SRI LANKA BOARD ANNUAL REPORT 2012 Postal Address: Tea Board 574, Galle Road, Colombo 03, Sri Lanka.

Cables: Tea Board, Colombo

Tel: +94-11-2587814 +94-11-2582121

+94-11-2583687

Fax: +94 112587341 +94 112589132

E-Mail: [email protected] Web: www.pureceylontea.com

Published in February 2014

Black tea is a type of tea that is more oxidized to gain the optimum quality and colur. Black Tea is made from leaves of the bush . Black tea is generally stronger in flavor.

Green tea is made from the leaves from Camellia sinensis that has not under gone oxidation during processing. Green tea originated in , but it has become associated with many cultures throughout Asia. CONTENTS

Vision and Mission 06 Members of the Sri Lanka Tea Board 09 Members of the Audit Committee 10 Members of the Promotion and Marketing Committee 11 Senior Management Staff 12 Message from the Chairperson 13 Basic Comparative Indicators 15 Corporate Background 19 Industry Profile 25 Activities Undertaken by the Board 67 Tea Commissioner’s Division 67 Tea Exports Division 77 Tea Promotion Division 83 Unit 95 Analytical Laboratory 101 Administrative Division 107 Internal Audit and Information Technology Divisions 110 Financial Review 113 Offices of the Sri Lanka Tea Board 135 www.pureceylontea.com 06 VISION To position as the “MOST ASPIRED BEVERAGE” in the global market.

SRI LANKA TEA BOARD Annual Report 2012 07 www.pureceylontea.com MISSION To increase the foreign exchange earnings to the country through SUSTAINABLE DEVELOPMENT OF THE INDUSTRY and thereby ensuring the economic development of the plantation community

SRI LANKA TEA BOARD Annual Report 2012

09 www.pureceylontea.com

Members of the Sri Lanka Tea Board

Chairperson Ms. Janaki Kuruppu

Secretary to the Board Director General Sri Lanka Tea Board Mr. H.D.Hemaratne (up to 23rd July 2012) Secrataries(pvt) Ltd. (23rd July 2012-16th October 2012) Director General Sri Lanka Tea Board Mr. D.W.S. Narangoda (From 17th October 2012) Members of the Board

Member Addl. Secretary (Development) Ministry of Plantation Industries Represented by Mr.P.L.U. Dissanayake

Member Ministry of Finance & Planning Represented by Director General, Department of National Planning, Ms. Pushpa Wellappilli (From 28th March 2012)

Member Chairman, Tea Small Holdings Development Authority Mr. N.P. Kariyawasam

Member Chairman, Colombo Tea Traders’ Association Mr. Jayantha Keragala

Member Chairman Planters’ Association of Ceylon Mr. S.K.L. Obeyesekera

Member Chairman, Colombo Brokers’ Association Mr. S.C. Munasinghe (up to 23rd April 2012) Mr. Deepal Jayamanne (from 23rd April 2012)

Member Chairman, Tea Exporters’ Association Mr. Niraj de Mel (up to 27th August 2012) Mr. Rohan Fernando (from 14th November 2012)

Member President, Sri Lanka Federation of Tea Small Holder Development Societies Represented by Mr. Kumara Gunasinghe (30th October 2012) Mr. Neville Ratnayake (From 31st December 2012)

Member Chairman, Sri Lanka Tea Factory Owners’ Association Represented by Mr. Anil Perera

Member Member nominated by the Hon. Minister of Plantation Industries Mr. Geoff Aloysius

Observers Dr. S.S.B.D.G. Jayawardene Mr. T. Sambasivam

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 10

Members of the Audit Committee

Chairperson Ms. Pushpa Wellapili, Director General, Department of Public Finance Ministry of Planning, ( from 23rd April 2012)

Members of the Committee

Member Mr. P.L.U. Dissanayake Additional Secretary (Development) Ministry of Plantation Industries

Member Mr. Jayanatha Keragala Chairman, Tea Exporter’s Association

Member Mr. Anil Perera Representative of Chairman, Sri Lanka Tea Factory Owners Association

Observer Ms. C.M.S. Anthony Superintendent of Audit Auditor General’s Department

Convener Mr. H.D. Hemaratne Director General, Sri Lanka Tea Board (up to 21/07/2012)

Convener Mr. Hasitha de Alwis Actg. Director General, Sri Lanka Tea Board (from 31/07/2012 to 02/11/2012)

Convener Mr. D.W.S. Narangoda Director General, Sri Lanka Tea Board (from 02/11/2012)

SRI LANKA TEA BOARD Annual Report 2012 11 www.pureceylontea.com

Members of the Promotion & Marketing Committee

The promotion & marketing committee is a sub- committee appointed to guide the board on promotional and marketing activities for Ceylon Tea.

Chairperson Ms. Janaki Kuruppu Chairperson, Sri Lanka Tea Board Members of the Committee Public Sector Private Sector Mr. P.L.U. Dissanayake Mr. Malin Goonetilleke Addl. Secretary (Development), Secretary General, Ceylon Planters Ministry of Plantation Industries Association

Mr. D.W.S. Narangoda Mr. Ravi Abeywardena Director General, Sri Lanka Tea Board Member, Private Tea Factory Owners Association

Mr. Hasitha de Alwis Mr. Anil Cooke Director (Promotion), Sri Lanka Tea Board Chairman, Colombo Brokers Association

Mr. P.D. Fernando Mr. Rohantha Athukorala Director General, Department of Head National Portfolio Development, UNOPS Commerce Dr. S.S.B.D.G. Jayawardena Chairman, Tea Research Board

Mr. Neville Ratnayake Chairman, Sri Lanka Federation of Tea Small Holder Development Societies

Dr. Gamini Abeywickrama Managing Director, Basilur Tea Exports (Pvt) Ltd.

Mr. Muffadel Jafferjee Managing Director, Jafferjee Brothers

Mr. Romesh Moraes Director, Finlays Colombo PLC

Mr. Jayantha Karunaratne CEO, Imperial (Pvt) Ltd.

Mr . Malik Fernando Director, MJF Group

Mr.Rohan Fernando CEO, HVA Group

Mr. Niraj de Mel MD, Van Rees Ceylon Ltd

Mr. Tyeab Akbarally, Director, Akbar Brothers Ltd.

Mr. Avi De Silva Managing Director, Unilever Ceylon Ltd. SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 12

Senior Management Staff

Director General Mr. H.D.Hemarathne (up to 23rd July 2012) Mr. D.W.S. Narangoda (From 17th October 2012)

Director Mr. A.H. de Alwis (Promotion)

Tea Commissioner Mr. E.A.J.K.Edirisinghe

Asst.Director General Mr. S.I.C.Perera (Administration)

Asst.Director General Ms. A.D.W.Bandarage (Finance)

Actg. Chief Internal Auditor Mr. H.D.K.Jayasinghe

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com

Message from the Chairperson

When I took over the Chairmanship of the Sri Lanka One of the urgent needs for the industry in order to Tea Board in December 2011, I walked into an industry compete in the global markets was a properly planned that was facing many challenges on the competitive communication strategy to promote Ceylon Tea global scenario with low cost competition as well globally. This need has been identified and a promotion as challenges at the ground level with respect to and marketing levy has been introduced in October productivity, lack of innovation and lack of investment. 2010 by Hon. minister Mahinda Samarasinghe to While this was the external context, internally within collect funds for the said campaign and cabinet the tea board, I found an institution that was struggling approval for the procedures and the guidelines to serve the industry’s ever increasing demands for the utilization of the fund has been granted in due to lack of staff and efficient IT systems. Hence, late 2011. Hence, in 2012, action was taken to my immediate attention was focused on coming to formulate a comprehensive marketing plan with a settlement on a labour case filed against the tea identified target markets to launch this communication board that allowed to fill the cadre positions that campaign and to select suitable communication were vacant and re-negotiating with two software partners to develop and implement the campaign. companies to get IT systems to deliver according to the Sri Lanka Tea Board started the procurement process current needs of the institution.Fortunately, during the to employ the services of advertising agencies during previous Chairman’s tenure the issue of lack of funds the year under review and plans to finalize the selection was solved by revising the fees and levies after many in the coming year. Further, the board also started years without which none of the above would have the review of all export markets and started the been possible. background study for the formulation of a three year strategic marketing plan for 25 During the year under review, the Sri Lanka Tea selected markets. The board continued to Board as the apex body of the Industry successfully register the quality marks for “Lion Logo”, Environment completed a review of all laws and regulations with Friendly Ozone Logo and seven GI regions logos which the participation of all stakeholders. The draft of the symbolizes 100% Pure Ceylon Tea in global markets. new Tea Act is being further perused by the ministry legal department. Focused implementation of the As another major initiative during the year, the existing laws and regulations in the year resulted in SLTB secretariat building which has not been the better monitoring the quality of made tea both at the renovated for over 30 years since construction was points of production and sales. Development activities refurbished and upgraded to a standard that portray relating to tea factory modernization and replanting the premium image of “Ceylon Tea”. did not show significant progress mainly due to the limited participation by the stakeholders. The tea In the macro context, while still considered a producer commissioner’s department launched a “B- Leaf 60” of superior-quality tea, it is evident that Sri Lanka’s program during the year to minimize post harvest position in the global tea arena has been challenged losses and strengthened the monitoring of by new entrants such as Kenya and China. Although GMP (Good Manufacturing Practices) implementation Sri Lanka is now the third in the league of tea in tea factories. exporting countries in volume terms, marginally

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 14

behind China and substantially below Kenya, this great Industry of our country has maintained the number one position in global exports in value terms which reaffirms our strategies to focus on value addition and the need to strengthen them.

The exports during the year 2012 showed a degrowth of 0.7% in volume and a growth of 9.6% in value over 2011 which has brought into the country Rs 169 billion (US$ 1,414 million) in foreign exchange earnings. The annual tea production improved by 0.3% over the previous year to reach 328.4 million kg harvested from a total mature land extent of 197,025 Ha under tea cultivation.

Sri Lanka has yet again managed to sustain the highest auction prices averaging at US $ 3.07 per kg while second best auction Mombasa could fetch only US $ 2.88. The composite auction average in 2012 was Rs. 391.64 which is an all-time record advancing from the previous highest average of Rs. 359.89 recorded in 2011. The most significant factor that affected the tea industry in 2012 was the uncertainties in the Middle East which is one of the strongholds for “Ceylon Tea” as well as the economic downturn experienced globally and Europe in particular. Further to this, the comparatively strong parity rate for the Sri Lanka Rupee vis-a-vis the major currencies, especially the US Dollar, which is the main trading currency for Tea also did not help.

Under the circumstances, strengthening our strategies to promote the export of value-added tea concurrently focusing on lifting yields via adequate investments in re-planting, in-filling and fertilizing as well as the use of high-yielding cultivar are necessary.

In the above context, the board is continuously reviewing its policies and regulations as well as the financial assistance schemes that are offered to the industry in order to cater to the global trends and thereby achieve greater success and sustainability. I will fail in my duty if I don’t appreciate the valuable service rendered to the Sri Lanka Tea Board by the former DG Mr. H.D. Hemaratne who retired in July 2012 after a long stint at the institution. The direction and advice of the Hon. Minister of Plantation Industries and the Secretary to the Ministry, together with the contributions by the members of the Board and staff at all levels are acknowledged and appreciated.

Janaki Kuruppu Chairperson Sri Lanka Tea Board

SRI LANKA TEA BOARD Annual Report 2012 15 www.pureceylontea.com

Basic Comparative Indicators

Tea Production Comparison 2010 2011 2012 2011 Vs 2012 (%) Total Tea Production(Mn.Kg) 331.4 327.5 328.4 0.3 Classification by Elevation(Mn.Kg) Comparison 2010 2011 2012 2011 Vs 2012 (%) High 79.1 78.2 73.6 (5.9) Medium 56.1 52.6 52.6 0.0 Low 196.2 196.7 202.1 2.7 Classification by Processing Method (Mn.Kg) Comparison 2010 2011 2012 2011 Vs 2012 (%) Orthodox (includes Bio,Instant, Reclaimed teas) 309.7 302.0 302.1 0.0 CTC 18.4 22.6 23.3 3.1 Green 3.3 3.0 3.0 0.0 Tea Sales

Comparison 2010 2011 2012 2011 Vs 2012 (%) Total Tea Sales –Volume(Mn.kg.) 322.4 323.3 325.4 0.6 Total Tea Sales –Unit Price (Rs.kg.) 370.58 360.53 392.03 8.7 Classification by Sales Volume (Mn.kg.)

Comparison 2010 2011 2012 2011 Vs 2012 (%) High 74.6 73.8 69.8 (5.4) Medium 54.2 52.4 52.4 0.0 Low 193.6 197.1 203.2 3.1 Classification by Unit Price (Rs./Kg.)

Comparison 2010 2011 2012 2011 Vs 2012 (%) High 338.26 333.28 379.18 13.8 Medium 332.80 319.48 350.86 9.8 Low 393.61 381.65 407.06 6.7 Tea Exports

Comparison 2010 2011 2012 2011 Vs 2012 (%) Total Tea Exports–Volume (Mn.kg.) 305.7 303.2 306.0 0.9 Classification by Category *The Classification order has changed from 2011 and divided in to the three groups as Black, Green and Instant tea Comparison 2010 2011* 2012* 2011 Vs 2012 (%) Bulk Tea 176.8 Black -298.8 Black -302.0 1.1 Tea Packets 89.8 Tea Bags 25.7 Green -2.5 Green -2.4 4.0 Instant Tea 1.8 Green Tea 2.8 Instant -1.9 Instant -1.6 15.8 Other Tea 8.9 Comparison 2010 2011* 2012* 2011 Vs 2012 (%) Total Tea Exports – Value (Rs.Bn.) 151.2 151.8 169.0 11.3

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 16

SRI LANKA TEA BOARD Annual Report 2012 CORPORATE BACKGROUND

19 www.pureceylontea.com 1 Corporate Background 01 The Sri Lanka Tea Board was established on 01st January 1976, under the Sri Lanka Tea Board Corporate Law No. 14 of 1975, as amended by Act No. 17 Background of 1985, No. 44 of 1990, No. 29 of 2003, and No. 44 of 2006. The objectives of the Tea Board under these Acts are for the development and regulation of the tea industry in Sri Lanka and promotion of Sri Lanka Tea (Ceylon Tea) globally. Before the Tea Board established it was called Tea Propaganda Board, which was run by the private sector. In 1976 Tea Propaganda was voted out by the parliament and converted to the Tea Propaganda to the now known as Sri-Lanka Tea Board with the powers to the tea industry.

It is the authority responsible for regulating the activities of the tea industry, viz. production, cultivating new area and replanting, rehabilitating old gardens, the establishment of factories and their operation.

The Sri Lanka Tea Board is planning on intensifying the monitoring of quality standards of tea at the point of sale, monitoring of pre-shipment teas, inspection of warehouses of brokers, blenders and exporters, and providing advisory services on hygienic blending and storing. Additionally, it regulates controls and directs all institutions and organizations engaged in the management of tea estates and in the production and marketing of Tea.

Action is to be initiated in compatibility with industry requirements to align the current laws and regulations to fulfill the global needs. Tea Board has the control over all matters connected with regulatory functions, development work, and promotion of Sri Lanka Tea (Ceylon tea) locally and abroad. It will continue its regulatory functions, especially with regard to production and quality assurance, the local distribution and export of teas, as well as its overseas promotional activities. The development functions include monitoring of subsidies for upgrading factories and policy formulation and implementation on quality assurance of tea. As promotional activities, it is responsible for monitoring of marketing and promotional activities of tea, collection and interpretation of tea statistics.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 20 01 Sri Lanka Tea Board Structure 1.1. Main Secretariat Corporate Responsible for overall supervision of all the Background activities with respect to regulation, development and promotion of the tea industry and administration and financial affairs of the Board. The managerial functions as supporting services are carried out in various sections namely, administration, finance, operations, regulations, promotion, development, statistic, internal audit, secretariat, tasting and analytical laboratory, information technology and library. 1.1.1. Administrative Division

Administration Division is responsible for overall Human Resource Management and Development, Procurement & Stores, Maintenance, Infrastructure Development and Transport under the Assistant Director General (Administration).

1.1.2. Finance Division

Finance division is responsible for overall financial control and management of Sri Lanka Tea board. Other main activities of Finance division are recommendations for financial policy formulations to the board, preparation of annual budget, Annual financial statements, Monthly accounts and periodical reports, Maintenance of inventories and annual verification and Submitting annual accounts to Auditor General. 1.2. Tea Commissioner’s Division

All matters connected with regulatory functions in respect of cultivation, manufactures of tea, and quality development. The Division operates through a network of seven Regional offices.

Tea Export Section under Tea Commissioner’s Division is responsible for all matters connected with regulatory functions in respect of disposal of made tea, warehousing, packaging, exportation and importation of tea.

SRI LANKA TEA BOARD Annual Report 2012 21 www.pureceylontea.com 01 1.3. Tea Promotion Division

All matters connected with promotion of Corporate Sri Lanka tea locally and internationally, Background assisted by Overseas Offices. Provide market intelligence periodically and as per the demand of the Industry. A Tea Sales Counter beneficial to the locals and foreigners is in operation.

Tea Tasting Unit under the Promotion Division is responsible for examination of tea on Minimum Quality Standards, Reference Standard on Lion Logo and examination of other origin teas through an independent panel of expert Tea Tasters. Media advertising, participation at international Food & Beverage Fairs, Brand Promotion Schemes, and Generic Promotion with the assistance of overseas Tea Promotion Officers & Commercial Officers attached to Sri Lanka Missions abroad. Liaison with International Tea Councils & Tea Associations, Intergovernmental Group on Tea of FAO etc. 1.4. Analytical Laboratory

Responsible for testing and issuing of quality certificates for tea on Chemical, Microbiological and Pesticides residue quality parameters, using high- tech equipment to maintain the tea quality. Therefore, individually each unit had contributed in quality certification matter and thereby supported to protect the image of “Ceylon Tea”.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 22

SRI LANKA TEA BOARD Annual Report 2012 INDUSTRY PROFILE 2012

25 www.pureceylontea.com Industry Profile – 2012 02 2. Tea Industry Background The Tea production improved during the year Industry Profile owing to satisfactory weather in addition to liberal inputs and good agricultural practices maintained in the fields. The continuation of the fertilizer subsidy also contributed to the year’s achievement. The Sri Lanka tea production stood at 328.4 Mn. kg reflecting an increase of 0.3% against the 2011 production of 327.5 Mn. kg. Matured (harvesting, bearing) tea extend in hectares is about 197,025 at present. During the 2012, tea production per yield has increased from 1662Kg / Ha to 1667Kg/Ha ( Based on matured tea extent). The depreciation in February 2012 assisted tea producers and exporters, with the Colombo Tea Auction averages ending the year at Rs. 392.03, increasing over the previous year by Rs. 31.50. 2.1.Distribution of Tea Land

The present estimated registered tea land in Chart 2.1: Tea Land Proprietorship Sri Lanka is revised as 221969 hectares*1. Subsequently, the breakdown of tea lands along with their management criteria is State Private (59%), Corporate (37%) and State 4% sector (4%).Tea cultivation has distributed within few districts in the country mainly in wet Coporate Private zone area because of the suitable climate for 37% 59% the tea cultivation is distributed around this area. Elevation-wise classification of tea area is given in Table 2.1. Based on elevation of tea lands tea cultivation areas are divided in to three groups as high, medium and low.

Table 2.1: Registered Tea Area by Elevation Elevation Extent Percentage High 41137 18.5 Medium 71018 32.0 Low 109814 49.5 Total 221969 100.0

1.’Census of tea small holding -2005’ by Tea Small Holdings Development Authority and Department of Census and Statistics

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 26

2.2.Tea Production in Sri Lanka Following extreme weather conditions Table2.2: Total Tea Production by Elevation 02 experienced in tea growing areas during the Elevation Extent first half of 2012, tea production for the year High 73,642,586.8 reached an all time high of 328.4 Mn.Kgs. Medium 52,633,128.7 Industry Profile Production for 2012 was remarkably higher compared to 327.5 Mn. Kgs recorded in 2011. Low 202,121,318.3 Total 328,397,033.7 Sri Lanka produces tea cultivated in a variety of elevations, with the bulk being low grown tea. This is cultivated in elevations ranging from sea level to 600 meters, and essentially has a stronger flavor and color.

As such, higher income levels and the resultant rise in demand have pushed up for the low-grown tea in recent times. Meanwhile, high-grown tea is cultivated in altitudes of over 1,200 meters and is generally regarded as being of superior quality, with a unique taste and aroma.

Tea production in Low Elevation contributed more than two third (62%) of national tea production whilst high and medium accounted for 22% and 16% respectively. 2.2.1.Monthly Tea Production

The graph depicts monthly total tea production in 2012. Monthly total tea production from February to July in 2012 has shown slight drop comparatively last year. But it has almost recovered during the last six months of the year. The chart 2.2 shows the elevation wise monthly tea production for the last consecutive years.

Chart 2.2: Monthly Tea production by Elevation

35,000 High Medium Low 40 Production 2012 Production 2011 30,000 35

30 25,000 25 20,000 Thousands Millions 20 15,000 15 10,000 10

5,000 5

0 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

SRI LANKA TEA BOARD Annual Report 2012 27 www.pureceylontea.com

2.2.2.Agro Climatic District Wise Analysis 02 Table 2.3 represents the tea production in various agro climatic districts in Sri Lanka during the year under review with comparative Industry Profile data for the previous year.

Ratnapura and Galle continued to be at the top of the list of agro district-wise tea production with 57Mn.kg. and 44.4Mn.kg, respectively. It could be revealed that all agro climatic districts in Western sub-district ended up with an escalating tea manufacturing trend in year 2012 compared to the previous year.

Table2.3: Agro - Climatic District -wise Tea Production Production Quantity (MT) Change Agro Climatic District 2012 2011 Qty. (MT) %

A. NUWARA - ELIYA 3,564 4,663 (1,099) -24%

B. WESTERNS

1. Ramboda 3,139 2,466 673 27% 2. Punduloya 2,498 3,370 (872) -26% 3. Agarapatana 6,834 8,118 (1,284) -16% 4. Nanuoya/ Lindula/ Talawakelle 1,820 10,445 1,375 13% 5. Patana/ Kotagala 6,232 5,621 611 11% 6. Hatton/ Dickoya 8,595 9,115 (520) -6% 7. Bogawantalawa 5,410 8,158 (2,748) -34% 8. Upcot/ Maskeliya 8,541 8,205 336 4% TOTAL WESTERNS 53,069 55,497 (2,428) -4%

C. MEDIUMS 1. Watawala/ Ginigathhena/ Norton Bridge 2,837 2,133 704 33% 2. Pussellawa/ Hewaheta 6,548 8,305 (1,757) -21% 3. Kotmale 2,201 915 1,286 141% 4. Gampola/ Nawalapitiya/ Dolosbage 14,523 14,397 126 1% 5. Nilambe/ Hantane/ Galaha 1,255 1,798 (543) -30% 6. Kadugannawa 7,796 6,027 1,769 29% 7. Madulkelle/ Knuckles/ Rangala 5,458 4,348 1,110 26% 8. Hunnasgiri/ Knuckles/ Y'dessa 994 2,781 (1,787) -64% 9. Balangoda/ Rakwana 3,569 9,534 (5,965) -63% TOTAL MEDIUMS 45,180 50,238 (5,058) -10%

D. UDA PUSSELLAWA 1. Uda Pussellawa/ Halgranoya 4,870 4,797 73 2% 2. Maturata 2,827 1,784 1,043 58% TOTAL UDA PUSSELLAWA 7,698 6,581 1,117 17%

Cont’d. SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 28

Table2.3: Agro - Climatic District -wise Tea Production Production Quantity (MT) Change Agro Climatic District 02 2012 2011 Qty. (MT) %

E. UVAS Industry Profile 1. Koslanda/ Haldumulla 314 616 (302) -49% 2. Haputale 3,771 4,822 (1,051) -22% 3. Bandarawela/ Poonagalla 2,953 3,264 (311) -10% 4. Malwatte/ Welimada 3,197 3,362 (165) -5% 5. Demodara/ Haliella/ Badulla 7,767 8,979 (1,212) -14% 6. Ella/ Namunukula 1,180 1,419 (239) -17% 7. Passara/ Lunugalla 4,004 3,696 308 8% 8. Madulsima 2,368 2,339 29 1% TOTAL UVAS 25,554 28,497 (2,943) -10%

F. LOW GROWNS 1. Deniyaya 16,545 16,525 20 0% 2. Galle 44,393 52,134 (7,741) -15% 3. Kalutara 21,553 18,086 3,467 19% 4. Kegalle 10,817 4,848 5,969 123% 5. Kellani Velly 829 6,517 (5,688) -87% 6. Kandy/ Matale/ Kurunegala 3,572 2,456 1,116 45%

F. LOW GROWNS 7. Matara 4,460 17,073 (12,613) -74% 8. Morawaka 25,488 7,922 17,566 222% 9. Ratnapura 57,042 52,387 4,655 9% 10. Balangoda 8,633 4,109 4,524 110% TOTAL LOW GROWNS 193,333 182,056 11,277 6%

GRAND TOTAL 328,397 327,532 865 0.26%

Source : SLTB Production Reports 2.2.3.District Wise Tea Production

Table 2.4 represent the tea production in various administrative districts in Sri Lanka and its elevation wise break down during the year under review. It is evident that major high grown production has reported from the Nuwara Eliya district and the highest low grown production has reported from the Ratnapura district for the last year.

