sri Lanka and the Ceylon tea industry.
Although interesting, thought-provoking, and generally engaging to read, there are times when the reading can be a bit dry. Perhaps a case of two different writing styles. But push through those dry bits, and you’ll be riveted by the fascinating history within. TeaBookClub members agree that this is an essential book on your tea bookshelf that explores important tea history.
I’m really glad I read as much as I did, it seems like it’s very important history in the history of tea. – Audrey, USA
It being a first-hand account is what really made it interesting – Michaela, Austria.
I found it refreshing that the authors didn’t give Lipton much airspace. This was a book about James and what he did, achieved, and his life. I really appreciated that within the context of Ceylon at that time. – Taraya, Canada
It had very interesting and very boring parts but overall very good to read. Some parts were easier to read than others, maybe because there were two different writers. – Mariella, Netherlands
Fascinating that some of his machine designs are still being used today – Mariella, Netherlands
Based in the UK, The Tea Book Club is an international group of tea lovers and readers who meet up virtually every month to discuss tea books. If you’d like to join us for the next read, visit teabookclub.org or @joinTeaBookClub on Instagram.
Tea & Empire
Goodreads: This book brings to life for the first time the remarkable story of James Taylor, ‘father of the Ceylon tea enterprise’ in the nineteenth century. Publicly celebrated in Sri Lanka for his efforts in transforming the country’s economy and shaping the world’s drinking habits, Taylor died in disgrace and remains unknown to the present day in his native Scotland. Using a unique archive of Taylor’s letters written over a 40-year period, Angela McCarthy and Tom Devine provide an unusually detailed reconstruction of a British planter’s life in Asia at the high noon of empire.
In London, the International Tea Committee revises the per capita benchmark globally to an average of 800 grams, noting a 113% increase in tea consumption during the past 20 years.
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