SRI LANKA TEA BOARD Annual Report 2012 29 www.pureceylontea.com

Table 2.4: District wise Tea Production (in Kg) District High Medium Low Total Badulla 14,043,682 12,785,277 0 26,828,959 02 Colombo 0 0 675,457 675,457 Galle 0 0 48,793,613 48,793,613 Hambantota 0 0 284,332 284,332 Industry Profile Kalutara 0 0 17,357,166 17,357,166 Kandy 909,246 21,865,441 10,297,619 33,072,306 Kegalle 0 804,428 11,216,887 12,021,315 Matale 0 1,437,987 522,932 1,960,919 Matara 0 232,304 44,289,223 44,521,527 Nuwara Eliya 57,760,400 13,117,544 828,544 71,706,489 Ratnapura 929,258 2,390,148 67,855,546 71,174,952 Total 73,642,587 52,633,129 202,121,318 328,397,034

2.2.3.1.Production analysis by Green Leaf Collection Method

The total tea production of a factory includes the green tea leaf collected from their own estates or from other estates, or from the leaf bought from the other suppliers. The following table illustrates the total production of made tea produced from each green leaf collection method in the administrative districts.

Table 2.5: District wise Tea Production Admin District Own Leaf Other Estate Bought Leaf Total Production Badulla 11,200,555.20 6,489,694.50 9,138,709.50 26,828,959.20 Galle 1,083,375.00 479,487.50 49,955,044.00 51,517,906.50 Colombo - - 675,457.00 675,457.00 Hambantota - - 284,332.00 284,332.00 Kalutara 674,164.00 55,931.00 15,833,878.85 16,563,973.85

Kandy 5,875,218.50 2,090,804.00 24,782,280.30 32,748,302.80

Kegalle 1,119,618.00 487,017.00 7,431,402.90 9,038,037.90 Matale 646,261.00 195,014.00 1,877,323.00 2,718,598.00 Nuwara Eliya 49,269,178.96 10,621,971.35 12,431,046.50 72,322,196.81 Ratnapura 6,354,008.50 903,049.50 66,125,294.15 73,382,352.15 Total 78,764,440.66 21,822,086.85 227,810,506.20 328,397,033.71 Production

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 30

2.2.4.Production analysis by 02 Processing Method 2.2.4.1.Black Tea and Green Tea Production

Industry Profile The Orthodox tea production realized a growth of 0.03% (101,404kg) in 2012, whilst CTC production has showed an increase of 3.2% against year 2011. During the year under review, Black tea production increased significantly to record a 0.8Mn.Kg (0.25%) growth as shown in the following table. Green tea production shows an increase of 43,858Kg that is an increase of 1.5% respectively previous Black Tea year.

Green Tea

Table 2.6: Tea production by processing method Processing Method 2011 2012 Variance Qty.(Kg) Qty.(Kg) Qty.(Kg) Percentage(%) Orthodox 301,959,681 302,061,086 101,404 0.03% CTC 22,583,966 23,303,833 719,867 3.19% Green 2,988,256 3,032,115 43,858 1.47% Total 327,531,903 328,397,034 865,130 0.26%

2.2.4.2.Instant Tea and Bio Tea Production

In comparison to year 2011 both Instant tea and Bio tea shows a shortfall of its productions. Instant tea showed a decline of 0.29Mn.Kg and Bio tea showed a drop of 0.08Mn.Kg for year 2012.

SRI LANKA TEA BOARD Annual Report 2012 31 www.pureceylontea.com

2.2.5.Cost of Production of Made Tea 02 Productivity and cost of production (COP) are inter-related. Increasing cost of production continues to be a worrying phenomenon in the Industry Profile plantations sector. Labor productivity in tea has greater relation with COP as tea production system needs larger quantity of labor. Sri Lanka has highest COP among major tea producing countries. This has affected the country’s competitive position in the global arena.

Black Tea The cost of production for per kilogram of made tea has rapidly increased during the last decade. Increase in labor cost and high prices of inputs had specially influenced production costs. The annual cost of tea production, com- piled by the Department of Census and Statis- tics for 2011/12, was Rs.390.89 per Kg. It is an increase of 10% comparatively 2010/11.

Chart 2.3: Total cost per kilogram of made tea

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 32

2.3.Tea Sales

02 Sri Lanka tea industry recorded a greater average price for teas in 2012 compared to 2011. A quantity of 323.3 Mn.Kg of tea was Industry Profile sold in 2011 at an average of Rs.360.53 per kg against 325.4Mn.Kg sold at Rs.392.03 per kg including Pubic, Private and Direct sales in year 2012. This unit-increase compared to the previous year was around Rs.31.50 (8.7%), moving up from Rs.360.53 to Rs.392.03 per kilogram. 2.3.1.Mode of Sales

Public auction is the main mode of disposal of teas manufactured in factories. An amount of 320.0Mn.Kg was sold under the Colombo Tea Auction in 2012. Private sales accounted for 3.7 Mn.Kg (1.1 %) and the rest about 0.5% sold through direct sales. 2.3.2.The Colombo Tea Auction

In 2012 there were 50 auctions conducted by Ceylon Chamber of Commerce under Colombo Tea Traders Association and record- ed a substantial increase of 3.3Mn.Kg (1.0%) for public and private sales. However, average price fetched at the Colombo Tea Auction during 2012 reported a comparatively greater value, and resulted an annual escalation from Rs. 359.89per kilogram to Rs. 391.64per kilogram. 2.3.3.Elevation-wise Sales

Table 2.7 shows an analysis of tea sales according to their elevations. In all three elevations, unit prices fetched are increased when compared to the last year, resulted a positive turnover in year 2012.

SRI LANKA TEA BOARD Annual Report 2012 33 www.pureceylontea.com

Table 2.7: Elevation-wise Tea Sales. Elevation Quantity (Mkg.) Unit Price (Rs./Kg.) 2012 2011 Change % 2012 2011 Change % 02 High 69.8 73.8 (4.00) (5.42) 379.18 333.28 45.90 13.77 Medium 52.4 52.4 0.00 0.00 350.86 319.48 31.38 9.82 Low 203.2 197.1 6.10 3.09 407.06 381.65 25.41 6.66 Industry Profile Total Sales 325.4 323.3 2.10 0.65 392.03 360.53 31.50 8.74

Source : SLTB Sales Reports 2.4.Tea Exports

Sri Lanka’s Tea Exports for the year 2012 was 319.9Mn.kg achieving export earnings of Rs.180.4billions. The average unit FOB price was Rs.563.94per kilogram. This is the third consecutive time that the exports earnings from tea exceeded the Rs.150 billion mark.

Although still regarded as a producer of premium -quality tea, Sri Lanka is gradually losing its footing in the global tea industry. Intense competition from rivals has adversely affected the nation’s competitive position; this has been exacerbated by the higher production costs tea and poor yields in Sri Lanka. Meanwhile, the country’s continued dependency on orthodox tea as opposed CTC teas could further erode its market share amid global consumers’ rapidly changing preferences.

Tea exports categorized according to the new HS codes are tabularized under this section. It comprises of Bulk tea, Tea Packets in different ranges and Tea Bags packaging that classified under Black tea, Green tea, and Instant tea processors. 2.4.1.Tea Export analysis according to Categories In general, preferences for tea vary substantially, depending on the origin and quality of the leaves. For instance, Middle Eastern and CIS countries opt for low-grown, orthodox, strongly flavored tea produced primarily in Sri Lanka.

The cumulative tea exports in 2012 (Black, Green & Instant Tea packages only) were 0.7% descending in its volume and 9.6% ascending in its earnings respectively than that in 2011. Moreover unit FOB price was attained a positive change of Rs.53.22 per Kg. (i.e.10.4%). However, cumulative exports earnings were ended up with US$ 1,414.0 Million in 2012 relating to the US$ 1,488.4 Million in 2011 and accomplished a 5.0% reduction. SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 34

02 Chart 2.4: Monthly tea exports - Volume & Unit Value

Industry Profile

Source: Compiled using Sri Lanka Customs data 2.4.2.Annual tea exports -2012 The category wised tea exports for the January to December in year 2012 are showed in Table 2.8

Table 2.8: Annual tea exports – 2012

Category Exports As at December 2012 Black Tea Packaging Qty (Kg.) Value (Rs.) FOB (Rs./Kg.) Tea in Bags 20,602,905 22,333,698,412 1,084.01 Tea in Bulk 129,493,216 64,136,650,791 495.29 Tea in Packets (4g.-1Kg.) 94,027,545 50,616,750,569 538.32 Tea in Packets (1Kg.-3Kg.) 865,140 519,428,202 600.40 Tea in Packets (3Kg.-5Kg.) 17,864,920 8,653,095,435 484.36 Tea in Packets (5Kg.-10Kg.) 39,193,702 18,667,841,443 476.30 Black Tea – Total 302,047,428 164,927,464,852 546.03 Green Tea Packaging Tea in Bags 748,066.00 1,304,941,954 1,744.42 Tea in Bulk 758,679.00 381,510,319 502.86 Tea in Packets (4g.-1Kg.) 850,695.00 981,606,987 1,153.89 Tea in Packets (1Kg.-3Kg.) 8,297.00 7,825,228 943.14 Tea in Packets (3Kg.-5Kg.) 59,487.00 22,702,206 381.63 Tea in Packets (5Kg.-10Kg.) 15,352.00 16,466,088 1,072.57 Green Tea – Total 2,440,576 2,715,052,782 1,112.46 Instant Tea Instant Tea – Total 1,551,562.00 1,372,361,880 884.50

All Tea Exports 306,039,566.00 169,014,879,514 552.26

SRI LANKA TEA BOARD Annual Report 2012 35 www.pureceylontea.com

Table 2.9: Annual imported tea exports (Re–exports) 2012

Category As at December 2012 Re- Exports 02 Black Tea Packaging Qty (Kg.) Value (Rs.) FOB (Rs./Kg.) Tea in Bags 3,389,691 3,530,046,886 1,041.41 Industry Profile Tea in Bulk 2,174,483 1,162,032,440 534.39 Tea in Packets (4g.-1Kg.) 5,506,922 3,356,503,281 609.51 Tea in Packets (1Kg.-3Kg.) 139 297,987 2,143.79 Tea in Packets (3Kg.-5Kg.) 0 0 0.00 Tea in Packets (5Kg.-10Kg.) 176,790 105,851,210 598.74 Black Tea – Total 11,248,025 8,154,731,804 724.99

Green Tea Packaging Tea in Bags 1,062,158.00 1,825,183,128 1,718.37 Tea in Bulk 100,697.00 79,551,486 790.01 Tea in Packets (4g.-1Kg.) 1,426,633.00 1,327,080,826 930.22 Tea in Packets (1Kg.-3Kg.) 7,839.00 3,748,458 478.18 Tea in Packets (3Kg.-5Kg.) 3.00 3,521 1,173.67 Tea in Packets (5Kg.-10Kg.) 60,977.00 24,298,753 398.49 Green Tea – Total 2,658,307.00 3,259,866,172 1,226.29 Instant Tea Instant Tea – Total 674.00 809,574 1,201.15 All Tea Re- Exports 13,907,006.00 11,415,407,550 820.84

Grand Total 319,946,572.00 180,430,287,064 563.94

Source: Sri Lanka Customs 2.4.3. Value added Tea Exports

The global preferences are rapidly changing into value added tea categories where Sri Lanka should adopt to these market changes in order to maintain its traditional market position in the globe. Exports of value added teas, tea packets, tea bags and instant teas recorded a share of 57.4% of the total export volume. However, it had pushed the revenue from value added teas to a share of 61.8% of total export income.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 36

2.4.4. Main Destinations of 02 Sri Lanka Tea Exports Historically, Sri Lanka’s main export destination for tea had been Europe, including Industry Profile the UK. However, Sri Lankan bulk tea exports have now tilted towards the Middle East as result of increased use of tea bags.

As Russia is the world’s largest tea importer, it is also Sri Lanka’s largest individual buyer of tea, accounting for nearly 15.4% of export volume share with 15.9% of export earnings share during the period under review. Iran continued to be the second in the list of main destinations of Ceylon Teas, whiles Syria upgraded its position as the third with an export volume share of 8.1%. The Middle East is Sri Lanka’s largest export destination as a region; demand has been expanding robustly on the back of strong oil prices.

Top 10 pure Sri Lankan tea exporting destinations are accounted for around 70% of the totality. However, only Iran, & Japan, maintained the significantly greater FOBs with respect to the average unit FOB price attained. Furthermore the gloomy economic outlook on US and the sovereign debt crisis in EU could also cripple the potential revenue from the tea exports.

Table 2.10 Main Destinations of Sri Lankan Tea Exports 2012

Country Qty. Value FOB % Share - % Share - Diff. in FOB* (Kg.) (Rs.) (Rs./Kg.) Volume Value (Rs./Kg.)

Russia 47,250,313 26,861,817,131 568.50 15.4 15.9 16.24 Iran 38,125,937 22,359,546,157 586.47 12.5 13.2 34.20 Syria 24,718,795 13,238,591,632 535.57 8.1 7.8 (16.70) Iraq 23,483,363 10,636,265,163 452.93 7.7 6.3 (99.34) Turkey 23,131,102 11,459,307,236 495.41 7.6 6.8 (56.86) Libya 16,325,958 6,452,045,763 395.20 5.3 3.8 (157.06) UAE 11,582,777 6,200,968,119 535.36 3.8 3.7 (16.90) Azerbaijan 10,591,385 5,699,647,356 538.14 3.5 3.4 (14.12) Japan 9,545,484 6,097,967,217 638.83 3.1 3.6 86.57 Jordan 9,397,691 4,504,109,682 479.28 3.1 2.7 (72.99) Total 214,152,805 113,510,265,456 530.04 70.0 67.2 (22.22)

*Negative FOB price differences (w.r.t. the average FOB in pure SL exports) are in parentheses Source: Sri Lanka Customs

SRI LANKA TEA BOARD Annual Report 2012 37 www.pureceylontea.com

2.4.4.1. Exports of Black Tea Russia continued her position as the prime Sri Lankan Black tea importer (15.4%) in year 2012 02 by importing 46.6MKg. Iran and Syria’s Black tea imports from Sri Lanka achieved 38.1MKg. (12.6%) and 24.7MKg.(8.2%) respectively. Industry Profile

Table 2.11: Top-Five Destinations of Black Tea Exports

Country Qty. Value FOB % Share - % Share - Diff. in FOB* (Kg.) (Rs.) (Rs./Kg.) Volume Value (Rs./Kg.)

Russia 46,649,873 26,201,573,850 561.66 15.4 15.9 15.63 Iran 38,110,203 22,349,565,890 586.45 12.6 13.6 40.42 Syria 24,712,130 13,232,151,936 535.45 8.2 8.0 (10.58) Iraq 23,464,603 10,625,109,028 452.81 7.8 6.4 (93.22) Turkey 23,129,068 11,457,014,848 495.35 7.7 6.9 (50.68) Total of Top 5 156,065,877 83,865,415,552 537.37 51.7 50.8 (8.66) Destinations

*Percentages are in parentheses Source: Sri Lanka Customs 2.4.4.2. Exports of Green Tea

Out of leading ten importers of Green teas, Russia recorded a considerable volume of 0.6Mn.kg.in year 2012. Another remarkable point is that more than 50% of the total exports of Green teas were exported to top 5 destinations.

Table 2.12: Top-Five Destinations of Green Tea Exports

Country Qty. Value FOB % Share - % Share - Diff. in FOB* (Kg.) (Rs.) (Rs./Kg.) Volume Value (Rs./Kg.)

Russia 600,440 660,243,281 1,099.60 24.6 24.3 (12.86) UAE 343,802 167,335,628 486.72 14.1 6.2 (625.74) Ukraine 238,157 268,536,120 1,127.56 9.8 9.9 15.10 Taiwan 86,193 95,183,122 1,104.30 3.5 3.5 (8.16) Italy 84,502 138,701,912 1,641.40 3.5 5.1 528.94 Total of Top 5 1,353,094 1,330,000,063 982.93 55.4 49.0 (129.53) Destinations

*Percentages are in parentheses Source: Sri Lanka Customs

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 38

2.4.4.3. Exports of Instant Tea Chart 2.5: Leading Export Destinations of Instant Tea Ireland became the first place of leading 02 instant tea importing country from Sri Lanka and responsible for an import volume 1.46Mn.Kg. (94.3%) as against last year. Industry Profile Japan and U.S.A. maintained second and third positions in the list of major instant tea exports destinations.

Source: Data are extracted from Sri Lanka Customs 2.4.4.4. Exports of RTD (Ready to ) Teas

Sri Lanka’s RTD tea exports were shipped to 11 destinations in 2012. Italy was the principal buyer of Sri Lankan RTD teas, which having 43.7Th.Lt. (80.8%). Considering the imported tea exports (i.e.re-exports) stream, Iran, Russia Ukraine and Uzbekistan uphold their quantity exported over 1Mn.Kg. for the year 2012. They contributed to import more than 55% of Sri Lanka total imported tea re-exports’ volume. 2.5.Global Tea Industry Background Tea is one of the most popular and widely consumed hot beverages the world over. Sri Lanka’s exports, particularly tea has played a vital role in the National economy and Social Development from the inception of its illustrious history. The commodity based product has made inroads as a significant contributor of Sri Lanka’s exports earnings, whilst this segment is also amongst the largest employers in the country.

Amongst tea producing countries, the principal producers are India, China, Sri Lanka, Kenya and Indonesia. These five countries account for 77% of world production and 80% of global exports. While China was mainly instrumental for the surge in world tea crop, African Continent particularly Kenya also registered a bumper harvest. Considering the Sri Lankan scenario in the global tea industry, the year 2012 is continued with escalated average unit price (auction) and revenue performances (exports) compared to the other tea producing members.

SRI LANKA TEA BOARD Annual Report 2012 39 www.pureceylontea.com

2.5.1. Global Tea Cultivation

Total extent planted with tea in the world was estimated to be more than three million 02 hectares at the end of the year 2012.

Table 2.13: Highest Tea Extent Records Industry Profile

Country 2010 (Ha.) 2011 (Ha.) 2012(Ha) China 1,970,200 2,112,510 2,279,940 India 579,400 578,000 580,000 Kenya 171,916 187,855 190,717 Sri Lanka* 188,007 187,860 187,000

Vietnam 129,000 127,000 124,027

Indonesia 122,796 122,764 121,076

Myanmar 78,400 78,500 78,500

Turkey 77,500 77,700 77,800

Bangladesh 54,900 54,400 54,500

Japan 46,800 46,200 45,900

* Estimated Area registered as Planted Source: Annual ITC Bulletin of Statistics - 2013

According to the International Tea Committee (ITC), largest tea extent is found in China and its extent noticeably increased during last decade. The tea area in Kenya has increased during the year 2012 surpassing the tea area in Sri Lanka. The top-ten country-wise tea extent for the year 2010-2012 is incorporated in table 2.13. 2.5.2. Global Tea Consumption

Annual tea consumption and triennial average per capita tea consumption during the three years period of 2009-2011 reveal that the annual consumption was highest in China, recording 1,279.3Mn.kg. Although the per capita consumption is low which was recorded as 0.95Kg. It was followed by India with a 871.67Mkg. and 0.73Kg. per head.

According to the country-wise per capita tea consumption statistics for the period of 2008-’10 and 2010-’12 published by ITC, Morocco, China, Indonesia & Germany tea consumers increased consumption by 0.67Kg., 0.08Kg., 0.06Kg & 0.05Kg. respectively, per head per year in the latest review period. Conversely, Kuwait, Siriya showed a plummet of & 0.29Kg & 0.17Kg.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 40

However, the annual per capita consumption of tea is highest in Kuwait, Libya & Turkey with 3.25Kg. 2.39kg. & 2.04Kg. respectively. 02 Table 2.14 gives a list of Countries having per-capita consumption more than 1.00Kg.

Industry Profile Table 2.14: Country-wise Tea Consumption Statistics

2009-11 2010-12 Country Total Total Total Per capita (Mkg.) (Mkg.) (Mkg.) (Kg.) Kuwait 9.47 3.54 8.68 3.25 Libya 10.23 1.72 13.60 2.39 Turkey 150.10 2.06 151.57 2.04 United Kingdom 122.46 1.92 123.51 1.97 Afghanistan 50.37 2.06 49.27 1.97 Ireland 9.85 2.18 8.51 1.90 Republic Morocco 56.17 1.76 56.17 1.74 Taiwan 44.18 1.65 44.00 1.64 Qatar 2.43 1.42 2.53 1.46 Hong Kong 9.64 1.36 9.48 1.34 Sri Lanka 28.03 1.36 27.79 1.33 Syria 28.54 1.42 26.50 1.25 Chile 20.45 1.20 21.40 1.24 Iraq 42.00 1.31 40.35 1.21 Kenya 85.03 1.08 91.63 1.14

Source: Annual ITC Bulletin of Statistics – 2013 2.5.3. Global Tea Production

Global tea production is primarily concentrated in 4 countries - India, China, Kenya and Sri Lanka which together accounted for nearly 75% of the world’s output in 2012 (refer to Chart 2.6). An all-time record of 4.7 bn.Kg. was recorded as the global tea production in 2012. The contribution of major tea producers to the global manufacture in year 2010-2012 (who exceeds 100MKgs) is represented in Chart 2.6. Although India and China are still the largest tea producers, these 2 nations’ considerable domestic consumption has rendered Kenya and Sri Lanka the largest global exporters of this commodity. China occupies the highest position with 1,915.0Mn.kg. and India stayed at second with a annual production of 1,111.8Mn.kg. in 2012. Kenya is placed third by surpassing the Sri Lanka’s annual crop in year 2012 also and maintained its manufacturing level at 369.6Mn.kg.

SRI LANKA TEA BOARD Annual Report 2012 41 www.pureceylontea.com Chart 2.6: World Tea Production Statistics. 02

Industry Profile

Source: Supplement: Annual ITC Bulletin of Statistics – 2012 2.5.4. Global Tea Sales

Colombo Auction was lifted her position as the leading auction centre by handling maximum sales volume during 2012. However, volume traded in Mombasa Auctions also maintained over 320Mkg. and Kolkata Auctions had shown a significant decline of its sales volume in 2012.

Table 2.15: Statistics of Major Tea Auctions (Qty. - in Mn.Kg., Avg. Unit Price - in US$/Kg.)

Auction 2010 2011 2012 Centre

Qty. Price Qty. Price Qty. Price 56.8 2.61 53.9 2.14 58.1 2.41 Cochin 61.0 1.71 58.8 1.73 57.4 1.80 Colombo 322.4 3.28 323.3 3.26 325.4 3.07 Guwahati 121.5 2.43 125.8 2.33 119.3 2.47 Jakarta 38.5 1.82 32.8 1.97 32.0 1.97 Kolkata 154.9 2.86 165.9 2.78 151.0 2.81 Limbe 15.8 1.58 13.3 1.61 12.5 1.70 Mombasa 348.1 2.54 333.9 2.72 321.5 2.88

Source: computed from ITC Web Site

Colombo Auction holds the record for the highest average auction price fetched for the last three years. Also it was the only auction centre that exceeds USD 3.00per Kg. during the reference period. Mombasa holds the second largest average auction price with US$ 2.88 per Kg. & Kolkata stated her position as the third in 2012.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 42

2.5.5. Global Tea Exports

Global tea exports during 2012 showed a 02 shrinkage of 9.0Mn.kg (0.5%) as against the previous year. Kenya & Sri Lanka escalated its export quantities and attained growths of 2.1% Industry Profile & 0.9% correspondingly, compared to the other major tea exporting countries in 2012. The three largest exporters, viz, Kenya, China and Sri Lanka accounted for more than 60% of global exports.

Chart 2.7: Major Tea Exporters

Source: Supplement: Annual ITC Bulletin of Statistics – 2012, Note: Sri Lankan Figure with Excluding Re-exports

The leading tea exporting countries with their Table 2.16: Top-most export revenues (2012) export revenues in year 2012 are listed below. It reveals that Kenya earned the largest income Country Export Revenue from tea exports. However, Sri Lanka was (US$ Million) the main export earning country until 2011. Kenya 1,328.0 Sri Lanka 1,324.7 China 1,115.7 India 686.8 Vietnam 227.0 Indonesia 156.7

Source: Annual ITC Bulletin of Statistics – 2013

SRI LANKA TEA BOARD Annual Report 2012 43 www.pureceylontea.com

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 44

2.6.Export Market Review for Ceylon Tea While the Russian Federation continue to 02 maintain its prime position as the number one buyer of “Ceylon Tea” with a share of 15.2% from total Ceylon Tea exports to the world, Iran Industry Profile and Syria have consolidated their positions as the second and third largest buyers of Ceylon Tea during 2012 with a share of 12% and 8% respectively. If the indirect exports reaching Iran is also taken into consideration, the share of purchases by Iran could be as high as 14%. Indeed it is significant that Ceylon Tea exports to Iran & Iraq has performed even better than 2011 with off-takes increasing from 30.93 Million kilos to 38.12 Million Kilos by Iran, 22.62 Million Kilos to 23.48 Million Kilos by Iraq and 19.17Million Kilos to 23.13 Kilos by Turkey. This achievement is credible as Iran experienced tremendous pressure from the US and the West with trade sanctions as well as Iraq which faced continuing civil riots and an internal conflict. It reflects that Ceylon tea performance to these markets would have been even better under normal circumstances. Iraq improved its position to the fourth largest buyer with direct imports of 23.5 Million Kilos as against 13 Million Kilos in 2010 registering a significant 81% increase.

The transshipment hub Dubai played a more low profile role in 2012 and therefore off-takes to UAE declined from 21.76 Million Kilos to 11.58 Million Kilos (decline of 50%). As a region Middle East, Gulf & North Africa absorbed approximately 55% of all Ceylon Tea shipments in 2012. Japan the only developed market for Ceylon tea within the first ten largest buyers maintained its reputation and purchased 9.54 Million Kilos in 2012 as against 11.65 Million Kilos in 2011 (share of total exports 4%). This again is a remarkable decrease since Japan suffered a tremendous natural calamity in 2012.

Despite, the unstable country situation, imports by Libya improved from 7.40 Million Kilos to 16.32 Million Kilos. Jordan another important outlet for Ceylon Tea registered much lesser quantity due to Iraq purchasing more volumes directly. Russia and other CIS countries put together absorbed around 25% of all Ceylon Tea exports. While West, Central & East Europe reflected a combined share of 7% to 8%, the Far East/ ASEAN and Oceania registered another 7% to 8%. The balance 5% of Ceylon Tea was imported by the American Continent and other regions put together which does not fall on to the above mentioned regional categories.

SRI LANKA TEA BOARD Annual Report 2012 45 www.pureceylontea.com

2.6.1 Russia & CIS Region Table 2.17:Ceylon tea market share in Russia and CIS region 02 No. Country 2009 2010 2011 2012 Market Share - % 1 Russia 23 25 26 33 Industry Profile 2 Ukraine 32 32 34 36 3 Azerbaijan 61 68 98 98 4 Kazakhstan 5 5 2 2 5 Uzbekistan 41 48 42 31 6 Kyrgyzstan 35 33 28 20 Other CIS 7 30 49 32 34 countries Data Source – International Tea Committee:, Annual Bulletin of Statistics 2013

Russia and CIS Region is traditionally a tea drinking region and tea is considered as a symbol of warm hospitality. On the other hand, Tea is one of the most favorite beverages among the region as an economical and healthy drink. According to the above Table I following market situations can be seen in Russia and CIS Region. 2.6.1.1 Russia Russia continues to be the single largest buyer of Ceylon tea. Sri Lanka was the market leader during the Year 2012, with a share of 33%. Russia has imported 180,129,924 Kgs of tea during 2012 and 59,072,933 Kgs of tea was from Sri Lanka.

Sri Lanka tea export to Russia is dominated by bulk teas. Reasons for this trend to continue would be cited as the zero duty for bulk tea exports and 20% duty for pre-packed teas. Shipment of tea packets and tea bags decreased by 15 and 24 percent in value addition exports but some of our Ceylon tea brands like ‘Riston’ (U.K Beverages) have been operating packing plants in Russia as well as ‘Akbar” who started their packaging a few years ago. Many major tea companies (Ahmad, Lipton, Orimi etc) who have contract packaging in Sri Lanka has also increased their packaging in Russia. The contributing factors for the decision for off-shore packing can be cited as:

Among the popular brands in Russian Federation Orimi Trade LLC (Greenfield, Tess, Princess Gita, Princess Nuri, and Princess Java) maintained first position, followed by: MAY Company with its brands “Maisky” and “Lisma”; UNILEVER with brands “Lipton”, “Brook Bond” and “Beseda”; AHMAD with its brand ‘Ahmad’; and SAPSAN with the brand “Akbar”.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 46

2.6.1.2 Ukraine Ukraine is the second largest tea market next to 02 Russia in the region and continues to be the leader with a share of 36%. Ukrainians are predominantly black tea drinkers and there Industry Profile had been a significant growth in tea imports. The orthodox leaf tea is most popular. All Ukrainians drink hot teas and the consumption of tea is of a seasonal nature with the maximum consumer demand in the winter months. Hence tea prices are dependent on the economic and stability of these countries. Popular ceylon tea brands are May Tea, Orimi, Ahmad Tea Company, Solomia etc. The demand for green tea is increasing in large cities, due to increasing consumer awareness of the potential of green tea as a health brew.

Though the gap in tariff between bulk imports and value added imports (10% for value added tea and zero for bulk) is not as large as in Russia, the difference in tariff, escalating prices of Ceylon Tea and higher freight charges (volume per container for bulk versus pre-packed teas) are the main reasons for encouraging off-shore packaging. The economic crisis and devaluation of currency has affected their economy and that is also a reason for importers to reduce ordering pre-packed teas and to increase bulk shipment for local packaging. When packaging overseas they also use a higher percentage of cheaper other origin teas, which is more economical for them.

2.6.1.3 Azerbaijan

The tea import from Sri Lanka during the years 2009 to 2012 were 4,698 MT to 7,500 MT. In 2011, imports of tea from Sri Lanka 7385 MT which counted about 80% of the total imports and a growth of 11.6% over 2010. In year 2012, it was increased to 98% because of the total imports were decreased 1.540 MT. As per the official information obtained from Azerbaijan statistics agency, it shows that Sri Lanka leads the imports with followed by India and other suppliers are Georgia, Russia and Turkey.

According to Sri Lanka Customs statistics, a quantity of 11,970 MT of tea was exported during 2011. Of this volume, 92% was in bulk, 5.6% was in Packet and 0.08% in Tea Bags and 0.14% was green tea and 2.06 % was classified as others. A quantity of 10,614 MT of was exported during 2012 from which 94% was in bulk form while 5.72% was packeted teas. The exports in 2012 have reduced by 11.33%. This could be attributed to reduced tea production in Sri Lanka by 7.5 (4%) million kilos in this year. All in all, the global black tea harvest during the first half of the year has shown a negative growth of around 60 million kilos. SRI LANKA TEA BOARD Annual Report 2012 47 www.pureceylontea.com

Total tea market volume including the local production is controlled by M/S Azersun Holding, Baku and Beta Tea Company. Azersun Holding, the market leader has a share 02 of over 50% of the market. Final, Philosofer, Blendo, Azercay and Maryam are their popular tea brands. Beta Tea Company has approx. 35% of the market. Beta, Champion and Industry Profile Bayce are their brands. Impra, Ahmad, Lipton and Hyleys and the rest have a share of less than 15%.

2.6.1.4 Kazakhstan

The third largest tea consumer is in CIS behind Russia and Uzbekistan. Total market volume of tea in Kazakhstan is estimated to be in the region 26000 – 29000 MT. In Kazakhstan, tea is consumed with milk in contrast to other CIS countries, and different varieties of dried fruits, jams, honey, nuts biscuits, brands and chocolates are used at the personal level. The per capita consumption of tea in Kazakhstan is around 1.8 kg. Kazakhstan’s hot market largely depends on tea and demand is likely to be maintained over a long period as culture and tradition do not change easily in the country. The two leading players Tealand TOO and Tea House TOO command a 29% share of retail value sales. Since 1998, Sri Lanka emerged as the second largest supplier to Kazakhstan and this situation remained until 2003 and presently 2% of share in 2012.

Reasons for the reducing market share was mainly imports CTC teas because the tea market in Kazakhstan is predominantly for CTC teas hence Kenya has a high market share as per statistics. It is also observed that market shares held by the other tea producing countries, such as Azerbaijan, UAE and Turkey, are gradually shrinking.

Ranfer Teas (Pvt) Ltd was the top supplier of tea to Kazakhstan in 2012 (48%), followed by a Classic Teas (15%) and with Imperial Tea (Pvt) Ltd (9.3%). The Zero duty for bulk encourages the off-shore packing. 2.6.1.5 Uzbekistan Uzbekistan is predominantly a green tea market and China is the main supplier because of that market share of Sri Lanka is decreasing. One of the basic supplier of tea raw material to Uzbekistan is Sri Lanka with market share of 31%.

Tea is also imported into Uzbekistan via the UAE, Georgia, Turkmenistan and Russia. Leading tea brands are “Ahmad” (UK), “Alokozay-tea” (UAE), “Beta” (Turkey), “Jambo” (Kenya) “Impra” (Sri Lanka), “Weston”, “SAM (Samarqand Tea) and “Tashkent”. According to sources, Beta, Bayce, Tashkent Tea, Impra, Ahmad and Jaf are considered as the most popular tea brands. SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 48

2.6.1.6 Kyrgyzstan

Kyrgyzstan is predominantly a black tea drinking 02 country. Market sources indicated that the actual volume of tea consumption is estimated at around 4000MT per annum. With a population Industry Profile of 5.5 million, the per capita consumption is about 700g per annum. Green tea is considered a drink of the summer while black tea, is an all time drink. Tea bags consumption is insignificant except in the institutional catering sector. According to government sources, the country imports 3500 – 4000 MT of tea through official channels. In addition to this, approximately 500MT of tea is moved into the nation through border trading from China, Kazakhstan, Turkmenistan and Uzbekistan.

As per the statistics data issued by Inter-state Statistical Committee of CIS, In 2012, Sri Lanka was the joint market leader with a major share of 20 % followed by China. Tea in packets has a greater demand, the market volume of which is estimated by market sources as 93% of the total, followed by loose tea 5% and Tea Bags 2%. Loose tea is available for sale only in rural areas and tea bags and flavored tea consumption is not reported to be high. The demand for green tea has been improving.

2.6.1.7 Other CIS Countires

Belorus

With a population of 9.48 million, the total tea market in Belarus has been estimated as 8000 MT per annum and 50% of the volume comes through the borders of Russia and Ukraine. As per the information received from the Interstate Statistics Committee of CIS, the market share of Sri Lanka is 23.5%.

According to the Sri Lankan Customs Statistics, Sri Lanka had exported tea directly to Belarus and over 70% of Sri Lanka tea exports to this market are in value added form. Major players in the Belarusian market continue to be Orimi Trade ( Princess Series, Greenfield & TESS), Ahamed Tea (Ahamed), Lipton, May Tea Company (Maisky Chai) Riston, Dilmah, Jaf, Sunleaf, Olinda, Mabroc, Tea Tang and Basilur as reported by market sources. Moldova Moldova remains the poorest country in Europe despite recent progress from its small economic base. The total market for tea is estimated at around 2500 – 3500MT per annum based on actual sales with a per capita consumption of 500 grams.

SRI LANKA TEA BOARD Annual Report 2012 49 www.pureceylontea.com

The ratio of consumption of black and green tea is estimated at 95:5. Flavored teas are also consumed in small volumes. The demand for tea bags is gradually 02 increasing in urban areas. Most of the teas enter Moldova via the Ukrainian border. Industry Profile Sri Lanka is the market leader with a share of 40 % in 2012 and imports from Russia and Ukraine would be re-exports of Ceylon tea into Moldova. Ceylon Tea is extremely popular and widely available in almost all the market outlets.

Turkmenistan

Total tea market volume of Turkmenistan is estimated to be around 8000 MT with a per capita consumption of 1.5 kgs per annum. Turkmenistan is predominantly a green tea market, which comes mainly from China, while black tea is imported from UAE, Iran, Georgia and Sri Lanka. Being the cheapest, the Iranian black teas are the most popular in the country. Green tea is mainly consumed in rural areas while black tea is consumed in urban areas.

As per the available statistics of Sri Lanka Customs, J CEY Tea has led with 42% share of the total exports to Turkmenistan in 2012, followed by Imperial Teas 35%, Akbar Broth- ers 17% and Union Commodities 4.5%.

Tajikistan

Tajikistan’s tea market is estimated to be in the range of 6,000MT to 7,000 MT per annum. As per market sources, since the buying power is poor, the demand is mainly for cheap teas. As per Sri Lanka Custom’s statistics, direct exports from Sri Lanka during the years 2011 and 2012 were 37.6 MT and 27.7 MT respectively and it was 0.3% of the market share. While bulk shipments were not made in 2012, packet shipments reduced to 55% over 2011. In 2012 the packet shipments were 32% of the total but in 2011 it was 52% of the total exports for that year. This is a marked decrease of 26% negative growth was visible from these figures. 2.6.2 Middle East & Gulf Region

The UAE has become a leading importer of tea because of the re-export potential of Dubai in the region and also facilities provided for blending and packing of tea in the Jabel Ali free zone (JAFZA). The political uncertainties, tariff and non-tariff issues etc in the regional markets have supported Dubai re-export trade over the years. Iran is the largest buyer of tea from Dubai, UAE while Saudi Arabia, Russia, Iraq, CIS and other Middle East countries also account for substantial volumes of re-export trade. SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 50

Table 2.18: Ceylon tea market share in Middle East and Gulf region

02 No. Country 2009 2010 2011 2012 Market Share - % 1 United Arab Emirates 42 34 29 18 Industry Profile 2 Iran 55 50 47 57 3 Syria 94 92 N/A N/A 4 Iraq 22 33 55 60 5 Saudi Arabia 34 30 28 30 6 Jordan N/A N/A N/A N/A 7 Turkey N/A N/A N/A N/A 8 Kuwait 97 91 89 86 9 Lebanon N/A 92 N/A 96 Data Source – International Tea Committee: Annual Bulletin of Statistics 2013 2.6.2.1 United Arab Emirates As per the Dubai Customs Department, tea imports recovered from 2008/2009 financial crisis and reached 84,804 MT in 2010. However, Dubai was unable to sustain this recovery for the next two years as imports dropped to 73,469 MT in 2011 and 63,600 MT for the 2012. The external factors significantly affected the Dubai tea re-export sector last year which in turn affected the total tea import volume as well. The decline in Dubai tea imports also has strong correlation with Sri Lanka tea exports to UAE. In 2011 and 2012, Sri Lanka tea exports to UAE came down sharply due to the drop in re-exports to Iran from Dubai. Whenever the Sri Lanka tea export volume to Dubai declined, the total Dubai tea import volume also went down. This reiterates the fact that most of the Ceylon Tea imports in to UAE are mainly for re-export purposes. The Unilever tea packing plant which has an annual capacity of approximately 25,000 MT is the major importer of tea in to the free zone.

Sri Lanka tea exports to UAE further declined in 2012 due to the impact of international sanctions on Iran on the UAE-Iran re-exports trade. The USA financial sanctions on Iran that affected the Dubai Banks and frequent fluctuation of Iran currency were the main reasons that hit the re-exports trade of tea badly in 2012.

SRI LANKA TEA BOARD Annual Report 2012 51 www.pureceylontea.com

2.6.2.2 Iran

The International Monitory Fund predicted that Iran could get into an economic recession due to 02 falling economic conditions and currency issue. The official inflation and unemployment rates were around 25% but actual position would Industry Profile have been more. Iran facing risks of military confrontation with USA & Israel openly admitted that international sanctions have badly hit the country.

With a 79 million population, Iran imports approx. 100,000 MT of tea per annum as the local tea consumption is more than 110,000 MT per year. Due to restrictions on import of pre-packed tea and comparatively high customs duty of 30% on bulk tea over 40,000 MT of tea found the way into Iran through unofficial channels. The legally imported volume of tea per year is between 60,000 MT – 65,000 MT only. Sri Lanka with direct and indirect exports is the leader in Iran tea market followed by India, Kenya & China.

According to Sri Lanka Customs Department statistics, Sri Lanka has exported 38,125 MT of tea to Iran in 2012. This indicates an increase of 7,186 MT or 23% when compared with same period in 2011. It should be stated here that Sri Lanka has shipped more tea to Iran at the expense of her exports to UAE which has witnessed a drop of almost 50% in her tea imports from Sri Lanka for re-exports due to financial sanctions on Iran. Most Iranian tea importers who were buying tea through UAE agents began direct imports from Sri Lanka, the main reason for the growth in tea exports to Iran.

The Sri Lanka tea trade experienced difficulties, mainly after June 2012, in supplying tea to Iran as Bank of Ceylon terminated its L.C. arrangements with Saman Bank of Iran due to international sanctions imposed on Central Bank of Iran. The frequent fluctuation of Iran currency too badly affected the trade as buyers were reluctant to place big orders. The Iran government’s decision to remove tea from essential items list deprived the traders of getting foreign currency at official rate of IR: 12,260 for tea imports. With these developments tea became an expensive commodity for Iranian people. However, the loyal trade members of Ceylon Tea however continued to import tea from Sri Lanka making the payment at market rate.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 52

2.6.2.3 Syria

The initial peaceful protests began in some 02 regional cities in March 2011 and blown into a full scale civil war in Syria by year 2012. Having a share of about 2/3, tea is the most popular Industry Profile hot beverage in the Syrian market with and (herbal drink) sharing the balance portion. Syria imports tea for both domestic consumption as well as for re-exports to Iran and Turkey through its Northern border.

According to Sri Lanka Customs Department statistics the country has exported 24,717 MT of tea to Syria in 2012. This reflects a drop of 4,047 MT or 14% when compared with the volume of 28,759 MT recorded for the same period in 2011 because of the security issues. However, the escalation of civil war in the second half badly affected the tea market as traders were unable to distribute the tea freely in the country, collect payment for delivery and also due to the disruption to cross border trading with Iran.

2.6.2.4 Iraq The tea imports were liberalized two years ago and direct imports have increased the country still obtains a part of its tea requirement through Jordan and Kuwait. The increase in direct exports to Iraq has enabled Sri Lanka to secure more than 50% of the Iraqi tea market by 2011. Sri Lanka market share in Iraq would have further increased with the volume of 23,484 MT recorded for 2012 to 60%.

On the other hand, The Indian suppliers have not been able to maintain their market share after the state sector discontinued imports of tea. Most private trade members were aware that India was supplying multi origin blends rather than pure Indian tea and this may have compelled them to reduce purchases from India. Vietnam tea with its comparatively low price and close similarities with Ceylon Tea in appearance continued to challenge the position of Sri Lanka tea share in the Iraq market.

According to trade sources, the government was compelled to terminate the service of SGS International Company appointed for inspection of food imports to Iraq due to certain complaints received against the party. Since last year only Bureau Veritas is engaged in quality inspection of food items imported into Iraq but according to market sources the availability of substandard tea in the market continued to be a concerning factor for most of the genuine tea importers. A significant factor in tea exports to Iraq is that most of them are shipped in pre-packed form with bulk exports accounting for less than 5% of the volume. SRI LANKA TEA BOARD Annual Report 2012 53 www.pureceylontea.com

2.6.2.5 Saudi Arabia

Saudi Arabia, the largest country among the Gulf Nations, is also the largest consumer of 02 tea within the six gulf countries. As per available reports, the Kingdom imports approximately 30,000 MT of tea annually and only 1,000 MT Industry Profile of this volume is re-exported leaving 29,000 MT of tea for the domestic consumption.

According to Sri Lanka Customs Department figures, Sri Lanka has exported 4,470 MT of tea to Saudi market in year 2012, a marginal drop of 201 MT or 4% when compared to the volume of 4,671 MT of tea shipped in 2011 but total import volume in Saudi Arabia also decreased. According to that situation, market share of Sri Lanka was increased. M/s Baeshan Tea Company, the owner of Rabea brand tea, is still the single largest importer of Ceylon Tea in Saudi market.

2.6.2.6 Jordan

Jordan had so far avoided the kind of unrest that went through a number of Middle East countries in 2011 and 2012.

Jordan was, once, an important transit point for Sri Lanka tea exports to Iraq but with the increase in direct imports by Iraq, this position has been gradually reduced. According to Sri Lanka Customs Department statistics, Sri Lanka exported 9,398 MT of tea to Jor- dan in 2012 period registering an increase of 2,104 MT or 29% over the volume of 7,294 MT shipped during the same period in 2011. It is strongly believed that this increase in Sri Lanka tea volume to Jordan is the result of enhanced re-export opportunities to Iraq market and not due to any other significant development in the domestic market. M/s Unilever Company supplies Lipton brand tea to Jordan from its plant in Egypt which mainly targets the growing tea bags segment.

2.6.2.7 Turkey

Turkey is a leading producer of orthodox tea in the region and according to the local sources. According to trade sources, the legally imported volume of tea into Turkey is less than 8,000 MT per annum. The entry of illegal tea into Turkey mainly takes place through eastern and southern borders with Iran, Iraq and Syria. The exact figures of tea that come to Turkey illegally are not available but Euro Monitor has placed it at around 30,000 MT per year. Although figures for imports are not yet available.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 54

Sri Lanka tea exports to Turkey have registered an impressive growth of 3,958 MT or 20.6% in 2012 when compared with previous year. Sri 02 Lanka tea exports to Turkey reached 23,129 MT last year as against 19,171 MT recorded for 2011. Most Turkish consumers in the eastern Industry Profile part of the country prefer Ceylon Tea which has encouraged the unofficial tea trading activity.

2.6.2.8 Kuwait

The domestic tea consumption in Kuwait is estimated to be around 3,000 MT per year but country always imported more tea as it used to supply tea to Iran and Iraq. The reason for increase in total tea import volume of the country. Sri Lanka is the main supplier of tea to Kuwait for re-export purposes as both Iran & Iraq prefer Ceylon Tea.

Sri Lanka has exported 7,278 MT of tea to Kuwait in 2012, around 20% lower than the volume of 9,088 MT shipped to this destination in 2011. The decline in Sri Lanka tea exports to Kuwait last year could be due to drop in re-export trade with Iraq which has imported more tea direct from Sri Lanka.

2.6.2.9 Lebanon

The growth in tea bags segment has allowed Egypt to increase her market share in Lebanon. Egypt has become an important player in Lebanon tea market due to the export of Lipton brand tea from M/s. Unilever Tea Company tea packing plant in Alexandria, Egypt. The Lipton volume has increased from 254 MT in 2009 to 422 MT in 2011. The increase in the tea bags exports is a welcome development. Sri Lanka’s dominant position in Lebanon tea market is due to the successful performance of Horse Head Ceylon Tea brand. It has been in the market for nearly fifty years but its position is strongly challenged by Lipton brand with the increase in tea bags consumption. 2.6.3 North/West African Region

Table 2.19: Ceylon tea market share in North/West African region

No. Country 2009 2010 2011 2012 Market Share - % 1 Tunisia 40 10 24 0.45 2 Libya 84 88 83 83 3 Egypt 2 1 2 4

Data Source – International Tea Committee: Annual Bulletin of Statistics 2013

SRI LANKA TEA BOARD Annual Report 2012 55 www.pureceylontea.com

2.6.3.1 Tunisia

The Tunisian tea market is approximately 10 – 11 million Kg per annum with Black 02 tea having a share of about 70% and Green tea accounting for the balance 30%. The tea import of Tunisia is still under the control Industry Profile of Office du Commerce Tunisia (OCT), the state organization responsible for import and distribution of basic food items in the country. Since prices of basic food items like tea, sugar and milk products are subsidized by the government, the price of a commodity plays an important role in Tunisia imports.

Until 2008, Sri Lanka was the main supplier of Black tea to Tunisia while China remained as the prime origin for green tea. However, with escalation of tea prices in Colombo from 2009 onwards, the OCT reduced its tea imports volume from Sri Lanka and looked at other origins. As a result, the Sri Lanka volume in Tunisian market came down for 6,000 MT to 20 MT over 2009 – 2012 periods and also increasing global tea prices may have reduced the total tea import volume in Tunisia after 2009.

2.6.3.2 Libya

Due to the economic hardships experienced by the ordinary people, Tea, sugar and wheat flour are some of the food products that fall under the subsidized goods category. The state and private sector are engaged in importation of tea but the retail prices are regulated by the government. The annual tea consumption in the country is estimated at around 9– 10 million kg only. According to trade sources teas given to the Libyans at a subsidized price are sold to neighboring countries but quantities traded via borders are not known. It has become an unofficial business giving some extra income for the low income Libyan people.

Sri Lanka tea exports to Libya were badly affected in 2011 due to the civil war but the industry bounced back 2012 with a record volume of 16,326 MT, perhaps the highest recorded tea export volume from Sri Lanka to Libya. The island has registered a growth rate of more than 100% in her tea exports to Libya when compared with the volume registered for 2011 but not change the Market share because of import volume increased.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 56

2.6.3.3 Egypt

The Egypt economy which has undergone over 02 two years of political instability is yet to recover up to the pre-uprising level. Egypt is the largest tea market in the Arab world. Tea is the most Industry Profile popular hot beverage and annual consumption of tea is estimated to be around 90 – 95 million kg. The consumer preference for tea had changed from orthodox to CTC during the last three decades. The relative price advantage and preference for strong coloury tea have given the CTC tea producers significant advantage over the orthodox tea suppliers in the Egyptian tea market.

As per Sri Lanka Customs Department figures, Sri Lanka has been able to further increase her share in the Egyptian market in 2012 with a total volume of 3,649 MT. This reflects an increase of 1,267 MT or 58% as against the volume of 2,382 MT shipped in 2011. However, when the categories of tea are analyzed, it reveals that growth has come from bulk tea sector and value added sector have experienced a set back over the 2011/2012 period. The increase in Kenyan tea prices together with the crop shortages may have given an opportunity for Sri Lanka to enhance tea exports share to Egyptian market in 2012. 2.6.4 European Union Region

Table 2.20: Ceylon tea market share in European Union Region

No. Country 2009 2010 2011 2012 Market Share - % 1 United Kingdom 2 1 1 2 2 Poland 9 8 7 8 3 France 5 4 5 5 4 Germany 11 11 11 10 5 Netherland N/A N/A N/A N/A 6 Belgium N/A N/A N/A N/A Data Source – International Tea Committee: Annual Bulletin of Statistics 2013 2.6.4.1 United Kingdom

Tea imports into the UK during 2012 recorded a total of 144,575 MT. showing a marginal decrease at 6.8% from 154,500 MT. during 2011. Imports from Sri Lanka stood at a slightly increased 2,302 MT and had a share of approx. 2.2 % in 2012 in comparison to 1.1% 1,754 MT. during the entirety of 2011.

SRI LANKA TEA BOARD Annual Report 2012 57 www.pureceylontea.com

The UK hot drinks market is fairly fragmented, with top three players holding 40.2% of the total market volume. The leading player in the UK hot drinks market is Tata Global Beverage Ltd 02 holding 15.1%share of the market volume and others are Unilever and Nestle S.A. Industry Profile The declining trend seen in Sri Lanka does tea exports to the UK had commenced over the past 05 decades own in the main to the fundamental changes in UK marketing and consumption patterns and practices.

The significant changes in the UK market in favor of CTC tea worked in co-relation with domestic socio economic factors as the greater labor force participation of women. The shift towards the use of CTC teas was heralded and leveraged by a massive level of production of such teas from Kenya and East Africa where the supply increased at much higher levels of productivity and growth than orthodox varieties. The UK market was transformed into a predominantly market accounting for approx. 96% of tea cups drunk daily in the UK, which are brewed from tea bags.

2.6.4.2 Poland

Poland is a medium scale importer of tea but ranking 2nd among the EU countries ac- counting for approx. 11% of total EU tea imports. Total tea imports to Poland vary between 28,000MT– 33,000MT per annum.Poland sources most of its teas directly from grower countries. Presently, Kenya is the largest supplier to polish tea market and Sri Lanka is having a share of 8%. Around 60% of the total tea market is black tea. Green tea consists of approx. 12% of the market with the remainder accounting for herbal teas. Polish re-exports are comparatively small.

The market is focusing more on convenience, with bagged tea now accounting for most of the polish market at 65% of the tea consumption, which is expanding rapidly. As a result, the CTC type teas have a significant share in the black tea market.

According to the statistics, Sri Lanka exported 40% of the volume was in value added or pre-packed form led by Sri Lankan owned tea brands in 2012. The revenue of Rs.1644 million recorded for 2012 was an increase of 8% against the value of 2011.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 58

2.6.4.3 France

France is the 4th largest importer of tea in the 02 European Union with a market share of 6%. The tea imports during the period 2009-2012 had fluctuated between 19,300 – 17,800 MT Industry Profile and Sri Lanka is representing 7.2% of market share.

Black tea with market volume of 10,000 MT. represents 51% of total imports while the balance holds by green tea with a volume of 8000 MT. France also imports about 500Mt of Tea but this volume is included in black tea statistics. About 70% of tea imported into France is in pre- packed from while only 30% are imported in bulk form. Sri Lanka is one of the black tea supplier with a share of 14%. Sri Lanka’s share in the French market could be much higher since tea coming from Belgium, UK and Germany too include a reasonable volume of Ceylon Tea. Approx. 84% of Sri Lanka tea exports to France had been in pre-packed form.

2.6.4.4 Germany

Germany is the second largest importer of tea in the European Union The country imports between 50-55,000 MT of tea per annum. Germany emerged as the largest re-exporter of tea in Europe which is 52% of its total imports leaving only 48% for the domestic market. 2012 imports is an increase of 3% compared to the previous year’s imports.

Sri Lanka is having 10% of market share and black tea accounts for 72% of total imports and balance 28% is Green Tea. Germany with Port of Hamburg is considered as one of the most important tea hubs in the world. 2.6.4.5 Netherlands

Tea imports into the country have fluctuated between 25,000-30,000MT levels during the period of 2005 – 2012. Black tea holds a large market share of about 93% of total import volume.

Sri Lanka was one of the supplier of tea with the market share 7.2%. Black tea share of the marker is approx. 85% and green tea accounts for the balance. Tea bags sector is the most popular which accounts for over 90% of retail sales. It is noted that a number of specialty tea shops have been growing since more people are looking for good quality teas.

SRI LANKA TEA BOARD Annual Report 2012 59 www.pureceylontea.com

2.6.4.6 Belgium Belgium tea market is relatively small due to low consumption of tea compared to coffee, 02 soft drinks and other beverages. Per capita tea consumption is around 0.3 kg. It accounts for less than 1% of the EU market share. The total Industry Profile import of tea to Belgium is around US$ 50 million.

Leading tea brands in Belgium are Lipton, Pickwick and Twinings. Tea in Belgium is distributed mainly through supermarkets, speciality shops and chain retail food stores. The average share of black tea in the assortments of major supermarkets in Belgium is 35%.

Health and wellness is currently the driving force behind tea, particularly benefiting products such as green tea, slimming teas and herbal/traditional medicinal teas. Black tea, which is not considered as healthy as green tea, registered a decline in volume sales in 2011 and 2012. 2.6.5 Asia / Oceania Region

Table 2.21: Ceylon tea market share in Asia / Oceania Region

No. Country 2009 2010 2011 2012 Market Share - % 1 Australia 22 23 23 23 2 China 8 12 20 28 3 Japan 22 27 28 26 4 Hong Kong 43 44 44 36 5 Taiwan 5 6 7 7 6 India 5 1 1 2 7 Pakistan 2 1 1 4

Data Source – International Tea Committee: Annual Bulletin of Statistics 2013 2.6.5.1 Australia

The tea consumption is mainly in Black Tea form but the Green Tea segment which is still very small (Approx. 3%) has shown a positive growth. The total tea imports to Australia indicate 11,800MT in 2012 by Sri Lanka’s with a contribution of 23%. Black tea accounts for 90% share of the market in terms of volume and fruit/ herbal 4% and green 6%.

Unilever with two brands Lipton & hold 35% market share in terms of volume followed by Dilmah (16%) Twinings(11%), Nerada (8%) and Madura (4%). The demand for black specialty tea, green tea and fruit/ has been growing. SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 60

Ceylon Tea exports to Australia has little increased from 2739 MT in 2012 to 2686 in 2011,a increase of volume by 2%. Value added 02 component accounts for 83%(tea bags-67% & packed tea-16%) of total Sri Lanka tea exports to Australia. Industry Profile 2.6.5.2 China

Tea production level of China has reached 1790 Mkg in 2012 as the largest tea producer contributing a share of 39% to global supply. Green Tea accounts approx. 77% of the total production volume.

The direct tea imports to China which is mainly Black tea for local consumption is growing from a small base very positively during the past few years after entry into W.T.O. and the tariff on import duty gradually coming down. The total tea imports to China fluctuate 12,200 MT – 11,000MT in 2011 to 2012. The total Ceylon Tea exports to China has increased significantly by 25% registering the volume of 3084 MT during 2012 against 2461 MT of corresponding period of 2011.

2.6.5.3 Japan

Japan is undoubtedly considered as the most sophisticated and developed tea market in the world today. Thus, bench-marking Japan as the ultimate goal of any tea industry could enable a paradigm shift for that origin and a definite competitive edge over other producing countries.

In the global tea arena, Japan is a leading player with annual consumption of around 130,000 to 135,000 Tons after China, India, Russia, Pakistan and Turkey. While Green Tea consumption dominates the Japan market with 70% share, the demand for black tea is growing slowly but steadily while the absorption of Oolong tea is reflecting a down ward trend. It may be highlighted that Japan is a unique market which consumes a quantity of around 1.5 to 2.0MKG of instant tea per annum, besides other types of teas such as green, black, Oolong and barley.

However, the demand for Black tea has steadily increased during the past two decades and the growth is a phenomenal 30% in volume terms. Sri Lanka continues to dominate the Black Tea segment in Japan with a powerful market share of around 26%. In 2012, Sri Lanka has exported 9545 MT of tea to Japan as against 11,587 MT in 2011 which is a decrease of 18% in terms of volume.

SRI LANKA TEA BOARD Annual Report 2012 61 www.pureceylontea.com

2.6.5.4 Hong Kong

Hong Kong is demonstrating an unique due to the longstanding and deep 02 rooted British influence from one side and the Green / Pierh tea culture of mainland China from the other side. However, due to Industry Profile the 30 Million tourist and visitors patronizing Hong Kong each year, the actual absorption of tea by residents must be lesser.

Sri Lanka continue to dominate the tea market in Hong Kong with share 36% in 2012. The total tea imports to Hong Kong reflect a marginal fluctuation up and down but remains within a 9,000 to 12,000 Tons during the past decade. Sri Lanka exports 4390 MT to Hong Kong in 2012 as against 5145 MT in 2011. The value added component of Ceylon tea exports to Hong Kong is 21%.

2.6.5.5 Taiwan

Today, Taiwan tea production is limited to around 17,000 MT of which most of teas are high quality Oolong tea, probably the best oolong tea in the world.

The total tea imports to Taiwan is regis- tered around 25-30 MT per year. According to the figures in 2011, Taiwan imported 3640 MT of Green tea from all origins. Sri Lanka with a share of 18% and 7% respectively. In 2012, Sri Lanka Tea exports to Taiwan shows 1935MT against 2097MT in 2011. It is decrease by 8%compaired with year 2011 but total imports also decreased in Taiwan because of that market share was not change.

2.6.5.6 India

India is developing into an open-market economy, yet traces of its past autocratic policies remain. Economic liberalization, including industrial deregulation, privatization of state-owned enterprises, and reduced controls on foreign trade and investment, began in the early 1990s and has served to accelerate the country’s growth, which has averaged more than 7% per year since 1997. According to the market liberalization, Sri Lanka obtained opportunity to export tea to India but not in large market share because India is the 2nd largest tea producer in the world.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 62

2.6.5.7 Pakistan

Pakistan is one of the major tea consuming 02 countries in the world. The tea market size is about 190-200 Million Kilos annually. Imports of tea into Pakistan have been on the rise. Industry Profile In 2012, the total imports registered at 129,238 MT compared with 122,530 MT imported in the previous year. According to Pakistan Tea Association, around 80,000MT of tea are being smuggled in to Pakistan through various means.

The average price of black tea imported into Pakistan varies according to the country of origin and quality. The lowest average price of black tea is recorded at US $ 0.90 per Kg from China and the highest average price registered at US $ 3.46 per Kg from Sri Lanka.

Import of tea from Sri Lanka to Pakistan has seen a marked increase in 2012, registering at 4675 MT compared with 1057.7 MT recorded in 2011, (increase over 300%). This indicates the prospects of promoting Ceylon tea in Pakistan by taking the advantage of increasing Kenyan prices and duty free concession available under Pakistan Sri Lanka Free Trade Agreement, etc.

Sri Lanka was the market leader in tea during 1970s and early 1980s in Pakistan. The share of the market eroded with the escalation of auction prices in Colombo and Pakistan importers moving to CTC teas from Kenya for cheaper prices. 2.6.6 American Region

Table 2.22: Ceylon tea market share in American Region

No. Country 2009 2010 2011 2012 Market Share - % 1 USA 2 3 3 3 2 Canada 4 5 4 3

Data Source – International Tea Committee: Annual Bulletin of Statistics 2013

SRI LANKA TEA BOARD Annual Report 2012 63 www.pureceylontea.com

2.6.6.1 USA

USA is the third largest tea importing country in the world after Russia and Pakistan 02 with registered imports of 125,500 MT in 2012. While the U. S. tea market could be categorized into four main segments, namely, Industry Profile traditional teas (tea bags & loose tea leaves), RTD teas (cans & bottles), food service industry (hotels, restaurants etc.,) and specialty teas (tea salons, gourmet tea shops etc.), all of them have continued to grow over the last several years. The RTD segment has registered the strongest growth, followed by specialty teas.

Sri Lanka tea exports to USA are between 2500MT – 3500MT per year. During the year 2012 Sri Lanka has exported 3277 MT of tea and with the market share of 3%.

2.6.6.2 Canada

Canadian Tea market increased in terms of volume and during 2010, and also grew in terms of value proving that Canadian consumers are willing to pay extra for value added, quality products. Tea imports to Canada during the past few years had been around 17,000 MT to 19,000 MT per annum.

The Sri Lanka is one of the market supplier by having a market share of 3%. Sri Lanka Tea exports to Canada were over 1000 MT in the past. From 2010 onwards, imports from Sri Lanka have declined - significant drop in loose tea category, due to high prices of Ceylon Tea. Preference for green tea consumption is growing rapidly in Canada due to health benefits of green tea. Average per capita consumption of tea has recorded a significant growth during last 5 years registering 70 liters.

Sri Lanka continues to be the one of the major suppliers of black tea having a market share of 7%. Sudden increase in supplies from India due to high profile activities of Tata Global Beverages has brought down the position of Sri Lanka and Kenya in the market during the past years.

SRI LANKA TEA BOARD Annual Report 2012

ACTIVITIES UNDERTAKEN BY THE BOARD Seminars conducted for tea factory owners Up-country tea factory

Sorting of green leaves Green tea leaf count

Roll breaking Shifting room 67 www.pureceylontea.com 3.Activities Undertaken by the Board 03 3.1.Tea Commissioner’s Division

The Tea Commissioner’s Division administrates Activities all matters connected with the regulatory Undertaken functions in terms of the Sri Lanka Tea Board by the Board Law No. 14 of 1975 and the Tea Control Act No. 51 of 1957 in respect of Development, Manufacturing, Disposing, regulations of tea industry which were delegated to the Tea Commissioner since 01st January 1976.

Functions of the Tea Commissioner’s Division have been decentralized into seven regional offices which are located in Galle, Matara, Rathnapura, Gampola, Hatton, Bandarawela and Matugama . The Tea Commissioners Division of SLTB performs following duties in furtherance of the tea industry: • Collection of statistics related to production of Tea • Registration and renewals of tea manufacturers and factories • Programs for Improvements of Green Tea leaf standards • Providing subsidies for factory modernization and replanting ( including infilling and new planting) • Reasonable price payments scheme for factories and dealers. • Special monitoring of GMP • Registration and monitoring of green tea leaf dealers • Registration and monitoring of refuse centers and dealers • Conducting SLTB/SLSI product quality certification programs

Regulations, which were framed under the section 25 of the Sri Lanka Tea Board Law No. 14 of 1975 and delegated to the Tea Commissioner, are appended below.

a) Sri Lanka Tea Board (Processing & Hygienic Standard for made tea) Regulations 1986 b) Sri Lanka Tea Board (Replanting & Factory Modernization Subsidy Scheme) 3.1.1. Key Achievements Comparatively past years, the division achieved such major achievements in 2012. One of the major achievements was

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 68

a revision of penalty scheme for defaulters. The “B-Leaf 60 program” is another major development activity started during the year 03 2012. Launching a SMS system for price check at factory level was benefited to small holders remarkably and new quality standards for Activities local market have been developed during the Undertaken year 2012. by the Board 3.1.2. Registration of Manufacturers and Factories

Under the Tea Control Act No. 51 of 1957 the Tea commissioner’s division maintains a Register of Manufacturers in relating to manufacturers of tea and the prescribed particulars relating to the tea factories of such manufacturers to be registered. The division has the authority to decide whether any person is entitled to be registered as a manufacturer for the purposes of this Act. Every tea manufacturer should register with Tea Board for manufacturing and selling teas through auction centre.

All the factories that manufacture made tea are essential to be registered with the Tea Board in order to ensure that the building, equipments and manner of operations of the factory is of a standard conducive to the manufacture of good quality teas, assist in monitoring of quality of tea produce by the factory, enables control over the disposal of refuse tea and implementation of reasonable price formula.

Classification of those in operation in terms of the elevational categories and degree of bought leaf manufacture is shown in the table 3.1.

Table 3.1: Classification of Tea Factories by Operation

Status High Medium Low Total 1. Confined to Own Leaf 69 15 6 90 2. Own leaf & Bought leaf :- a) Own leaf less than 50% at total production 21 38 157 216

b) Own leaf more than 50% of total production 72 30 15 117

7 25 247 279 3. Bought Leaf only

4. Registered Tea Factories 35 81 81 197 not in operation

5. Total number of Registered 204 181 506 891 Tea Factories

6. Total no of Registered Tea 169 108 425 702 factories in operation

SRI LANKA TEA BOARD Annual Report 2012 69 www.pureceylontea.com

3.1.3. Reasonable Price Payable for Bought Leaf 03 Under the provisions of the Tea Control Act, factories engage in bought leaf manufacture are required to pay prices for bought leaf Activities based on Tea Commissioner’s recommended Undertaken prices, having regard to the price fetched by by the Board made tea manufactured at those factories. The reasonable price payable by factories to green leaf suppliers was determined on the basis of monthly net sale average of such factories. The proceeds from made tea sales are to be split between the leaf suppliers and factories in a ratio of 68:32. If factory sales average exceeds the monthly elevational average, the incremental revenues are shared in a 50: 50 ratio. The formula is based on an out turn ratio of 21.5% from green leaf to made tea.

3.1.3.1. Defaulted Payment

During the year under review the total defaulted payment for green leaf suppliers are maintained at Rs. 83.4 million as at 31st December 2012. We also recovered Rs 94.23 Million during the year 2012. Further accumulation of defaulted payment interrupted by suspending their registration. Restoration of registration of such factories considered only after settled the total defaulted payment. As a result there is a decrease of defaulted amount by 22.6%.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 70

Table 3.1.2: Status of Defaulted Payment

03 Region Amount as at Amount added Amount Balance Amount due Amount due 2012.01.01 during 2012 recovered and payment due to from closed from paid smallholder as Factories functioning Activities at 31.12.2012 Factories Undertaken Ratnapura 50,092,153.86 16,502,078.90 32,629,413.75 33,964,819.07 16,368,758.24 17,596,060.77 by the Board Matara 4,063,243.93 - 1,409,470.38 2,653,773.55 2,639,004.69 14768.86 Gampola 14,868,452.26 367,230.30 14,501,221.96 10,900,641.81 3,600,580.00 Galle 15,002,386.38 645,358.11 1,198,095.59 14,449,648.90 10,559,979.15 3,889,669.74 Mathugama 23,014,567.76 6,584,587.45 21,101,349.00 8,497,807.02 6,754,435.21 1,743,371.00

Hatton 1,413,022.12 29,299.54 189,187.90 1,253,133.76 308,737.06 944,396.70 Bandarawela 8,055,009.59 37,363,498.91 37,335,604.62 8,082,903.88 847,287.30 7235616.58 Total 116,508,835.90 61,124,822.91 94,230,351.54 83,403,308.14 48,378,843.46 35,024,463.65

3.1.4. Quality Control of Green Leaf

The appropriate conditions of the buildings, 3.1.4.2. The ‘B Leaf 60’ Program to equipments, machineries and manner of improve the green leaf standard operations are essential to maintain the good quality of made tea. Hence, if above conditions are not conducive to the manufacture of good quality made tea, The Tea Commissioner has the authority to cancel the factory registration of such under the Tea Control Act.

The quality control of green leaf is vital fact for the manufacturing operations undertaking using bought leaf. If the high quality green tea leaf are used in the manufacturing process eventually, the quality of the made tea will be increased and it will be an ultimate benefit for the both tea leaf deals as well as the tea manufactures.If any factory founded as a defaulting factory, it will be warned that either registration of the factory was liable to be suspended or cancelled.

Sri Lanka Tea Board has published a Gazette notification for Green Tea Leaf standards on 14th December 2010. Under the Tea control Act the Tea Commissioner’s Division is empowered to monitor and improve the quality of tea manufacture and the following projects have designed and implemented in order to improve the quality of tea manufacture.

1. SLSI-SLTB Quality Certificate 2. The ‘B Leaf 60’ Program to improve the green leaf standard 3. Rush Crop Management programme during festival season 4. Low NSA Strategy 5. Quality Monitoring System(Task Team Operation- TTO) 6. Factory Modernization subsidy scheme 7. Tea Re Planting Subsidy Scheme 8. Factory based tea development programme

SRI LANKA TEA BOARD Annual Report 2012 71 www.pureceylontea.com

9. Establishment of GMPS in Tea Factories 10. Green Tea Dealers Training Programme (N I P M)

3.1.4.1. SLSI – SLTB Quality Certificate 03

The Sri Lanka Tea Board (SLTB) in association with Sri Lanka Standards Institution (SLSI) Activities operates a Product Certification Scheme to Undertaken certify the manufacturing process and the final by the Board product, i.e. Black Tea.

The scheme is centered around essential elements of the Quality Management System combined with additional requirements on process control and product testing as specified in the relevant standards along with applicable legal requirements. SLSI - SLTB Tea Product Certification Scheme operates in an impartial, non discriminatory and transparent manner to provide third party guarantee of quality Black Tea to the ultimate customer. 3.1.4.2. The ‘B Leaf 60’ Program to improve the green leaf standard

This program has been implemented to improve the leaf quality by minimizing the post harvest damage and by improving the plucking standards. The present leaf standard is the Best Leaf 33% Below Best 32% and Poor 35%. The “B Leaf 60” was implemented with the target of maintaining green leaf standards (Best leaf standard) at minimum of 60% within a short period. The following strategies have already been implemented to achieve this target.

1.Awareness Programme for Stakeholders

2.Impose regulations on handling of leaf

3.Financial assistance for improving post harvest techniques

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 72 03

Activities Undertaken by the Board

Awareness programs for stakeholders

SRI LANKA TEA BOARD Annual Report 2012 73 www.pureceylontea.com

3.1.4.3.Rush Crop Management program during festival season

This project is designed to minimize the crop 03 losses during festival season due to closing down of tea factories for a longer period. This project was introduce in 2005 and since then the Tea Activities Commissioner’s Division was able to control Undertaken the crop loss almost completely by introducing by the Board various activities. The Tea factories that closed during festival season were restricted between 11th and 16th of April 2012.

3.1.4.4. Low NSA Strategy

This is a project that is designed for tea factories that are in the lowest rungs of the NSA ladder. The objective of the project is to bring up the NSAs of these factories to higher levels by improving the standards of green tea leaf and the standards of tea manufacture.

3.1.4.5. Quality Monitoring System Table 3.3 :Task Team Operations (Task Team Operation- TTO) Region No of Inspections Bandarawela 0 36 Surprise inspections were carried out Gampola 6 at tea factories by the officials of the Tea Commissioner’s Division during the year 2012. Ratnapura 16 Matara 7 Galle 1 Mathugama 6

Source: Annual ITC Bulletin of Statistics – 2013 3.1.4.6. Subsidy scheme for Factory Modernization & Tea Replanting Under Domestic funds, the Treasury has been allocated funds for the tea development activities through the Sri Lanka Tea Board’s Budget. The above allocated funds are utilized for the subsidy scheme of factory modernization and tea planting during the year.

Funds were available for the corporate and private sectors for replanting and factory modernization for the year 2012. Out of these funds 45% has been allocated for the development of privately owned tea factories and the balance has been allocated for the factory modernization & replanting of the corporate sector.

3.1.4.7.Factory Base Tea Development Program (FBTDP) Factory based tea development program has been designed with the aim to improve the productivity of tea smallholdings and the tea factories collaboratively by Sri Lanka

SRI LANKA TEA BOARD Annual Report 2012 Sri Lankan Tea Plucker 75 www.pureceylontea.com

Tea Board, Tea Research Institute and Tea Smallholdings Development Authority.

An extension officer (Field coordinator) has 03 been planned to appoint through this program for the purpose of monitoring the productivity of tea smallholdings and handling of Green tea Activities leaf. Undertaken by the Board This was planned to extend the project to all tea growing areas for year 2012.

3.1.4.8. Establishment of Good Table 3.4 : Regional wise assessments of GMP Manufacturing Practices Region Assessment of GMP (GMPs) in Tea Factories Bandarawela 5 Gampola 65 Under this scheme all the factories were evaluated and actions were taken to improve Hatton 26 the standards of tea manufacturing process. Ratnapura 16 Matara 45 Galle 26 Mathugama 28 Total 211

Source: Annual ITC Bulletin of Statistics – 2013 3.1.5.Licensing of Dealers in Green Tea Leaf According to the Tea Control Act it is required for all green tea leaf dealers to obtain annual license from the Tea Commissioner Division. Following table shows the regional wise green tea leaf dealers’ distribution. 3.1.6.Processing of Refuse Tea

Processing of refuse tea is a procedure of extracting consumable tea from un-denatured refuse tea. A scheme for issuing permits for the refuse tea processing centers has been established since 2009. The table no. 3.7 illustrates the regional wise total permits issued during the year 2012.

Table 3.1.6: Issued permits for refuse tea processing centers during 2012

Region Registered Renewals Newly issued dur- Total as at No of Permit Processors as at during the year ing the year 31.12.2012 Issued as at 01.01.2012 31.12.2012 Bandarawela 2 1 0 1 283 Hatton 3 238 49 287 1058 Gampola 235 0 Matara 10 10 3 13 572 Galle 31 31 14 45 442 Ratnapura 4 4 3 7 895 Mathugama 2 2 4 6 249 TOTAL 287 286 73 359 3499 SRI LANKA TEA BOARD Annual Report 2012 Colombo Harbour 77 www.pureceylontea.com

3.2.Tea Exports Division The powers and functions of the Tea Act (Tax 03 & Control of Exports) No. 16 of 1959 and regulations which were framed under the Sri Lanka Tea Board Law No. 14 of 1975 Activities are handling by the Tea Exports Section. The Undertaken unit performs duties relating to registration by the Board of tea exporters, tea packers, warehouses, importers and types of packs, retrieval of tea, monitoring of minimum quality standard of tea, authorization of export of tea, collection of statistics on export of tea, monitoring FTA (Indo- Sri Lanka/ Pakistan- Sri Lanka) and impose of promotional levy.

3.2.1. Key Achievements

The Export division was enabled to introduce hot sealing sample packs and also a new system for quality tests and sample drawing with group visits during the year 2012.

3.2.2. Registrations

One of the key duty of the division is registration and renewal of Exporters, Packers ,Warehouses and Importers. The following table shows the number of registration in each category during the year 2012.

The tea exporters who satisfy the minimum criteria such as; the organization (legal entity) capital, warehouse (for storing, blending and packing of tea), tea taster’ service closely verify by the board are eligible to apply for the registration as a tea exporter.

In terms of the Sri Lanka Tea Board Regulation (Registration of Tea Packers) 1986, published in the Gazette Extra-ordinary No. 386/13 of 28th January, 1986, no person shall engage in the business of packing tea in polythene bags for domestic consumption and in other forms of packaging are required to register with the Sri Lanka Tea Board. The registration is valid for one calendar year and is renewable annually.

Any entity registered as an exporter of tea under Tea Act (Tax & Control of Exports) No. 16 of 1959 is eligible to register as an importer of tea.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 78

Table 3.2.1:Registrations of Exporters, Packers ,Warehouses and Importers

Registrations As at 01.01.2012 During the year 2012 Total No. 03 (New Registrations) as at 31.12.2012

Exporters 363 20 383 Activities Packers 392 20 412 Undertaken by the Board Warehouses 404 42 446 Importers 184 7 192

In terms of the Sri Lanka Tea Board Regulation (Warehousing of Tea) 1984 published in Government Gazette Extraordinary No. 326/17 of 05th December 1984 as amended by No. 410/11 of 10th September 1986 ,No. 1280/8 of 20th March 2003 , warehouses are used for storage of any quantities of tea in excess of 1000 kgs at any time and which Sri Lanka Tea Board considers satisfactory for the purpose of storing of tea has to be registered with the Sri Lanka Tea Board in accordance with the provisions of the said regulations. (Table 3.2.1)

Retail containers which contained other origin teas blended with Sri Lanka Teas should export under the Sri Lanka Tea Board Regulations (Import & Export) 1981. Such containers/packs should bear the narration “A Blend of Ceylon and other origin Teas packed in Sri Lanka” or “Other Origin Teas packed in Sri Lanka” only. During year 2012 Sri Lanka Tea Board received 360 applications for the pack registration.

All registered exporters required to submit a Customs Goods Declaration (CUSDECs) to the Tea Export Branch of the Sri Lanka Tea Board prior to move the cargo to the Port of Colombo and authorization which should be obtained by furnishing all statutory declarations to the Tea Board. Total No. of CUSDECs authorized as at 31.12.2012 were 36616. Similarly, importers who are expected to Re-Export are also required to submit a customer good declaration (CUSDECs) to the export division. Total N. of CUSDECs for re- exporters as at end of 2012 are 5108.

3.2.3.Importation of Tea

For the year 2012 the tea Board has been granted permissions for 6,799,026.74Kgs tea importation and has been issued 609 import permissions. During the period, the total imports were 6,232,422 kgs and 1508 re-import permissions have been issued.

SRI LANKA TEA BOARD Annual Report 2012 79 www.pureceylontea.com

Table 3.2.2 : Actual Imports – January – December 2012

Country Type Imported CIF Value 03 Qty. (Kgs) Value (Rs.) Rs. CHINA Green Tea 2,663,762 331.36 882,673,199 Special 221,570 592.14 131,201,521 Activities 8,485 797.42 6,766,106 Undertaken Decaffeinated Tea 2,000 733.00 1,466,000 by the Board Sub Total 2,895,817 352.96 1,022,106,826 INDIA CTC 1,423,975 282.38 402,105,021 Special (Black Tea) 491,544 551.32 270,996,073 Green Tea 5,740 1,368.36 7,854,414 Decaffeinated Tea 28,185 615.97 17,360,999 White Tea 40 7,386.00 295,440 Assam Black/CTC 5,936 471.50 2,798,824 Sub Total 1,955,420 358.70 701,410,771 KENYA CTC 1,230,624 348.61 429,012,323 Green Tea /CTC 3,540 494.00 1,748,760 Decaffeinated Tea 3,540 9,191.10 32,536,494 Sub Total 1,237,704 374.32 463,297,577 INDONESIA CTC 27,800 328.12 9,121,728 Sub Total 27,800 328.12 9,121,728 JAPAN Green Tea 220 7,252.23 1,595,491 Sub Total 220 7,252.23 1,595,491 NEPAL Special Tea 1,500 841.86 1,262,790 Sub Total 1,500 841.86 1,262,790 VIETNAM Green Tea 104,036 203.76 21,198,599 Sub Total 104,036 203.76 21,198,599 GERMANY Special Tea 1,775 1,321.03 2,344,823 Sub Total 1,775 1,321.03 2,344,823 ARGENTINA Decaffeinated Tea 8,000 814.00 6,512,000 Sub Total 8,000 814.00 6,512,000 TAIWAN Special 150 9,945.00 1,491,750 Sub Total 150 9,945.00 1,491,750

GRAND TOTAL 6,232,422 357.86 2,230,342,354

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 80

3.2.4.Maintenance of Minimum Quality Standard 03 ISO 3720 The Expert Panel of Tea Tasters appointed by the Sri Lanka Tea Board to examine all the offer Activities tea samples and samples drawn from Undertaken tea factories, the unloaded consignments after by the Board import and pre-shipment samples at random at the point of exports to ascertain whether the teas falls under the permitted categories, (ISO 3720) and free of any contamination and are suitable for import and export after blending.

Table 3.2.3: No. of quality defects at each sampling level

Type of No. of No. of cases de- sampling samples tected as withdrawn below ISO and contamination Pre auction 614 68 Post auction - - Pre shipment 4915 15

3.2.5.Denaturing of tea due to unsuitability for consumption

During the year under review 15525 kgs at pre- auction level, 19300 kgs at pre-shipment level and 33827 kgs in other levels are found as denatured due to unsuitability for consumption.

3.2.6.Performance of FTA (Indo-Sri Lanka/ Pakistan-Sri Lanka)

Under Indo- Sri Lanka free trade agreement 15,000,000 Kgs. of teas were permitted, only 231,435.80 Kgs. were exported out of the above quantity during the year 2012.

Under Pakistan- Sri Lanka free trade agreement 10,000,000 Kgs. of teas were permitted, only 45,816.00 Kgs. were exported out of the above quantity during the year 2012.

SRI LANKA TEA BOARD Annual Report 2012 81 www.pureceylontea.com

FTA Quota per annum Total exports Kg. Kg India – Lanka 15,000,000 231,435.84 03 Pakistan – 10,000,000 45,816.00 Lanka Activities Undertaken by the Board 3.2.7.Retrieval of Tea

Any consignment of tea not accepted by the overseas buyer, the local exporter has to retrieve the same with the approval of the Sri Lanka Tea Board. In such cases the Tea Board authorized for retrieval of 307,931.74kg amount of consignment during the year 2012.

SRI LANKA TEA BOARD Annual Report 2012 Seminar session in parallel to XIAMEN- China

Hong Kong International Tea Fair 83 www.pureceylontea.com 3.3.Tea Promotion Division 03 3.3.1.Main Objective/Task of the Division

Tea Promotion Division is responsible for the Activities implementation of Ceylon Tea promotion Undertaken programs locally and in foreign markets by the Board on behalf of Sri Lanka Tea Board under the following broad categories;

1. Participation at International Food & Beverage Trade Fairs and Exhibitions.

2. Uni National Promotion of Ceylon Tea.

3. Generic Tea Promotion.

4. Assisting Ministry of Plantation Industries on policy formulation for the Tea Promotion Sector.

5. Compilation & dissemination of strategic market profiles on all important tea consuming countries.

6. Analysis of competitor activities.

7. Lion Logo registration and monitoring.

8. Protection of Ceylon Tea & other Regional tea Growing names/logos as Geographical indications.

9. Ozone friendly Pure Ceylon Tea Logo registration and franchising to the private sector packers.

10. Local Tea Promotion.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 84

3.3.2.Key Achievements

During the year 2012, the Promotional Division 03 made significant achievements such as set up marketing cell, re-launched new website, completed the proposal for tea hub, finalized Activities three years Strategic Marketing Plan and it’s Undertaken identified 25 top target markets for tea by the Board promotional activities. On the other hand, three years detail budget also allocated funds for new area through the Promotion and marketing fund. SLTB hosted the UN’s Food and Agriculture Organization’s (FAO) 20th Session of the Inter-Governmental Group (IGG) on tea from January 30 to February 1 in Colombo and launched International Tea Producers Forum in Colombo also. 3.3.3. Overseas Tea Promotion Offices & Market Coverage

Sri Lanka Tea Board presently maintains two regional overseas Tea Promotion Units attached to Sri Lanka Missions in UAE and Russia. The office in UAE is responsible for tea promotion work in Middle East/Gulf/North African regions while the office in Moscow handles the tea promotion work in Russian Federation & CIS markets. Further, Ceylon tea promotional activities in other markets are handled by the Tea Promotion Division-Colombo in collaboration with the respective Trade Officers/Sri Lanka Missions. 3.3.4. Promotion & Marketing Committee (PMC) Hon. Minister of Plantation Industries re-constituted the PMC to be in line with the priorities and expectations of the industry and the trade. The new promotional and marketing levy of Rs. 3.50 per Kg on all tea exports is estimated to generate a budget of Rs. 6.2 billion (US $ 50 Mn) for advertising of Ceylon Tea globally within next three years. The new PMC will be responsible to formulate a strategic marketing plan which will be launched under the supervision of the Tea Promotion Division of Sri Lanka Tea Board during latter part of 2013. 3.3.5.Trade Fair Participation Sri Lanka Tea Board assists the Sri Lankan tea exporting companies to participate at International Food & Beverage Fairs in selected major tea importing countries for promotion of Pure Ceylon Tea brands. SLTB participation at following fairs has enabled the tea companies to enhance volume & value of their exports of pure Ceylon Tea in 2012. SRI LANKA TEA BOARD Annual Report 2012 85 www.pureceylontea.com

01. Prodexpo-Russia 02. Gulf Food 2012 -UAE 03. SACC – Kunming -China 03 04. Xiamen Int. Tea Fair-China 05. FHC ,Shanghai-China 06. International Tea Fair- Activities Hong Kong Undertaken 07. Fine Food-Australia by the Board 08. Foodex - Japan 09. Horeca 2012-Lebanon 10. SIAL China-China 11. Food Taipei-Taiwan 12. CIBUS - Italy 13. SIAL Canada- Montreal 14. World Tea Expo - USA 15. SIAL Brazil- Brazil 16. Riga Food- Latvia 17. SIAL France- France

SLTB booth at the XIAMEN- China

SLTB booth at the SIAL- France SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 86

3.3.6.Uni National Promotion 03 of Ceylon Tea Uni National Promotion of Ceylon Tea relates to the propaganda of Sri Lanka tea against Activities other origin teas. The Board approved Uni Undertaken National Promotion campaigns for Ceylon by the Board Tea are mainly conducted in foreign markets through the Overseas Tea Promotion Units and Commercial Sections of Sri Lanka Missions abroad. The media advertising, outdoor advertising, liquid tea services, tea workshops and seminars and other public relation work are the main elements of Uni National Promotion activities carried out by the Board. A summary of tea promotion work conducted under the Uni National promotion during year 2012 is appended below. The activities were mainly focused on Below the Line (BTL) promotion;

I. Planters Association /UPASI Sports Festival - India II. Tea Promotion at Sri Lanka Day Expo 2012 - Santa Monica, California, USA III. Tea Promotion event in Art of Well-being, Ottawa- Canada - 22nd August 2012 IV. Ottawa Tea Festival - Canada - 1st December 2012

3.3.7.Generic Tea Promotion The promotion of tea against other beverages falls under generic tea promotion activities. Sri Lanka Tea Board is a member of Intergovernmental Group on Tea of FAO, UK Tea Council, USA Tea Association, International Tea Committee-UK and Japan Tea Association. Generic tea promotional work is undertaken through these organizations. The generic tea promotion mainly focuses on Tea & Health concept which is promoted through consumer education and public relation work. SLTB contributed towards the advertising budgets of Tea Associations and Councils for generic tea promotion work in selected countries in 2012.

SRI LANKA TEA BOARD Annual Report 2012 87 www.pureceylontea.com

3.3.8.Trade Mark Protection Registration of Lion Logo Trademark 03 Sri Lanka Tea Board is the owner of Ceylon Tea Lion Logo. The registration / renewal of Ceylon Tea Lion Logo in Sri Lanka and foreign countries Activities are carried out by Tea Promotion Division. By Undertaken the end of the year 2012, Lion Logo has been by the Board registered in 98 countries. The franchise to use the Lion Logo has been granted only for the branded, value added tea products (Tea Bags & Tea Packs) which contains 100% Ceylon Tea and compliance with ISO 3720 Standard while being above a minimum reference standard to each destination and pre packed in Sri Lanka. The Lion Logo franchise scheme is monitored by the Tea Promotion Division through overseas Tea Promotion Units and Sri Lanka Missions abroad Sri Lanka Tea Board also published the Lion Logo Cautionary Notices in local news papers in Sri Lanka, UAE, Jordan, Syria, Iraq, Iran and Turkey to discourage counterfeiting and violations as well as passing-offs.

3.3.9.Registration of Ceylon Tea, Regional Names & Logos Sri Lanka Tea Board formulated necessary rules & regulations for protection of ‘Ceylon Tea’ and seven other agro-climatic regional teas (Nuwara Eliya, Uda Pussellawa, Dimbula, Uva, Kandy, Sabaragamuwa & Ruhuna) as Geographical Indications through the provisions available under TRIPS Agreement of World Trade Organization. This would help to prevent the misuse of ‘Ceylon Tea’ and other regional tea growing names particularly by overseas contract packers. Home registration of Ceylon Tea, Regional names and logos as Certification Marks were completed during the year.

The application for international registration of Ceylon Tea and seven agro-climatic regional names as Geographical Indications or as Certification Marks commenced in 2012 in the following countries.

Ceylon Tea: Jordan & Lebanon

Regional Tea names/logos: USA and Japan

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 88

3.3.10.Registration of Ozone 03 friendly Pure Ceylon Tea Logo Sri Lanka Tea Board has registered the Ozone Friendly Pure Ceylon Tea logo in Sri Lanka as Activities a Certification Marks in order to promote the Undertaken production of Ozone Friendly tea in Sri Lanka. by the Board Under the Montreal Protocol, Sri Lanka implemented two projects to phase out the use of Methyl Bromide for non quarantine & pre-shipment purposes. The project on tea sector was successfully completed in 2002 by adopting environment friendly technologies without use of Methyl Bromide in the tea plantation and Sri Lanka received the Montreal Protocol Implementers Award in 2007. Thus, Sri Lanka became the first tea producing country in the world to manufacture Ozone Friendly tea. During the year, eighteen registered tea exporters have obtained franchise rights from SLTB to use the logo for twenty one brands. Also SLTB has placed the Ozone Friendly Pure Ceylon Tea logo in all the flag carrier tea packs.

The process of applying for international registration for Ozone Friendly Pure Ceylon Tea logo commenced during 2011 and thirty countries were identified. Under the first phase EU, Japan and Jordan registrations completed while 18 other countries registrations had commenced during year 2012. 3.3.11.Bilateral Discussions at Ministerial Level

A visit was undertaken by a tea delegation led by Hon. Mahinda Samarasinghe to Australia (Melbourne & Sydney) during May 2012. 3.3.12. Participation at International Forums

1. 20th Session of the Intergovernmental Group (IGG) on Tea of Food & Agriculture Organization (FAO) was held from 30th Jan -1st Feb 2012 at Colombo. 2. The Colombo International Tea Convention was concluded from 1st – 3rd of Feb 2012. 3. Inter-sessional Conference of the FAO/ IGG on Tea was held from 17th – 18th of Sep 2012 in USA 4. 5th International Scientific Symposium on Tea & Human Health was conducted on 19th Sep 2012 in USA 3.3.13.Special Tea Donations

Donation of a consignment of tea to the victims of the Italy Earthquake was made in June 2012. A consignment of 1158 kilos of tea in consumer packs and tea bags was arranged by the Sri Lanka Tea Board with the valuable contribution from the Tea export trade SRI LANKA TEA BOARD Annual Report 2012 89 www.pureceylontea.com 03

Activities Undertaken by the Board

Inauguration of the 20th session of the IGG on tea SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 90 03

Activities Undertaken by the Board

Inauguration of the 20th session of the IGG on tea

Inauguration of the 20th session of the IGG on tea SRI LANKA TEA BOARD Annual Report 2012 91 www.pureceylontea.com

3.3.14. Foreign Delegations Sri Lanka Tea Board hosted and facilitated 03 following foreign delegations during the year under review and arranged trade meetings with stakeholders of Sri Lanka tea industry Activities with the objective of building trade relationships, Undertaken exchanging ideas and sharing knowledge by the Board for the mutual benefit of both countries. I. 21 member Chinese delegation from Huangshan,Nangin & Guangdong in April 2012 II. 2 member delegation from Hong Kong Trade Development Council Thailand in March 2012 III. 12 member delegation from Japan headed by Mr. Toshiki Horie in April 2012 IV. 7 member delegation from Japan Itochu Corporation in May 2012 V. Three member delegation from Cairo Chamber of Commerce in Egypt to Sri Lanka, 27th -30th March 2012

3.3.15. Promotional/ Information Publications

Following promotional/informational publications were released during the year: i. Bi-monthly Newsletter (06). ii. Quarterly Tea Market Review-2012 (04). iii. Ceylon Tea Film - 1000 no’s of “Serendipitea” Tea film which was produced by SLTB and CTTA was copied into DVD’s with copy write protection, to be used at tea SLTB quarterly tea market review Promotional Events and also for marketing purposes. This DVD was sent to all the Sri Lankan missions overseas free of charge.

3.3.16. Local Tea Promotion

SLTB participated at following local trade exhibitions/events during the year under review. A liquid tea service, sale of SLTB range of packs, distribution of promotional material etc. were conducted at the SLTB booth.

• Sri Lanka Expo 2012 - Exhibition & Trade Fair at BMICH (28th - 31st March 2012) • Deyata Kirula 2012 - Oyamaduwa, Anuradhapura (4th to 10th February) Ceylon tea film • Dakshina Krushi Navodaya - Galle (12th - 19th September 2012) • The IATA Global Aviation Human Capital Summit 2012 (13th-14th November 2012

SRI LANKA TEA BOARD Annual Report 2012 Opening ceramony of the Sri Lanka Tea Board / Re-furbished Sales Centre 93 www.pureceylontea.com

3.3.17. Tea Sales Centre

Sri Lanka Tea Board re-furbished Sales Centre 03 was ceremonially opened by Hon. Mahinda Samarasinghe, Minister of Plantation Industries on 12th October 2012 and altogether 17 Activities brands are available in counter. Through Undertaken this sales centre which is managed by the Sri by the Board Lanka Tea Board, the consumers not only get to select among the best and widest range of Ceylon Tea brands they also get to see the diversity and variety in the tea category available today in the convenience of one place.

The Tea sales centre located at the SLTB premises sold flag bearer range of Tea Board packs and selected tea products from seventeen private sector tea companies. In year 2011, there were only 7 brands for sales. During the year 2012, revenue of Rs 30.8 million was generated through the sale of tea at the center which showed a marginal increase of 1% of sales compared to the previous year. The sale of SLTB packs earned Rs 12.1 million while private sector tea brands accounted for 18.7 million.

3.3.18.Distribution of Complimentary Tea

SLTB has issued Rs 3 Mn worth of tea on a Complimentary basis in the following manner for the purpose of promotion of “Ceylon Tea”

1. Complimentary teas to 40 Sri Lankan Missions overseas. 2. Liquid tea service and distribution at International Trade Fairs. 3. Promotional give-away to VIPs/ Officials

Interior of the Sri Lanka Tea Board Sales centre

SRI LANKA TEA BOARD Annual Report 2012

95 www.pureceylontea.com 3.4. Tea Tasting Unit 03 3.4.1. Major Task/ Objective

Maintain the minimum quality standard/ Activities monitoring of ISO 3720 and ISO 11287 at Undertaken any given point of dispose of tea. Issuing by the Board Lion Logo certificates for branded products for consumer packs, monitoring and ratification private sales, direct sales and forward contract.

3.4.2. Key Achievements

Over 600 Lion Logo applications issued for the year 2012

3.4.3. Expert Panel of Tea Tasters

The independent panel consisted of two members. Namely:

Mr. C.N.G. de Silva (over 40 years tasting experience)

Mr. V.A.A. Perera (over 30 year’s experience)

Panel members representing the Stake-holders consist of each representative from the following Associations: –

CTTA, CBA, CPA, SLFTSHDS, TEA, PTFOA.

3.4.4. Tea Tasting Methodology Adopted by the Unit

SLTB adopt the methodology of ISO 3102 of tea preparation of liquor using in sensory tests. Tea Tasting Terminology ISO 6078 for Black tea vocabulary/ Monograph on Tea Production in Ceylon – no: 4 – Tea Manufacture in Ceylon.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 96

3.4.5. Conduct of Expert Panel Tea Tasting 03 Sessions

Activities The panel is met twice a week mainly on Undertaken Monday and Thursday. For an independent by the Board evaluation to be taken on the following:- • Pre-auction Teas • Special investigation Teas • Pre imported samples • Direct Sales • Evaluating Tea Tasters for new export Companies.

The decision of the panel is forwarded to the relevant divisions. TCD and DTC (exports) for necessary action.

3.4.6. Registration of Lion Logo Packs

Exporters who wish to depict the Lion Logo on branded consumer packs which is a symbol of quality and country of origin fully owned by the Sri Lanka Tea Board has to forward the application and the branded products for evaluation, as according to the destination and market.

To use the Lion Logo franchise Sri Lanka Tea Board charge Rs. 5,000/- + (VAT + NBT) per brand as registration fees for which a certificate is issued, which is valid for one year.

Granting franchise rights to use the Lion Logo on retail packets. 601 applications were processed for new brands/Renewals, additional packs for the year 2012. 3.4.7. Monitoring of Quality – Lion Logo Depicted Packs (Local/Overseas/Tea Board Range of Packs)

Under Local monitoring Randomly samples from Colombo Super markets and retail shops evaluated particularly the brands using the Lion Logo. Mainly reputed the long standing packers registration with the Tea Board who are having a reasonable market share are granted to use the Lion Logo and monitored accordingly.

Under overseas monitoring system most of the shipments with Lion Logo (80%) is sampled under pre-shipment monitoring scheme by DTC (Exports) and forwarded to the Tasting Unit SRI LANKA TEA BOARD Annual Report 2012 97 www.pureceylontea.com

for monitoring purposes prior to shipment. Also regularly lion logo depicted packs from overseas markets are forwarded by our overseas Bureaux and the Commercial Counselors of Sri 03 Lankan embassies for evaluation and reporting.

Flag carrier packs of SLTB are mainly sold Activities at our Sales Counter and sent to overseas Undertaken Diplomat missions, Bureaux, and trade fairs. by the Board The teas are selected and brought on behalf of Sri Lanka Tea Board from Auction or Private Sale channel with the approval of the Tea Tasting Unit by the official packer. The purchased samples, prop samples and blend samples are also tasted and approved prior to final packing by

theTTU.F.F.C.T.(500g), Planters Punch (100g & 250g), Misty Hills (200g), Royal Ceylon (Metal Can – 200g) Family Pack (500g & 250g), Poly pack (250g), Green Tea (100g), Tea Plucker (250g & 100g), Luxury Blend – Wooden (125g) Luxury Blend Carton – (125g) Connoisseur – (250g, 200g, 125g & 100g) 3.4.8. Tasting of teas for Quality Control of Pre-Auction teas,Pre-Shipment Teas, Pre-Import Teas and Special Investigation

Two weeks prior to the sale, the eight brokers forward their pre-auction samples for evaluation. Unit firstly visually evaluates the off-grade, Dust, Supplementary and BOP1A samples. Thereafter organeptical evaluation is done. Selected samples after the evaluation are offered to the panel to take a collective decision to be offered or not at the coming auction of which the decision is conveyed to the DTC (Exports) . Number of samples examined visually -134,193 and Organoleptic acounted for 13,810 .

No. of Pre-auction samples rejected by the panel

For suspected liquor contamination 180 Siliceous matters 93 Crude Fiber 243

Pre-auction samples forwarded by the DTC (Ex.) on random basis (BSL/ESL)

No. of Lots examined 7,004 No. of samples suspected 267

SRI LANKA TEA BOARD Annual Report 2012 Colombo Tea Auction 99 www.pureceylontea.com

The quality control of preshipment teas monitoring scheme samples are forwarded with a schedule by the DTC (Ex.) to evaluate the use of Lion Logo, ISO 3720 parameters or any 03 other contamination prior to shipment. Total no. of pre-shipment samples examined under Pre-shipment monitoring scheme were 4,915. Activities Undertaken Pre-Imported samples forwarded by the DTC by the Board (Ex.) accompanied with a form to evaluate its suitability for importation. With each application line samples details about the origin, grade etc. is marked.The panel of tasters will evaluate the teas according to the guide lines of the SLTB circular no: OR/1/65 and to the amendments. Total no. of samples examined by the TTU- 1,907 On arrival of imported tea consignment samples are drawn and forwarded by the Tea Exports Division to this unit under un-loaded reference samples for approval. These samples are evaluated as against the offered sample as and when the samples on arrival at the Tea Tasting Unit by Deputy Director (Tech.) of the Tea Tasting Unit. No. of samples examined by the TTU- 1,299 Samples are forwarded by the Tea Commissioner or by DTC (Exports) for the Thursday panel, on an approved schedule to evaluate the grade, contamination, ISO or for any other remarks.

3.4.9. Ratification of Private Sale Panel Valuation Certificate and Ratification of Direct Sale Ratification of private sale is done by this unit when the sample accompanied with the panel forwarded to this unit by the selling broker with the independent brokers approval. Ratifi cation fees of Rs. 500/-+ (VAT + NBT) per line is charged for the above service. Presently, the above scheme is scale down to only for Green teas, Organic teas, specialty teas and for small breaks which are not sold through the Colombo Auctions.

Total no. of private sale lots examined and ratified by the Tea Tasting Unit - 6,632 The direct sale scheme permits Producer cum Exporter to sell their products directly to the overseas buyers. In exception Green tea, Organic tea and Specialty Tea could be sold to the local buyers. Direct sales are ratified by the Thursday panel.

Total Direct sale Lines ratified by the Unit- 1,768

SRI LANKA TEA BOARD Annual Report 2012 Chemical analysis

Micro biological analysis Coli form analysis in microbiological lab

Pesticide residue analysis 101 www.pureceylontea.com 3.5. Analytical Laboratory 03 During the intervening year 2012, Analytical Laboratory Division handled 5042 numbers of chemical, microbiological and pesticides residue Activities testing on tea samples. Such tea samples for Undertaken testing were received through two channels: by the Board Internal Monitoring Service (IMS) and External Certification Service (ECS). Tea Board directs its team of tea Inspectors to disperse and draw tea samples randomly on prior to auction and prior to shipment according to the established criteria. This IMS scheme covers all tea disposal points: tea manufacturer, tea broker’s warehouses, tea blending & packetting and tea exporters’ warehouses. Whereas, ECS covers tea exporters’ certification requirements as per their buyers’ requirements. During the period 2012, out of the total work done, 2445 tests (about 49%) carried out based on samples received under IMS, whereas total number of tests performed under ECS was 2571 (about 51%). Out of these, Chemical Analysis Unit handled 3950 number of tests (about 78.5%) & Microbiological Analysis Unit handled 1066 tests (about 21%). The rest of the tests. i.e 26 tests (about 0.5%) had been handled by the Pesticide Analysis Unit.

Analytical Laboratory charge fees for its rendered testing services while exempted the tea samples identified as best quality tea and total income of the laboratory generated during the year 2012 was Rs.4, 858,000.00. When the Exporter’s contribution was Rs. 2,815,000.00 (58%) the income share of internal divisions was Rs.2, 043,000.00 (42%)

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 102 03 Table 3.5.1 :Summary of tests performed during the year 2011/2012 No. of tests Name of test 2011 2012 Activities Chemical Analysis Unit Undertaken by the Board 01. Determination of moisture in tea 184 538 02. Determination of total ash in tea 691 198 03. Determination of water soluble ash in tea 482 188 04. Determination of acid in-soluble ash in tea 651 188 05. Determination of water extract in tea 511 188 06. Determination of alkalinity of water 522 190 soluble ash in tea 07. Determination of Crude Fiber in tea 642 347 08. Determination of pH in tea brew 35 2 09. Qualitative Analysis of Cyanide 711 623 contamination in tea 10. Qualitative Analysis of Arsenic 720 622 contamination in tea 11. Basic Radiation Determination tests 1035 727 12. Other Tests (Added Color, Sugar, Gel, Liquor, Taint, flavour , 163 2 Chemical Identification, bicarbonate, extraneous) 13. Grade identification tests/ Sieve Analysis - 16 14. Determination of Fe/Iron content in tea 175 - Microbiological Analysis Unit 01. Determination of Total Plate Count 543 352 02. Determination of Yeast and Mould Count 561 370 03. Microscopical examination for dead or live insects 08 12 and other Impurities/ foreign matter in tea 04. Determination of Genetically 117 121 Modified Organisms (GMO) in tea 05. Detection and Enumeration of Faecal Coliforms & 92 163 Escherichia coli (E.coli) 06. Detection and Enumeration of Total Coliforms 90 169 Pesticide Residue Analysis Unit 01. Method validation and R & D works - 26

Total 7933 5042

SRI LANKA TEA BOARD Annual Report 2012 103 www.pureceylontea.com

3.5.1. Test Certificates

Total number of the issued certificates during the year 2012 was 1178. However, compared with 03 the last year 2011 (total of 2028), slight drop was identified in number of issued certificates due to non perform test categories during year 2012 Activities Undertaken Categories of Issued Certificates; by the Board 1. Test report on moisture analysis in tea. 2. Certification of tea quality with ISO 3720 minimum quality parameters. 3. Certification on tea for chemicals (and chemical adulteration) concerned parameters 4. Certification on siliceous matter quantification in tea, dust/ powder particle analysis in tea and sieve analysis of tea 5. Certification on extraneous matters/ micro scopical examination for dead and/ or alive insects, foreign substance and debris in tea. 6. Certification on microbiological contamination in tea, especially on bacteria, fungus & mould growth, E-coli,Coliform and Salmonella sp. 7. Certification on genetically modified organisms (GMO) in tea.

3.5.2. Revenue collection through the testing services of the Analytical Laboratory.

Analytical Laboratory charge fees for its rendered testing services at the requests made by clients, as per the Tea Board circular No. OR/1/87 dated 06/08/2010. Total income of the Laboratory is combined with testing fees received directly from the Exporters (i.e, 58%) and fees recovered by the Tea Commissioners Division and Tea Exports Division under the category ‘below standard teas’ as confirmed by the Analytical Laboratory.(i.,e.,42%).

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 104

03 Table 3.5.2: Share of the Total Income: Internal Monitoring vs. External Certification 2011(Rs.) % 2012 (Rs.) %

Internal Monitoring 2,665,600 43.91 2,043,000 42.05 Activities Service (IMS) Undertaken by the Board External Certification Service (ECS) 3,405,600 56.09 2,815,000 57.95

Total Income, Rs. 6,071,200 4,858,000

Base on the finding of the laboratory analytical services, official actions were taken by the Tea Commissioner and the Deputy Commissioner (Exports) against those contaminated or below standard tea lots. Accordingly, 556 lots were treated as below standard and taken official actions during the intervening year 2012.

Table 3.5.3: Summary of the generated total Income by the Analytical Laboratory during 2011/ 2012

2012 (Rs.) 2011 (Rs.)

Total Income 4,858,000.00 6,071,200.00

3.5.3.Work performances of the individual units of the Analytical Laboratory

3.5.3.1.Quality Inspection and Sampling Unit:

Maintaining a document control procedure is mandatory for any testing laboratory serving for international certification. Therefore, the main function of the Quality Inspection Unit is maintaining laboratory documentary procedure according to the international standards for laboratory accreditation, on ISO 17025 standards. Accordingly, during the year under review 2012, established and maintained an internal document control procedures in Chemical, Microbiological and Pesticide Residue Analysis Units. In addition to the above, this section manages the laboratory sample receiving matter and report issuing matter. Recruitment of academically qualified new Quality Management Officer (QMO) and housed in the Quality Inspection and Sampling Unit is a major achievement gained by the Analytical Laboratory in 2012.

SRI LANKA TEA BOARD Annual Report 2012 105 www.pureceylontea.com

Assistant Director (Laboratory) and QMO 3.5.3.3.Microbiological involved in scientific sampling at the tea Analysis Unit: exporters warehouses as a requirement prior to denaturing of teas which was identified as During the year 2012 under review, detection 03 unsuitable for human consumption. During and enumeration of faecal Coliform, the period of year 2012, under the directives E.coli and detection and enumeration of the Chairperson and the Director General, of total Coliform in made tea are very Activities Assistant Director (Laboratory) involved for four significant in microbiological testing Undertaken sites sampling as special cases. compared to the other routing tastings; by the Board total plate count (total bacteria count) and 3.5.3.2. Chemical Analysis Unit: yeast & mould counts.

Recruitment of technically sound Analyst for the The Microbiological Analysis Unit was Chemical Analysis Unit is a major achievement comprised with an Analyst (Microbiology) during the year 2012. Under the supervision as in-Charge, one Technical Assistant of the Assistant Director (Laboratory), the (contractual) and Laboratory Attendant Analyst (Chemical) in the concerned unit under the supervision of the Assistant was able to work with her team of technical Director (Laboratory). staff and performed the following.

1.Chemical Assessment on inferior quality 3.5.3.4.Pesticide Residue teas produced before auction and pre- Analysis Unit: shipment. 2. Chemical Assessment against the established As per the signed MOU between the Sri ISO 3720 Standards.(It includes the Lanka Tea Board and the Tea Research parameters:Total Ash, Water Soluble Ash, Institute, technology transfer of knowhow in Alkalinity, Acid in soluble ash, Water extract, pesticide residues analysis was introduced Moisture and Crude Fiber contents). by two visiting technical experts under the 3.Estimation of tea dust and powder supervision of the Director, Tea Research contents using sieve analysis technique. Institute. Accordingly, action has been taken 4.Estimation of siliceous matter content in tea. to continue trial analysis required for import inspection certification for five pesticides: alpha-endosulphan,beta-endosulphan, Among the other important events, participating bifenthrin, 2,4-D and MCPA. Under this in Inter-laboratory Proficiency Testing program trials, the existing method was upgraded was highlighted. This program supports to to most widely used German methods and improve competency of the working staff in test trails are carried out to implement new Chemical analysis Unit. simplest ISO method named as ‘QuEChERS’. In the Chemical Analysis Unit, members accommodated were with one Analyst In the Pesticide Analysis Unit, members (Chemical) as in-Charge, two Technical accommodated with one Analyst Chemical/ Assistants (contractual) and a Laboratory Pesticides) as in-Charge, two Technical Attendant under the supervision of the Assistants (contractual) and a Laboratory Assistant Director (Laboratory). Attendant. In December, 2012, the Analyst (Chemical/ Pesticides) given her resignation and thereafter the Quality Management Officer was assigned as acting for the Analyst in Pesticides Residues Analysis Unit under the supervision of the Assistant Director (Laboratory).

SRI LANKA TEA BOARD Annual Report 2012 The New Board Room

Interior of Sri Lanka Tea Board’s re-furbished main secretariat building 107 www.pureceylontea.com 3.6.Administrative Division 03 3.6.1.Key Achievements

The year 2012 was a remarkable year to the Activities Administrative Division of SLTB. The main Undertaken secretariat building of the SLTB refurbished by the Board during the year 2012 after 30 years of history. The new image of the building added more value to the tea board outlook and Hon. Minister Mahinda Samarasinhe and Hon. Deputy minister Earl Gunesekara were participated at the opening ceremony.

It was a main highlight of the year to mention that the filling vacancies of SLTB by solving the issue of avoiding the new requirements to the SLTB. It was create lot of problems for past few years and during the year 2010 SLTB could recruit more employees by solving problems happened due to staff shortage. The new look of the secretariat reception

Pirith Ceremony on the opening of the Sri Lanka Tea Board’s re-furbished main secretariat building

SRI LANKA TEA BOARD Annual Report 2012 The opening of the re-furbished secretariat building was commemorated by the SLTB staff together with the ministry and industry officials with an all night pirith ceremony which was followed by an alms giving to the “maha sangha” 109 www.pureceylontea.com

Table 8.1: Cadre Position of Sri Lanka Tea Board as at 31st De- cember 2012 03 Actual as at Grade Approved Cadre 31.12.2012 Activities Management Grade 4 5 Undertaken Executive Grade 27 20 by the Board Middle Grade 193 153 Minor Grade 76 69 Total 300 247

3.6.2. Human Resource Development Programs Conducted During the Year 2012

No of Programmes - Local Institute Person

Clinical,Industrial and Environmental Applications Institute of Chemistry Ceylon 1

Training on ISO/IEC 17025:2005 - Internal Auditing of Sri Lanka Accreditation Board 2 Laboratory management systems.

The Ceylon National Chamber of Indus- Seminaron Market Opportunities in ASIA,SAARC,FTA 1 tries

National seminar on Accreditation : Supporting food and Sri Lanka Accreditation Board 1 clean drinking water Certificate course in VB.Net programming for database National Institute of Business Management 1 applications Office management for higher labour productivity National Institute of Labour Studies 10 Training on ISO/IEC 17025:2005 -Basics on quality Sri Lanka Accreditation Board 1 assurance, calibration and measurement uncertain Public Procurement procedure Skills Development Fund Ltd 1 Seminar on Taxation “Fiscal legislations arising from International Fiscal Association 2 budget 2012” National Science Library & Resource Empowering scientists with information 2 Centre Professional programme in tea manufacture & factory National Institute of Plantation Manage- 5 practices ment Workshop on “Effective presentation skills” Skills Development Fund Ltd 2 Training programme on presentation techniques National Institute of Labour Studies 1 Seminar on “Standards of Sri Lanka financial records” Prag Services (Pvt)Ltd 2 Total 32 No of Programmes - Overseas Institute Person Advanced certificate course in Tea Tasting & Quality As- Kothari Agriculture Management Centre 1 surance - India Semina on Advanced certificate Program in Tea Plantation Kothari Agriculture Management Centre 2 Management - India Training Course on Pollutution Free Tea Production Tech- Zhengzhou College - Republic of China 1 nology for Developing Countries Workshop of the task Force on Statistics & Projections Intergovernmental Group - Italy 1 Total 5

SRI32 LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 110

3.7. Internal Audit Section Internal Audit is an independent appraisal 03 function within the Sri Lanka Tea Board, for the review of activities as a service to all levels of Management. It is a control which measures, Activities evaluates and reports upon the effectiveness of Undertaken internal controls, financial and non-financial, by the Board as a contribution to the efficient use of resources within an organization.

The Audit Committee of the SLTB approved the Internal Audit Program & reviewed the Internal & External Audit Reports, including special assignment / investigations. The Minutes of the COPE Meeting held in June 2012 were also reviewed and assisted the Management to take remedial actions.

Three (3) Audit Committee meetings were held during the year under review & made recommendations to the Board of Directors along with the Minutes, to facilitate taking correctives measures. 3.8.Information Technology Division

The Information Technology Division is responsible for the implementation of IT related projects and managing the overall IT operations while maintaining the existing IT infrastructure according to the required standards of Sri Lanka Tea Board. 3.7.1. Key Achievements According to the SOR, the position of Assistant Director- IT position has been filled for the first time.

During 2011/12, the IT division was involved in a couple of technology driven projects. The out-of-date Sri Lanka Tea Board web site was revamped utilizing latest technology geared to cater to the increasing demand of effective web presence. The web site implemented in collaboration with the Information Communication Technology Agency of Sri Lanka (ICTA) assists all stakeholders by providing an attractive and user friendly web interface to a one stop data collection center.

The ‘Ausicuda System’ jointly implemented with the Sri Lanka Customs’ under the ‘Single Window’ project enables the Export Division to provide approvals to all tea related exports increasing the effectiveness, reducing the hassle and importantly minimizing paper work. The IT division played a vital role in assisting and consulting the export division to overcome challenges implementing the project. SRI LANKA TEA BOARD Annual Report 2012 111 www.pureceylontea.com

Home page view of the newly re-designed web site of Sri Lanka Tea Board

SRI LANKA TEA BOARD Annual Report 2012

FINANCIAL REVIEW

115 www.pureceylontea.com

STATEMENT OF FINANCIAL POSITION As at 31 December 2012

ASSETS Note As at 31.12.2012 As at 31.12.2011 As at 01.01.2011 Rs. Rs. Rs. NON-CURRENT ASSETS Property, Plant and Equipment 7 669,074,922 650,161,765 657,531,888 Prepaid Leasehold Right to Land 13 3,007,283 3,079,183 3,151,083 Intangible Assets 14 9,311,278 7,419,800 7,516,589 Financial Assets 8 4,813 4,813 33,482,278 681,398,296 660,665,561 701,681,838 CURRENT ASSETS Inventories 9 19,948,861 21,943,323 21,860,568 Trade and Other Receivables 10 39,019,571 37,238,603 40,956,574 Deposits and Prepayments 13,111,889 18,359,812 14,676,103 Other Financial Assets 11 2,804,609,593 1,467,848,421 352,572,978 Cash In Hand and At Bank 42,831,205 40,118,006 35,676,933 2,919,521,119 1,585,508,165 465,743,156 Total assets 3,600,919,416 2,246,173,726 1,167,424,994

EQUITY AND As at 31.12.2012 As at 31.12.2011 As at 01.01.2011 Note LIABILITIES Rs. Rs. Rs.

Contributed Capital 652,067,602 652,067,602 647,117,602 Retained Earnings (399,284,580) 94,039,399 157,322,682 Promotion and Marketing Levy 16 2,710,683,852 1,348,778,067 194,275,470 Special Reserve 16 481,933,543 - - Total Equity 3,445,400,417 2,094,885,068 998,715,754 NON-CURRENT LIABILITIES Employee Benefit 12 44,034,691 45,640,715 40,861,136 Obligations 44,034,691 45,640,715 40,861,136 CURRENT LIABILITIES Deferred Renewal Income 7,233,260 9,356,260 - Trade and Other Payables 15 104,251,048 96,291,683 127,848,104 111,484,308 105,647,943 127,848,104 Total Equity and Liabilities 3,600,919,416 2,246,173,726 1,167,424,994

The accounting policies and notes on pages 119 to 133 form an integral part of the financial statements. Signature for and on behalf of the board

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 116

INCOME STATEMENT Year ended 31 December

Note 2012 2011 Rs. Rs. Revenue 03 279,461,904 271,879,671 Factory modernisation / Replanting 04 (23,669,759) (27,934,212) expenses Administrative expenses 05 (273,447,203) (238,632,602) Other operating expenses 06 (1,782,851) (139,783) Operating profit / (Loss) (19,437,909) 5,173,074 Finance expenses (194,353) (523,223) Finance income 8,241,826 4,454,110 Profit / (Loss) for the period (11,390,437) 9,103,961 Non conversion adjustments relating to - 1,756,028 prior year Profit / (Loss) for the period (11,390,437) 10,859,989

The accounting policies and notes on pages 119 to 133 form an integral part of the financial statements.

SRI LANKA TEA BOARD Annual Report 2012 117 www.pureceylontea.com

STATEMENT OF OTHER COMPREHENSIVE INCOME

Year ended 31 December

2012 2011 Rs. Rs. Profit/ (Loss) for the period (11,390,437) 10,859,989 Other comprehensive - - income Total comprehensive (11,390,437) 10,859,989 income for the period, net of tax

The accounting policies and notes on pages 119 to 133 form an integral part of the financial statements.

STATEMENT OF CHANGES IN EQUITY Year ended 31 December

Contributed Promotion & Special Accumulated Profit Total Capital Marketing Levy Reserve Rs. Rs. Rs. Rs. Rs. Balance as at 647,117,602 194,275,470 - 157,322,683 998,715,755 31 December 2010 Balance as at 647,117,602 194,275,470 - 157,322,683 998,715,755 01 January 2011 Received from 4,950,000 4,950,000 Government Profit for the year 10,859,989 10,859,989 Promotion and 1,154,502,597 1,154,502,597 Marketing Levy (Note -16) Payment to treasury (74,143,274) (74,143,274) Balance as at 652,067,602 1,348,778,067 94,039,398 2,094,885,068 31 December 2011 Balance as at 652,067,602 1,348,778,067 94,039,398 2,094,885,068 01 January 2012 Promotion and 1,361,905,785 1,361,905,785 Marketing Levy (Note -16) Profit for the year (11,390,437) (11,390,437) Special Reserve 481,933,543 (481,933,543) - (Note 16) Balance as at 652,067,602 2,710,683,852 481,933,543 (399,284,582) 3,445,400,415 31 December 2012

The accounting policies and notes on pages 119-133 form an integral part of the financial statements.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 118

STATEMENT OF CASH FLOW

For the year ended 31st December

Cash Flows From Operating Activities 2012 2011 Rs. Rs. Net Profit from Operations (11,390,437) 10,859,989 Adjustments for Depreciation of PPE 26,904,372 25,299,620 Amortisation of Intangible assets 108,522 96,789 Finance Expenses 194,353 523,223 Gratuity provision 5,859,469 7,764,121 Finance Income (8,579,826) (4,454,110) Profit or Loss disposal of PPE 1,582,649 3,695,874 Amortisation of Leasehold Land 71,900 71,900 Operating Profit before Working Capital Changes 14,751,003 43,857,405 Decrease / ( Increase ) in Trade and Other Receivables 3,466,955 34,262 Increase/(Decrease) in Trade and Other Payables 7,959,365 (31,556,421) Increase/(Decrease) in Deferred Renewal Income (2,123,000) 9,356,260 Decrease / ( Increase ) in Inventories 1,994,462 (82,755) Cash Generated from Operations 26,048,785 21,608,751 Interest Paid (194,353) (523,223) Gratuity Paid (7,465,493) (2,984,542) Net Cash From Operating Activities 18,388,939 18 ,100,986 Cash Flows ( used in ) Investing Activities Finance Income Received 8,579,826 4,454,110 Investments (1,336,761,172) (1,081,797,978) Acquisition of Property Plant & Equipment (49,400,179) (16,675,367) Net Cash Flows / ( Used in ) Financing Activities (1,377,581,525) (1,094,019,235) Cash Flows Used in Financing Activities Funds transferred to Consolidated Fund (74,143,274) Promotion and Marketing Levy 1,361,905,785 1,154,502,597 Net Cash Flows used in Financing Activities 1,361,905,785 1,080,359,323 Net Increase / (Decrease) in Cash and Cash Equivalents 2,713,199 4,441,073 Cash and Cash Equivalents at the beginning of the year 40,118,006 35,676,933 Cash and Cash Equivalents at the end of the year 42,831,205 40,118,006

The accounting policies and notes on pages 119 to 133 form an integral part of the financial statements.

SRI LANKA TEA BOARD Annual Report 2012 119 www.pureceylontea.com

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 December 2012 01. Corporate Information 02.Basis Of Preparation General 2.1 Basis of preparation and adoption of SLAS (SLFRS and LKAS) effective for The Sri Lanka Tea Board (SLTB) was established on the financial period beginning on or the 1st of January 1976, under the Sri Lanka Tea Board Law No.14 of 1975, as amended by Act No. 17 of after 01 Janauary 2012 1985, No. 44 of 1990, No. 29 of 2003 and No. 44 of 2006. The head office is located at No. 574, The Financial Statements have been prepared in Galle Road, Colombo 3. SLTB prepares financial accordance with Sri Lanka Accounting Standards statements for the twelve months period ended 31st comprising SLFRS and LKAS as issued by the December and these financial statements are Institute of Chartered Accountants of Sri Lanka. authorized by the members of the board. For all periods up to and including the year ended 31 December 2011, SLTB prepared its financial Principal Activities statements in accordance with SLASs effective up to 31 December 2011. These financial state- The objectives of the Sri Lanka Tea Board are ments for the year 31 December 2012 are the regulation, development of the tea industry in Sri first SLTB has prepared in accordance with Sri Lanka and Promotion of Sri Lanka Tea (Ceylon Tea) Lanka Accounting Standards effective for the globally. It is the authority responsible for regulating periods beginning on or after 01 January 2012. the activities of the tea industry, viz. production, Refer note 7 for explanation of the transition. cultivating new area and replanting, rehabilitating old gardens, the establishment of factories and their Subject to certain transition elections and operation. It also regulates the conduct of the exceptions disclosed in Note 7, SLTB has consistently auctions, monitors quality standards and regulates applied the accounting policies used in prepara- the sales, export brokerage, warehousing and tion of its opening SLFRS statement of financial shipping of tea. SLTB also regulate control and position at 01 January 2010 through all periods direct all institutions and organizations engaged presented, as if these policies had always been in the management of tea estates and in the in effect. production and marketing of tea. 2.2 Basis of Measurement

The financial statements have been prepared on a historical cost basis.

The financial statements are presented in Sri Lankan Rupees.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 120

NOTES TO THE FINANCIAL STATEMENTS

Year ended 31 December 2012 3. Summary Of Significant Accounting Policies

3.1 Significant Accounting Policies 3.5 Prepaid Leasehold Rights to Land

The following are the significant accounting policies Prepayments on leasehold land are amortised used by SLTB in preparing these financial state- over its lease period. Estimated useful life of ments. prepaid lease is as follows.

3.2 Property Plant and Equipment Prepaid Leasehold rights to land 50 years

Property, plant and equipment are stated at cost, 3.6 Intangible Assets net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the Intangible assets acquired separately are measured cost of replacing component parts of the property, on initial recognition at cost. Following initial plant and equipment and borrowing costs for long- recognition, intangible assets are carried at cost term construction projects if the recognition criteria less accumulated amortization and accumulated are met. When significant parts of property, plant impairment losses, if any. Internally generated and equipment are required to be replaced at intangible assets, excluding capitalized development intervals, the SLTB derecognizes the replaced costs, are not capitalized and expenditure is reflected part, and recognizes the new part with its own in the income statement in the year in which the associated useful life and depreciation. Likewise, expenditure is incurred. Estimated useful lives of when a major inspection is performed, its cost is intangible assets are as follows. recognised in the carrying amount of the plant and equipment as a replacement if the recognition Computer software 15 years criteria are satisfied. All other repair and maintenance costs are recognized in the income statement as incurred. 3.3 Depreciation

Depreciation is calculated on pro rata basis. No depreciation is charged during the year of disposal. Estimated useful lives of Property Plant & Equipment are as follows.

Freehold Buildings 50 years Office Equipments 02 - 20 years Furniture & Fittings 01 - 20 years Motor Vehicles 10 years Computer Equipment 05 years Library Books 05 years Laboratory Equipments 03 - 10 years

SLTB has Rs 56.3mn worth of fully depreciated assets as at 31st December 2012.

3.4 Capital work in progress Capital expenses incurred during the year, which are not capitalized as at the balance sheet date are shown as Capital work in progress, whilst the capital assets which have been capitalized during the year and put to use have been transferred to Property Plant & Equipment. SRI LANKA TEA BOARD Annual Report 2012 121 www.pureceylontea.com

3.7 Impairment of non financial assets 4. Liabilities and Provisions SLTB assesses at each reporting date whether 4.1 Retirement Benefit Obligations there is an indication that an asset may be impaired. If any indication exists, or when annual 4.1.1 Defined benefit plan – impairment testing for an asset is required, SLTB estimates the asset’s recoverable amount. An asset’s Retirement Gratuity recoverable amount is the higher of an asset’s or 3.5 Prepaid Leasehold Rights to Land cash-generating unit’s (CGU) fair value less costs SLTB is liable to pay Gratuity in terms of the to sell and its value in use and is determined for Payment of Gratuity Act No.12 of 1983.The liability an individual asset, unless the asset does not for gratuity to an employee arises only on completion generate cash inflows that are largely independent of of five years of continued service with SLTB. In order those from other assets or groups of assets. When to meet this liability, a provision is carried forward in the carrying amount of an asset or CGU exceeds its the Balance Sheet. The resulting difference between recoverable amount, the asset is considered the brought forward provision at the beginning of impaired and is written down to its recoverable a year and the carried forward provision at the end amount. In assessing value in use, the estimated of the year is dealt with in the Income Statement. future cash flows are discounted to their present The principal assumptions used in the calculations value using a pre-tax discount rate that reflects are as follows. current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market Expected Annual ...... 1.01% to 1.03% transactions are taken into account, if available. If no Average Salary such transactions can be identified, an appropriate Increment Rate valuation model is used. 3.8 Taxation Discount Rate / Interest Rate...... 12.16%

Staff Turnover Factor...... 6% No provision for taxation is made as SLTB is not

liable for taxes. 3.9 Inventories The liability is not externally funded. The item is grouped under Non-Current Liabilities in the Inventories are recognized at cost and net Balance Sheet. realizable value which ever is lower after 4.1.2 Defined Contribution Plans- making due allowance for obsolete and slow moving items which are valued at ‘First In Employee Provident Fund & First Out’ basis. Employee Trust Fund SLTB contributes to Employees’ Provident Fund 3.10 Cash & Cash Equivalents contribution and Employees’ Trust Fund contribution is covered by relevant contribution funds in Cash and cash equivalents comprise cash in hand line with respective regulation. Obligations for and bank, Treasury bill investments, other short-term contributions to the plans covering the employees are highly liquid investments with original maturities of recognized as an expense in the income statement. three months or less. Bank overdrafts are shown within borrowings in current liabilities on the Employee Provident Fund balance sheet. SLTB and Employees contribute to provident fund at 15% and 10% respectively on gross salary.

Employees’ Trust Fund

SLTB contributes 3% on gross salary to the Employees’ Trust Fund.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 122

5. Income Statement 5.2 Expenses For the purpose of presentation of the All expenditures incurred in the running of the business Income Statement, the function of expenses have been charged to income in arriving at the profit method is adopted as it represents fairly the elements for the year. Repairs and renewals are charged to profit of corporation performance. and loss in the year in which the expenditure is incurred. 5.1 Revenue Recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the SLTB and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable taking into account contractually defined terms of payment.

The following specific recognition criteria must also be met before revenue is recognised:

Sale of goods

Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods.

Rendering of services

Revenue from rendering of services is recognized in the accounting period in which the services are rendered or performed.

Other Income

Other income is recognized on an accrual basis. Interest income For all financial instruments measured at amortised cost and interest bearing financial assets classified as available for sale, interest income or expense is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in finance income in the income statement.

SRI LANKA TEA BOARD Annual Report 2012 123 www.pureceylontea.com

6. Financial Instruments- Initial Recognition And Subsequent Measurement 6.1 Financial Assets 6.1.2.3 Held-to-Maturity Investments 6.1.1 Initial Recognition and Measurement Non-derivative financial assets with fixed or determinable payments and fixed maturities Financial assets within the scope of LKAS 39 are are classified as held to- maturity when the SLTB classified as financial assets at fair value through has the positive intention and ability to hold it to profit or loss, loans and receivables, held-to-maturity maturity. After initial measurement, held-to- investments and available-for-sale financial assets, maturity investments are measured at as appropriate and determine the classification of its amortised cost using the effective interest method, less financial assets at initial recognition. impairment. Amortised cost is calculated by taking into account any discount or premium on All financial assets are recognized initially at fair acquisition and fees or costs that are an integral value plus, in the case of assets not at fair value through part of the EIR. The EIR amortisation is included in profit or loss, directly attributable transaction costs. finance income in the income statement. The losses arising from impairment are recognised as finance The financial assets of SLTB include cash and short cost in the income statement in finance cost. SLTB term investment, trade and other receivables, staff did not have any held –to- maturity investments loans and other receivables. during the years ended 31 December 2012 and 2011. 6.1.2.4 Available-for-Sale Financial Investments 6.1.2 Subsequent Measurement

The subsequent measurement of financial assets Available-for-sale financial investments include depends on their classification as follows. equity and debt securities. Equity investments classified as available for- sale are those, which are 6.1.2.1 Financial Assets at Fair Value neither classified as held for trading nor designated through Profit or Loss at fair value through profit or loss. Debt securities in this category are those which are intended to Financial assets at fair value through profit or be held for an indefinite period of time and which loss include financial assets held for trading and may be sold in response to needs for liquidity or financial assets designated upon initial recognition in response to changes in the market conditions. at fair value through profit or loss. Financial assets are classified as held for trading if they are After initial measurement, available-for-sale acquired for the purpose of selling or financial investments are subsequently measured repurchasing in the near term. SLTB did not have at fair value with unrealized gains or losses any held –to- maturity investments during the years recognised as other comprehensive income in the ended 31 December 2012 and 2011. available-for-sale reserve until the investment is derecognized, at which time the 6.1.2.2 Loans and Receivables cumulative gain or loss is recognised in other operating income, or determined to be impaired, Loans and receivables are non-derivative at which time the cumulative loss is reclassified financial assets with fixed or determinable payments to the income statement in finance costs and that are not quoted in an active market. After initial removed from the available-for-sale reserve. Interest measurement, such financial assets are subsequently income on available-for-sale debt securities is measured at amortized cost using the effective calculated using the effective interest method interest rate method (EIR), less impairment. and is recognised in profit or loss. SLTB did not Amortized cost is calculated by taking into account have any available for–sale financial investments any discount or premium on acquisition and fees or during the years ended 31 December 2012 and costs that are an integral part of the EIR. The EIR 2011. amortization is included in finance income in the income statement. The losses arising from impairment are recognized in the income statement in finance cost.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 124

6.1.2.5 Derecognition

A financial asset (or, where applicable a part assets with similar credit risk characteristics of a financial asset or part of a group of and collectively assesses them for impairment. similar financial assets) is derecognized when, Assets that are individually assessed for impairment and for which an impairment i) the rights to receive cash flows from the asset loss is, or continues to be, recognised are not have expired included in a collective assessment of impairment.

ii) the SLTB has transferred its rights to receive cash flows from the asset or has assumed an If there is objective evidence that an impairment obligation to pay the received cash flows in full loss has been incurred, the amount of the loss is without material delay to a third party under a measured as the difference between the assets ‘pass-through’ arrangement; and either (a) the SLTB carrying amount and the present value of estimated has transferred substantially all the risks and rewards future cash flows (excluding future expected credit of the asset, or (b) the SLTB has neither transferred losses that have not yet been incurred). The present nor retained substantially all the risks and rewards value of the estimated future cash flows is discounted of the asset, but has transferred control of the asset. at the financial asset’s original effective interest rate.

6.1.2.6 Impairment of Financial Assets SLTB performed specific impairment for each debtor categories during the years 2012 and 2011. The SLTB assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial 6.2 Financial Liabilities asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence Initial recognition and measurement of impairment as a result of one or more events that has occurred after the initial recognition of the asset Financial liabilities within the scope of LKAS 39 and that loss event has an impact on the estimated are classified as financial liabilities at fair value future cash flows of the financial asset or the group through profit or loss, at amortised cost, or as of financial assets that can be reliably estimated. derivatives designated as hedging instruments in an effective hedge, as appropriate. SLTB determines the Evidence of impairment may include classification of its financial liabilities at initial indications that the debtors or a group of recognition. debtors is experiencing significant financial All financial liabilities are recognised initially at fair difficulty, default or delinquency, the probability value and, in the case of loans and borrowings, that they will enter bankruptcy or other financial carried at amortised cost. This includes directly reorganization and where observable data indicate attributable transaction costs. SLTB’s financial that there is a measurable decrease in the estimated liabilities include trade and other payables. future cash flows, such as changes in arrears or economic conditions that correlate with defaults. 6.1.2.7 Financial Assets Carried at Subsequent measurement Amortized Cost Subsequent measurement of financial liabilities For financial assets carried at amortized cost, the are at amortised cost. SLTB first assesses whether objective evidence of impairment exists individually for financial Derecognition assets that are individually significant, or collectively for financial assets that are not A financial liability is derecognised when the obligation individually significant. If the SLTB determines under the liability is discharged or cancelled or expires. that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial

SRI LANKA TEA BOARD Annual Report 2012 125 www.pureceylontea.com

7. First- Time Adoption Of Slas (Slfrs/Lkas)

These financial statements, for the year ended 31 December 2012, are the first SLTB has prepared in accordance with SLAS comprising SLFRS/LKAS. For the periods up to and including year ended 31 December 2011, the SLTB prepared its financial statements in accordance with previous Sri Lanka Accounting Standards.

Accordingly, the SLTB has prepared financial statements which comply with SLAS comprising SLFRS/LKAS applicable for the periods beginning on or after 01 January 2012, together with the comparative period data as at and for the year ended 31 December 2011, as described in the accounting policies.

In preparing these financial statements, the SLTB’s opening statement of financial position was prepared as at 1 January 2011, the SLTB’s date of transition to SLAS comprising SLFRS/LKAS. This note explains the principle adjustments made by the SLTB in restating its SLAS statement of financial position as at 01 January 2011 and its previously published SLAS financial statements as at and for the year ended 31 December 2011.

Exemptions Applied

SLFRS 1 First-Time Adoption of Sri Lanka Accounting Standards allows first-time adopters certain exemptions from the retrospective application of certain SLAS (SLFRS/LKAS).

The SLTB has applied the following exemption:

Certain Property Plant & Equipment were carried in the statement of financial position prepared in accordance with the previous SLAS on revaluation model. The SLTB elected to regard revaluations done on dates given in Note 7 as deemed cost at the date of the revaluation since they were broadly comparable to Fair value.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 126

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 December 2012

3 REVENUE YE 31.12.2012 YE 31.12.2011 Rs. Rs. Revenue - Treasury 117,110,000 122,000,000 Revenue - Treasury for development activities 23,669,759 - (Note 3.1) Lab Income 2,788,300 3,777,600 Registration and Renewal Income 129,036,431 143,118,820 Net profit from commercial activities (Note 3.2) 6,857,414 2,983,251 279,461,904 271,879,671 3.1 REVENUE TREASURY FOR DEVELOPMENT ACTIVITIES SLTB has received an amount of Rs 21,000,000 from treasury as a government grant for the subsidy of factory modernisa- tion & replanting activities and distributed the whole amount during the year 2012. YE 31.12.2012 YE 31.12.2011 Rs. Rs. Receipts from Government 21,000,000 - Factory modernisation & replanting subsidy 2,669,759 - receivable Rvenue- Treasury for Development activities 23,669,759 -

3.2 NET PROFIT FROM COMMERCIAL ACTIVITIES YE 31.12.2012 YE 31.12.2011 Rs. Rs. Tea Sales 13,436,220 11,974,425 Exporter pack sales 2,288,736 2,104,850 Other Sales 17,450 20,450 15,742,406 14,099,725 Less: cost of sales (8,884,992) (11,116,474) Net profit from commercial activities 6,857,414 2,983,251

4 FACTORY MODERNISATION & YE 31.12.2012 YE 31.12.2011 REPLANTING EXPENSES Rs. Rs. factory modernization 10,357,381 18,590,179 Tea replanting subsidy scheme 13,312,378 9,344,033

23,669,759 27,934,212 5 ADMINISTRATION EXPENSES YE 31.12.2012 YE 31.12.2011 Rs. Rs. Personnel emoluments 166,154,243 141,519,502 Travelling expenses 14,443,513 16,853,036 Supplies and requisites 8,536,823 7,645,543 Repairs and maintenance 17,196,468 12,032,918 Depreciation of PPE 26,904,372 25,299,620 Amortisation of Intangible assets 108,522 96,789 Amortisation of Prepaid Leasehold rights to land 71,900 71,900 Utilities and other expenses 40,031,362 35,113,295 273,447,203 238,632,602

SRI LANKA TEA BOARD Annual Report 2012 127 www.pureceylontea.com

6 OTHER OPERATING EXPENSES YE 31.12.2012 YE 31.12.2011 Rs. Rs. BTT - - Discount allowed 158,144 139,783 Loss on sales in foreign currency 604 - Difference exchange - Loss 1,624,103 - 1,782,851 139,783 32

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 128 Total 3,778,924 2,628,958 1,056,519 26,904,372 (722,467) (5,854,817) 657,531,888 650,161,765 669,074,922 (5,417,045) (4,418,337) 767,795,141 786,152,137 47,827,740 25,299,620 160,106,657 22,775,333 828,125,060 114,042,177 138,619,330 - Equipment Laboratory Laboratory - - - - 3,362,268 2,283,568 - - 10,869,106 56,776,544 49,739,308 83,754,217 41,209,047 32,623,509 87,116,485 11,892,529 89,400,053 34,014,909 45,907,438 2,806,531 5,439,028 2,392,530 6,930,970 2,392,530 1,056,519 5,177,521 Computers (89,885) (76,760) (1,151,090) (1,151,090) 20,829,855 21,015,352 23,712,854 1,282,320 2,787,387 2,389,093 24,950,857 17,968,854 19,174,414 - - - - 19,618 61,105 41,487 21,869 361,175 383,044 383,044 383,044 19,618 321,939 341,557 - - - - Library Book Vehicles 4,012,975 (16,250) (190,000) (3,800,000) (65,000) 32,014,423 10,032,903 30,036,701 4,950,000 32,885,516 3,317,722 34,922,879 36,072,879 6,910,540 42,918,419 6,036,178 2,908,456 Motor & Other

Equipment (323,244) (30,310) (347,993) (25,217) 1,320,839 7,031,151 6,920,059 Furniture & Furniture 1,067,066 9,257,811 11,403,254 16,288,962 10,364,894 17,325,718 4,790,423 1,173,065 21,768,148 10,405,659 236,428 236,428 6,537,375 3,335,616 (498,142) (430,490) 9,064,130 2,846,512 3,183,088 (3,926,461) (4,290,734) 37,875,203 42,014,397 12,350,765 11,260,960 50,580,385 49,136,163 38,466,048 35,713,450 Office Equipment - - Buildings 1,149,966 4,431,278 4,539,687 22,827,723 18,288,036 13,856,758 - - 1,544,482 - - 206,468,218 219,175,010 202,431,456 226,499,373 220,719,492 28,607,604 249,327,096 ------350,241,280 350,241,280 350,241,280 350,241,280 350,241,280 350,241,280 Freehold Land Freehold Disposals At 31 December 2012 PLANT AND EQUIPMENT 7 PROPERTY, Work In Progress Work At 1 January 2011 At 1 January 2011 Cost or valuation At 1 January 2011 Additions At 31 December 2011 At 31 December 2011 At 31 December 2012 Net book value At 31 December 2012 Disposals At 31 December 2011 Additions Disposals Disposals At 31 December 2011 At 31 December 2012 Depreciation and impairment At 1 January 2011 Depreciation charge for the year Depreciation charge for the year NOTES TO THE FINANCIAL STATEMENTS TO NOTES ended 31 December 2012 Year 32

SRI LANKA TEA BOARD Annual Report 2012 129 www.pureceylontea.com

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 December 2012

8 FINANCIAL ASSETS As at 31.12.2012 As at 31.12.2011 As at 31.12.2010 Rs. Rs. Rs.

Repos - - 33,477,465 Other 4,813 4,813 4,813 4,813 4,813 33,482,278

329 INVENTORIES As at 31.12.2012 As at 31.12.2011 As at 31.12.2010 Rs. Rs. Rs.

Laboratory & Other Material 6,527,173 5,319,852 5,998,967 Tea 11,381,133 15,174,051 15,083,413 Consumables 2,040,555 1,449,420 778,188 19,948,861 21,943,323 21,860,568

10 TRADE AND OTHER As at 31.12.2012 As at 31.12.2011 As at 31.12.2010 RECEIVABLES Rs. Rs. Rs.

Trade Receivables 961,175 472,756 1,543,759 Trade Receivables - Moscow - 533 21,468 Factory Modernisation & 2,669,759 Replanting Subsidy Receivable Staff Receivables 31,760,973 56,111,794 56,982,606 Receivable - JEDB 25,000,000 25,000,000 25,000,000 Petty Cash Imprest - - 18,076 Prepaid Staff Expense 2,637,639 2,990,801 3,224,146 Advances & Other 990,025 128,135.00 1,631,935 Less: Provision for bad & doubtful debts (25,000,000) (47,465,416) (47,465,416) 39,019,571 37,238,603 40,956,574

Provision with regards to Kalubowitiyana tea factory for CTC project amounting to Rs. 22,465,416 which was provided for has been written off during 2012.

11 OTHER FINANCIAL ASSETS As at 31.12.2012 As at 31.12.2011 As at 31.12.2010 Rs. Rs. Rs. Short Term Investments 2,804,609,593 1,467,848,421 352,572,978 2,804,609,593 1,467,848,421 352,572,978

12 EMPLOYEE BENEFIT OBLIGATIONS As at 31.12.2012 As at 31.12.2011 As at 31.12.2010 Rs. Rs. Rs. Gratuity opening balance 45,640,715 40,861,136 56,682,351 Gratuity charges for the year 5,859,469 7,764,121 (12,970,451) Benefit paid/ payables during the year (7,465,493) (2,984,542) (2,850,764) 44,034,691 45,640,715 40,861,136 13 PREPAID LEASEHOLD RIGHTS TO LAND As at 31.12.2012 As at 31.12.2011 As at 31.12.2010 Rs. Rs. Rs. Opening Balance 3,079,183 3,151,083 3,595,000 Amortisation (71,900) (71,900) (443,917) Closing Balance 3,007,283 3,079,183 3,151,083

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 130

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 December 2012

14 INTANGIBLE ASSETS As at 31.12.2012 As at 31.12.2011 As at 31.12.2010 Rs. Rs. Rs. Software 1,077,307 1,009,829 1,106,618 Software Work In Progress 8,233,971 6,409,972 6,409,972 9,311,278 7,419,800 7,516,589 15 TRADE AND OTHER PAYABLES As at 31.12.2012 As at 31.12.2011 As at 31.12.2010 Rs. Rs. Rs. Trade Payables 41,016,920 31,767,673 56,199,125 Other Payables 51,128,665 55,664,729 47,714,166 Accrued expenses 12,105,463 8,859,281 23,934,813 104,251,048 96,291,683 127,848,104 16 CAPITAL & RESERVES

There is no change in the Authorized Capital during the year ended 31 December 2012.

Contributed capital

Contributed Capital is made up by government grants amounting to Rs. 652,067,602/- as at 31 December 2012.

SRI LANKA TEA BOARD Annual Report 2012 131 www.pureceylontea.com

PROMOTION & MARKETING LEVY

A sum of Rs 3.50 on every kg of tea shall be levied from every registered exporter of tea, at the time at which CUSDEC is authorized permitting the exportation of such tea, by the director general of Sri Lanka Tea Board (SLTB). All sum collected in terms of the provisions of regulation, shall be credited to a designated account as it is determined by the SLTB and form part of the capital fund of the Board.

On the coming into the operation of these regulations, the money lying to the credit of the SLTB in the designated account shall be used exclusively by the Board for the purpose of engaging in activities related to tea promotion and marketing strategy, within and outside Sri Lanka.

As at 31.12.2012 As at 31.12.2011 Rs. Rs.

Opening Balance 1,348,778,067 194,275,470 Amount collected from exporters 1,186,445,976 1,113,814,616 Interest on investment 211,481,173 66,443,637 Promotional expenses - foreign (17,491,926) (10,320,861) Promotional expenses - local (4,942,201) (3,150,408) Subscriptions to international tea councils (2,900,111) (2,286,956)

Complementory tea to missions, other gift teas (3,036,776) (4,497,426) & giveaways

Participation at international trade fairs (7,650,352) (5,500,005) Closing Balance 2,710,683,852 1,348,778,067

SPECIAL RESERVE

Board has decided to create a special reserve for amounting Rs 481,933,543 and its use will be determined by the board as appropriate.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 132

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 December 2012

17 LIABILITIES AND PROVISIONS

A court case heard by the Arbitral Tribunal was given against SLTB for an award of Rs 15,556,355 during the year. However SLTB has appealed against this award and proceeds are in process.

SLTB has been advised by the legal council on the legal cases including the above case pending as of 31st December 2012 that it is only possible, but not probable that the action will succeed. Accordingly no provision has been made in these financial statements.

18 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Board’s principal financial liabilities comprise of trade and other payables. The main purpose of these financial liabilities is to finance SLTB’s operations. SLTB has trade and other receivables, and cash and short-term deposits that arrive directly from its operations. SLTB is exposed to liquidity risk. The SLTB’s senior management oversees the management of these risks. The members of the board reviews and agrees policies for managing each of these risks, which are summarized below.

Liquidity risk

SLTB’s objective is to maintain a balance between continuity of funding. The table below summarizes the maturity profile of SLTB’s financial liabilities based on contractual undiscounted payments.

YE 31.12.2012 YE 31.12.2011 Rs. Rs.

Year ended 31 December 2012: (Rs) Maturity

Trade and other payables 104,251,048 Usually 3 months

Year ended 31 December 2011: (Rs) Trade and other payables 96,291,683 Usually 3 months As at 1 January 2011: (Rs) Trade and other payables 127,848,104 Usually 3 months 2012 2011 Rs. Rs. Trade and other payables 104,251,048 96,291,683 Less: cash and short-term deposits (42,831,205) (40,118,006) Net debt 61,419,843 56,173,677 Capital 652,067,602 652,067,602 Capital and net debt 713,487,445 708,241,279 Gearing ratio 1061.66% 1160.81%

SRI LANKA TEA BOARD Annual Report 2012 133 www.pureceylontea.com

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 December 2012

19 RELATED PARTY TRANSACTIONS

19.1 Transactions with State and State Controlled Entities In the normal course of its operations, SLTB enters into transactions with related parties. Related parties include the Government of Sri Lanka (State: as the ultimate owner of SLTB), various government departments, and State controlled entities. Particulars of transactions, and arrangements entered into by SLTB with the State and State controlled entities which are individually significant and for other transactions that are collectively, but not individually significant are as follows:

YE 31.12.2012 YE 31.12.2011 Nature of the Transaction Rs. Rs.

Transactions:

Revenue 117,110,000 122,000,000 Utility expenses 17,880,913 16,323,656

Outstanding Balances: Receivables JEDB (Plantation Ministry) 25,000,000 25,000,000 19.2 Key Management Compensation

SLTB’s key management personnel include the Board of Directors.

YE 31.12.2012 YE 31.12.2011 Rs. Rs.

Short term employment benefits 53,250 359,500

EVENTS AFTER THE BALANCE SHEET DATE

All the material events after the balance sheet date have been considered and appropriate adjustment and disclosures have been made in to the financial statement, where necessary.

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 134

SRI LANKA TEA BOARD Annual Report 2012 LP/D/SLTB/FA/2012 April 2014

The Chairperson, Sri Lanka Tea Board.

Report of the Auditor General on the Financial Statements of the Sri Lanka Tea Board for the year ended 31 December 2012 in terms of Section 14(2)(c) of the Finance Act No.38 of 1971. ------The audit of financial statementsof the Sri Lanka Tea Board for the year ended 31 December 2012 comprising the Statement of financial position as at 31 December 2012 and the income statement, the statement of changes in equity and the statement of cash flow for the year then ended and a summary of significant accounting policies and other explanatory information, was carried out under my direction in pursuance of provisions in Article 154(1) of the Constitution of the Democratic Socialist Republic of Sri Lanka read in conjunction with Section 13(1) of the Finance Act, No.38 of 1971. My comments and observations which I consider should be published with the annual report of the Board in terms of Section 14 (2)(c) of the Finance Act, appear in this report.A detailed report in terms of Section 13(7)(a) of the Finance Act was issued to the Chairperson of the Board on 31 January 2014.

1:2 Management’s Responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards and for such internal control as the management determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.

1:3 Auditor’s responsibility My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with Sri Lanka Auditing Standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are freefrom material misstatements. 2

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgments, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Board’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Board’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements. Sub-sections (3) and (4) of Section 13 of the Finance Act, No.38 of 1971 give discretionary powers to the Auditor General to determine the scope and extent of the audit.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my qualified audit opinion.

1:4 Basis for qualified opinion.

My opinion is qualified based on the matters described in paragraph 2:2 of this report.

2. Financial Statements

2:1 Qualified Opinion In my opinion, except for the effects of the matters described in paragraph 2:2 of this report, the financial statements give a true and fair view of the financial position of the Sri Lanka Tea Board as at 31 December 2012 and it financial performance and cash flow for the year then ended in accordance with Sri Lanka Accounting Standards.

3

2.2 Comments on Financial Statements 2.2.1 Sri LankaAccounting Standards (SLFRS/ LKAS)

(a) LKAS 16 (i) Fair value of lands at Gampola and Bandarawela Regional Offices shown in the fixed assets account as Rs. 17,000 and Rs. 224,280 respectivelyhad not been brought to accounts. (ii) Fully depreciated assets purchased at the cost ofRs.56.3 million which are being used at present at Head Office and Regional Offices had not been revalued and brought to accounts.

(b) LKAS 39 A sum of Rs. 4,329,769receivable from Polhena Tea Factory since 1995 had been taken into accounts without considering the possibility ofrecoverability.

2.2.2 Accounting Deficiencies

Following observations are made.

(a) License renewal fees of tea manufactures and traders received in 2011 amounting to Rs.7,233,260 had been remained in differed renewal income in the statement of financial position without identifying and adjusting in the accounts as at the end of the year under review.

(b) Registration fees of refuse tea dealers, tea packers, tea exporters and warehouses amounting to Rs.5,621,928 received in 2010 for the year 2011 had been remained in Received in Advance Account without being adjusted to the revenue even up to the end of the year under review.

(c) License fees received in 2012 for the year 2013 from refuse tea and green tea leaf dealers amounting to Rs.2,870,000 and Rs.8,992,795 respectively had been shown under trade payables without being shown under differed renewal income account. 4

(d) Employee and employer contributionsof the Employees Provident Fundfor the month of December 2011 amounting to Rs. 1,350,250 had been brought to accounts as expenses for the year under review, thereby the Employees Provident Fund expenseshad been overstated by the same amount.

(e) Advances amounting to Rs.1,464,094 received from the participants of the trade fairs conducted in 2010 and 2011 had been shown as payables without adjusting to the trade fair expenses.

(f) Tea promotional and marketing levy paid in advance by the exporters as deposits as at the end of the year under review had been taken into the equity without showing as a current liability. The details of those deposits were not made available for audit

2.2.3 Accounts Receivable and Payable

The following observations are made.

(a) A sum of Rs. 25,000,000 shown as receivable for more than five years from Janatha Estate Development Board (JEDB) had not been recovered even up to the end of the year under review. However, a provision had been made for this amount under bad and doubtful debts as the recovery was doubtful. Further, according to the Committee on Public Enterprises meeting held on 19 June 2012, the JEDBand the Board had arrived at a decision to get the ownership of the Ceylon Tea Museum at Hantana, belonging to the JEDB worth of Rs. 16 million and to write off the balance of Rs. 8 million. However this processhad not been completed up to the date of audit on 31January 2014. The Chairperson of the Board had stated that the Board has attended several meetings with the Ministry officials to finalize this matter with the JEDB in order to expedite the transferring process of the ownership.

(b) The Board had provided subsidies to the Tea Factories and Estates for the 5

factory modernization and replanting amounting to Rs. 2,669,759 from the own funds of the Board by exceeding the Treasury Grants given for this purpose during the year under review. Although this amount could not be recovered from the Treasury, the Board had accounted as receivable from the Treasury.

(c) An advance amounting to Rs.261,383receivable from the welfare society had not been recovered for more than three years. No action had been taken to recover even in the year under review.

(d) Provisions for data processing charges and staff travelling amounting to Rs. 53,602 had been shown under current liabilities for more than three years and no any action had been taken by the Board to settle even in the year under review.

2.2.4 Non-compliance with Laws, Rules, Regulations and Management Decisions

Instances of non-compliance with the following Laws, Rules, Regulations etc., observed in audit are given below. Reference to Laws, Rules, Regulations Non-compliance and Management Decisions ------(a) (i)Section 49 of Tea Control Act Registration fees,registration renewal No.51 of 1957and fees and license fees had been Section 25(3) of Sri Lanka Tea Board Law No. 14 of increased by considerable amounts 1975 from 2011 as per the Board decision on

29 July 2010 without obtaining the approval of the Cabinet of Ministers and had not been published in the Government Gazette according to the Acts. The Chairperson of the Board had stated that this matter has been already referred to the Attorney General. (ii) Sections 13 and 14 of Sri Lanka The establishment and operation of the 6

Tea Board Law No.14 of Cess Fund had not been carried outin 1975 compliance with the provisions of the Act. The Chairperson of the Board had stated that Cabinet approval also had been granted to amend the Act. Accordingly, a Sub Committee had been formed to process the required amendments to this Act.

(b) Section 132 of Inland Revenue Act The PAYE tax had not been deducted No. 10 of 2006 and remitted to the Department of Inland Revenue from a project

consultant appointed to the Tea Promotion Division.

(c) Government Financial Regulations; Book balances and values had not been

taken in to the board of survey reports (i) F.R. 507 as per FR instructions. Therefore, the discrepancies between the quantity recorded in the books and physically available balance were not shown in the Board of survey reports and it was observed that the objectives of the board of survey were not fulfilled.

(ii) F.R.676 (2) Nine official advertisements were not published in three languages and 07 official advertisements were published in one language for more than one instance without adhearing to the Regulation. (d) Treasury Circular No.842 of 12 The register of fixed assets had not 7

December 1978 been updated and maintained properly as per the circular instructions. The Chairperson of the Board had stated thatthe fixed assets register is being updated.

(e) Public Administration Circulars; Fuel consumption of motor vehicles (i) No 41/90 of 10 October 1990 had not been tested once in every six months.

(ii)No 14/2008 of 26 June 2008 An allowance of Rs. 75,000had been paid asmonthly transport rent to the Chairperson of the Boardfrom December 2011 to May 2012 contrary to the Circular instructions.

The Chairperson of the Board had stated that the Board approval was given for the allowance.

(f) National Procument Agency Circular (i) Procument procedure had not been No 09 of 01 March 2006 followed for the building renovation contract valued at Rs.6.28 million.

(ii)Contracts for purchasing wooden furniture amounting to Rs.4.68 million had been awarded to unregistered suppliers without adhering to the ProcumentGuidelines(Reference 3.4).

(iii)An advance amounting to Rs.500,000 had been paid to purchase a motor vehicle valued at Rs.6.5 million before the approval 8

of the procument committee contrary to the Procument Guidelines(Reference 2.4).

The Chairperson of the Board had stated that, the motor vehicle had been purchased an urgently to save Rs. 2 million due to the increase of customduty and the Procument Committee discussed and agreed to pay an advance before the committee was able to meet formally for the approval.

3. Financial Review

3:1 Financial Results According to the financial statements presented, the operating activities of the Board for the year ended 31 December 2012 had resulted in a net deficit of Rs.11,390,437 as against the net surplus of Rs.10,859,989for the preceding year, thus indicating a deterioration of Rs.22,250,426 in the financial results. This deterioration was mainly due to the decrease of license fee, registration and renewal income and an increase of administration and operating expenses of the Board for the year under review.

3:2 Performance

3:2:1 Functions of the Board

The main functions of the Board are regulating the activities of the tea industry in Sri Lanka, marketing and promotion of “Ceylon Tea” in Sri Lanka and in abroad, conductingmarket research on tea and providing market intelligence to the tea industryand providing laboratory and technical services to the tea trade through Tea Commissioners Division, Tea Export Division, Tea Promotion Division, Analytical Laboratory and Tea Tasting Unit of the Board.

9

(a) Performance of Tea Industry According to the Financial Statements and the data made available for audit, tea Production and Exports from Sri Lanka and the expenses incurred by the Board for the improvement of tea production and tea export promotion for the year under review ascompared with four preceding years are given below.

Year Tea Development Tea Promotional Cost of Selling Production Expenditure Exports Expenditure Production Price per in Sri incurred by the from Sri incurred by per Kilogram Lanka Tea Board for Lanka the Board for Kilogram the (Including increasing Improvement of Re- Tea Exports Tea Production exports) ------Kilograms Rs. Kilograms Rs. Rs. Rs. (Million) (Million) 2008 318.7 3,644,246 319.8 109,358,718 231.49 310.81 2009 291.1 24,552,506 289.7 102,286,182 269.01 360.45 2010 331.4 10,394,094 324.4 58,843,391 313.17 370.61 2011 327.5 29,133,757 322.6 25,755,657 355.02 360.53 2012 328.4 23,669,759 319.9 36,021,266 notgiven 392.03

Following observations are made in this regard.

(i) Although tea promotional expenditure had increased by Rs. 10.26 million, the tea exports had decreased by 2.7million kilogramsas compared with the previous year.

(ii) Tea production hadincreasedonly by 0.9million kilogramsas compared with the previous year.

(iii)According to the annual reports of 2011 and 2012, Tea Research Institute, Tea Small Holdings Development Authority and the Board together with had designed a Factory Based Tea Development Programme specially to improve the productivity of small holdings and the tea factories. It was planned to appoint an extension officer (Field Coordinator) under this programme to monitor the productivity of tea small holdings and handling 10

of green tea leaf. However,it was observed that this activity had not been implemented up to the end of the year under review.

The Chairperson of the Board had stated that thisprogramme had been launched in Matara and Mathugama Regional Offices and due to the certain practical difficulties related to the team work this could not be implemented in the other Regional Offices.

(b) Participation for Foreign Trade Fairs

The foreign trade promotion workshad been undertaken by the Board and sponsorships were provided during each year from 2009in connection with the promotion of Pure Ceylon Tea Brands at the trade fair of International Food and Beverages held in the major tea importing countries.The participation for foreign trade fairs from 2009 are given below.

2012 2011 2010 2009 Number of Exhibitions conducted 17 15 18 25 by the Board Number of Companies not given 94 101 81 participated

(c) Registration Activities The registration, certification and issue of licenses for the following tea manufactures and traders as at the end of each year from 2009are given below. Registrations and issue of 2012 2011 2010 2009 Licenses Nos. Nos. Nos. Nos.

Greenleaf Traders 1982 1914 1866 1703 Active Tea Factories 702 695 712 697 Tea Exporters 383 363 347 325 Tea Packers 412 392 375 351 Importers 192 184 57 51 Tea Warehouses 446 404 359 229 Trade mark (Lion Logo) 98 99 96 94

(Annual Reports 2009 – 2012) 11

Following observations is made in this regard.

According to the annual report of 2012, the subsidies for factory modernization had been decreased by Rs. 8.2 million and anincrease of 16 non operating factories also were observed as compared with the previous year.

(d) Activities of the Tea Tasting Unit

The samples of tea tastings carried out in each year by the Tea Tasting Unit to maintain the minimum quality standard/monitoring ISO 3720 at any given point of dispose of tea and issue of Lion Logo Certificate for Branded products for consumer packs, monitoring and ratification of private sales and direct sales are given below.

2012 2011 2010 2009 Nos. Nos. Nos. Nos. Tea Tasting for Quality Control - Pre auction 299,770 151,767 164,336 130,007 - Pre shipment 4,915 4,981 6,183 6,620 - Pre Imports 1,907 4,615 6,404 5,552 - Post imports 1,299 3,068 2,761 2,597 Ratification of Private sale panel valuation certificates 6,632 5,255 5,025 11,523 Ratification of Direct Sales 1,768 1,550 1,470 1,349

(e) Analytical Laboratory Services

The samples tested and the income earned in each year by the Analytical Laboratory Service maintained with the objective of improving the quality standards management by issuing quality standard certificates for the samples received internally from the Tea Commissioner’s Division and externally from the tea exporters, importers and producers were as follows.

Year Number of Samples Income tested ------Rs. 2012 5,042 4,858,000 2011 7,933 6,071,200 2010 7,025 4,171,600 2009 7,679 3,787,900

(Annual Reports 2009 – 2012) 12

Following observations are made in this regard. (i) It was observed in audit that the income from the samples testing had been decreased by Rs 1.2 million in 2012 due to the decrease of samples tested by 36.4 per cent as compared with the previous year.

(ii) In view of the staff shortage of the Laboratory for testing of samples, the consultation and assistance of the staff of the Tea Research Institute had been obtained from October 2011 for one year on the basis of payment of 50 per cent of the net income of the Laboratory and payment of consultancy fee of Rs. 30,000 and Rs. 25,000 for other staff per month. Although, Rs.52,000 and Rs.335,000 had been paid as consultancy fees and other payments in 2011 and 2012 respectively, as per the progress reports it was observed in audit that the testing were not being done properly. The 50 per cent of the net income of the Laboratory had also not been paid for the agreed period.

The Chairperson of the Board had stated that to overcome the industry needs on testing facility at the Board with staff shortage in September 2011 the Beard entered into a Memorandum of Understanding (MOU) with Tea Research Institute to obtain Scientists for fee pay basis. Since theobjectives had not been achievedas per the MOU, no income was generated as expected.

3.2.2 Levy for Tea Promotion and Marketing Strategy

A sum of Rs.2,535.22 million had been collected for Tea Promotion and Marketing Strategy during the period from 01 November 2010 to 31 December 2012 by the Board from tea exporters at Rs.3.50 per kilogram of tea exported in terms of gazette notification published on 27 October 2010. Following observations are made in this regard.

(a) In the absence of a proper plan and management, a sum of Rs. 120.62 million or 4.76 per cent out of the total of Rs.2,535.22 million of such 13

collection had only been used for promotion and marketing strategies up to the end of the year under reviewdue to delay in conducting promotional activities.

(b) Budgetary provisions of Rs. 1,150 million had been made for promotion and marketing strategies for the year under review. Out of this Rs. 36.02 million or 3.13 per cent only had been utilized during the year under review although the actual collection of the levy were exceeded by Rs.36.44 million.

(c) Although the main objective of the levy collection was to use on Tea Promotion and Marketing Strategies, the money had been invested on short term investments and earned a sum of Rs. 211.48 million as interest during the year under reviewdue to delay in conducting promotional activities.

(d) Although a sum of Rs. 2.3 million had been provided to conduct annual tea competition among the tea estates,this activity had not been conducted during the year under review as planned.

(e) According to the gazette notificationdated 27 October 2010, a periodic review of the progress should be made by the persons who are stakeholders of the industry once in every two years,but no evidenceswere made available for audit whether such review had been carried outby the stakeholders. However, according to the draft annual report of the year under review, the Honorable Minister of Plantation Industry had reconstituted the Promotion and Marketing Committee (PMC) to be in line with the priorities and expectations of the industry and the trade and the new PMC will be responsible to formulate a new strategic marketing plan which will be launched during the latter part of 2013.

(f) A project consultant had been appointed on contract basis for a monthly salary of Rs.130,000on 02 August 2012for the proposed promotional activity of Global Campaign for New Marketing Cell. However this activity 14

had not been implemented upto the date of audit on 30 September2013 and the project consultant also had been resigned from the service on 01 August 2013.

(g) According to the Statistical Bulletin of the Annual InternationalTea Committee 2012, Turkey, UK, Egypt, Morocco and Afghanistanare the first five tea consumers of the world. However, it was observed that no any promotional activities had been conducted in those countries by the Board during the year under review. As per the above bulletin, the position of Ceylon Tea was in third place continuously for the past four years. However no proper promotional plan had been introduced by the Board to catch up the Global Market.

3.2.3 Activities not conducted as per Action Plan

Following activities had not been conducted during the year under reviewas planned. Activity Amount Estimated ------Rs.million

Automation of Pre post auction procedures 60 Soft Loan Scheme under Revolving Fund 10 Minimize post harvest damage 20

The Chairperson of the Board had stated that the Automation of Auction programme would be proposed to conduct by Colombo Tea Trader Association. However, due to a policy decision, this programme had not been implemented.The Soft Loan scheme under Revolving Fund had been implemented and about Rs.05 million had been spent for 09 Society Organizations and the programme of minimize post harvest damage had not been implemented due to the lack of funds.

15

3:3 Human Resources Management According to the information provided by the Board, the cadre position of the Board as at 31 December 2012 is given below.

Post ApprovedC ActualCad Vacancies Redundant ------adre re posts ------Senior Level 04 03 01 - Secondary Level 27 23 12 04 Tertiary Levels 193 155 40 06 Primary Level 76 69 07 ------Total 300 250 60 10 ======

Following observations are made in this regard.

(i) According to the letter No.DMS/C/2/02/62 dated 01December 2011received from the Department of Management Services,300 Nos. of employees were approved and 10 Nos. of redundant posts had been allowed personal to the holders, those who were in service at the time.There were 60 vacancies as at 31 December 2012 including Director (Administration and Finance), Deputy/Asst. Director(IT), Deputy and Asst.Tea Commissioners, Technical Assistants (Lab) etc. (ii) Thirteen advertisements had been published in news papers for a vacancy of the Board during the year under review by spending Rs. 803,483. It was observed that out of the above thirteen, two advertisements costing Rs.151,782 were published with mistakes and another six advertisements costing Rs.317,296 were fruitless as no any applicants were being selected.

3:4 Assets Management

Following observations are made

(a) The building occupied by the Tea Commissioner’s Division had been vacated on 31 December 2002 and the rent advance amounting to Rs. 2.4 million deposited with the owner of the premises had been recovered by the Board through an arbitrator by spending Rs. 2.8 million since 2005 to 30 May 2011. 16

However, the owner of the premises had appointed anarbitrator against the Board in October 2008 by claiming Rs.4.9 million with 20 percent interest and 15 percent value added tax for the damages to the building and failure to restore the area of the building to be leased from January to September 2003. The Board had appealed against this case and the proceeding arestill in process.

(b) A sum of Rs. 9,038,930 had been paid by the Board to a private institution up to 31 December 2009 for the supply and installation of Specialized Application Software and related Hardware to support the functions required in each Division of the Board. The delivery and installation of this Network System was scheduled to be completed within 90 days in terms of the agreement entered into between both parties on 07 April 2005. The period of completion had been extended mutually up to 01 April 2008 due to lapses in both parties. However, it was observed in audit that part of this activity valued at Rs.2,628,958 had only been completed and the balance had been shown in the accounts as work in progress without being completed even up to the end of the year under review.

(c) Following advances had been refunded without being utilized for the intended purposes.

Date of Reason Amount Date No of days Advance refunded retained in hand ------Rs. 30.01.2012 FAO/IGG 100,000 02.03.2012 31 50% for Beverage

11.10.2012 Misc. Expenses 20,000 22.10.2012 10

18.07.2012 Analyzing of 08 16,800 26.10.2012 96 samples

(d) Bank balances in the Embassy accountsin Canada, Poland, Germany and Bangkok totaling Rs.611,178were idling for more than three years.

17

4. Systems and Controls

Observations madein systems and controls during the course of audit were brought to the notice of the Chairperson of the Board by my detailed report issued in terms of Section 13(7)(a)of the Finance Act. Special attention is needed in respect of the following areas.

(a) Inventory control (b) Accounting (c) Receivables and payables (d) Promotional activities (e) Maintaining Accounting Records

H.A.S.Samaraweera Auditor General

18

135 www.pureceylontea.com

Offices of the Sri Lanka Tea Board 32 Head Office Sri Lanka Tea Board 574, Galle Road, Colombo 03, Sri Lanka

P.O.Box: 1750, Colombo, Sri Lanka Tel: 011 2582121 011 2583687 Hotline: 011 2587814 Fax: 0112582122

E mail:teaboard@pureceylonte. com

Website: www. pureceylontea.com

Chairperson Tel: 011 2587814 /2590968 Fax: 0112585701 E mail:[email protected]

Director General Tel: 011 2587814 /2508991 Fax: 0112582122 E mail:[email protected]

Tea Commissioner’s Division

Tea Commissioner Tel: 0112580182/2580152/2502485/ 2584845/ 2587814/ 2587773 Telegram: Comtea Fax: 0112580161 E-mail: [email protected]

Tea Promotion Division Director (Tea Promotion) Cables: Propaganda, Colombo, Sri Lanka Tel: 0112583343/2587814/2581418/ 2580169 Fax: 0112587341 E-mail: [email protected]

Tea Exports Section

Deputy Tea Commissioner Tel: 0112502485/2584845/2587814/ (Exports) 2504090/2587773 Telegram: Comtea Fax: 0112584844 E-mail:[email protected]

SRI LANKA TEA BOARD Annual Report 2012 www.pureceylontea.com 136

Analytical Laboratory

Director (Lab) Tel: 0112587814/2581576 Fax: 0112581576 E-mail: [email protected]

Regional Offices

Gampola Assistant Tea Commissioner Regional office Sri Lanka Tea Board 140, Ambagamuwa Road, Gampola Tel./ Fax : 081-2352279 E-mail: [email protected] Matara Assistant Tea Commissioner Regional office Sri Lanka Tea Board 46,Wilfred Gunasekara Mawatha, Fort, Matara Tel. / Fax: 041-2222636 E-mail: [email protected]

Mathugama Assistant Tea Commissioner Regional office Sri Lanka Tea Board 281, Agalawatte Road, Mathugama Tel.: 034-2247444 E-mail: [email protected] Ratnapura Assistant Tea Commissioner Regional office Sri Lanka Tea Board 61/1, New Town, Ratnapura Tel. / Fax: 045-2222136 E-mail: [email protected]

Bandarawela Assistant Tea Commissioner Regional office Sri Lanka Tea Board Visaka Mawatha, New Badulla Road, Bandarawela Tel. / Fax: 057-2222812 E-mail: [email protected]

Galle Assistant Tea Commissioner Regional office Sri Lanka Tea Board 20, Lower Dickson Road, Galle Tel. / Fax: 091-2232052 E-mail: [email protected]

SRI LANKA TEA BOARD Annual Report 2012 137 www.pureceylontea.com

Foreign Branches

Ceylon Tea Promotion Unit- Minister -Tea Promotion Consulate General of Democratic United Arab Emirates socialist Republic of Sri Lanka Villa No.2, Plot B-44, Street 322-B Al Hudhaiba,Dubai,UAE

(P.O.Box 51528) ,Dubai,UAE Tel: 00971 4 3987871 Fax: 00971 4 3984687 E-mail:[email protected] / [email protected]

Ceylon Tea Promotion Unit- Tea Promotion Unit Embassy of the Democratic Socialist Russia/CIS Republic of Sri Lanka Ulitsa Schepkina-24 Moscow 129090 Russia

Tel: 007 495-688-1620/495-688- 1651/ 495-688-1463 Fax: 007-495-688-1757 E-mail:[email protected]

SRI LANKA TEA BOARD Annual Report 2012