However, this trial by fire may have served a purpose in finally pushing the nation to increase local production and move towards a more export-based economy. The Government has ostensibly ramped up its efforts in this regard, setting higher export targets for several industries in 2021 and implementing measures to boost local manufacturing.
While such efforts are commendable, what Sri Lanka needs is not a “more of the same” approach, but a strategic repositioning; instead of looking for markets where we would have to compete against other players, the country would benefit more by creating demand for its products through value-addition – put simply, opting for quality over quantity.
One industry where such value addition has paid dividends is tea, which has not only been a significant contributor to export income over the years, but has also put Sri Lanka on the map the world over. The industry achieved this through the recognition of Ceylon Tea – where the product was once repackaged and sold under various different brands, it is now linked to the country, and has established its own brand value.
Acquiring this status did not happen overnight; it took years of marketing, applying for Geographical Indication (GI), and a commitment to quality to build the global brand it is today. However, Sri Lanka will continue to reap the benefits of these efforts well into the future, and thus it would be worth looking at how to replicate this success story with other local products.
The Sunday Morning Business spoke to Dilmah Tea CEO Dilhan C. Fernando, whose firm – founded by his father – played a key role in taking Ceylon Tea to the heights it has reached. In the current context of Sri Lanka attempting to obtain GI for Ceylon Cinnamon, amidst opposition from Madagascar, he shared his insights regarding how Sri Lanka can effectively brand its products – from organic produce to crafted goods – to actualise an export strategy that uses the country itself to market its value.
Value addition over price competition
“Ultimately we must look to creating value,” noted Fernando. “It should be about creating value for Sri Lanka, but our alignment has been instead on competing. The fundamental difference is that when you compete without consideration for the value – economic, social, ecological and cultural – for the nation, then you come to one conclusion, which is price.”
As an example of the benefit of such value addition, he noted that most local exporters maintain low margins when exporting tea, whereas Dilmah is able to maintain a much higher margin and remain in business, as the brand’s strength assures that it will retain demand.
“My point is,” he stated, “that we are not the biggest. But Sri Lanka needs to recognise that the value to the country comes from creating value around the product. In our case, what is different is that we are not trying to compete; we are looking to align our customer proposition with the uniqueness of our product, and the social, environmental and all these other aspects around tea.”
So how does this translate to other local industries? Ceylon Cinnamon, and the struggle over its GI application, gives us some idea. While Ceylon Cinnamon (Cinamomum Zylanicum) is also grown in Madagascar – the basis of its opposition to Sri Lanka’s GI application – there are numerous factors that make the cinnamon produced in Sri Lanka unique, such as the richness of Sri Lankan soil, as well as the methods used to harvest the cinnamon.
These factors are a product of our natural and cultural heritage and cannot be replicated anywhere else in the world, which will only add strength to the Ceylon Cinnamon brand, if this should come about, and create demand for the product.
As it stands, a competitor to Ceylon Cinnamon is Cassia Cinnamon, also known as Chinese Cinnamon, which, despite being the most commonly consumed variety around the world, is of noticeably lower quality and may even be toxic when consumed regularly or in large quantities.
This example highlights a key shortcoming in Sri Lanka’s marketing strategies – if the benefits of Ceylon Cinnamon were more prominently advertised, there would be no need for competition against Cassia Cinnamon. In fact, Sri Lanka would be able to benefit from the large export volume of this competing product; consumers seeking a more health-conscious product would be willing to spend more, and go out of their way to acquire it, even if the supply were low.
Such a strategy would mean that Sri Lanka no longer competes on prices and volumes alone; the marketed quality of its products would fuel demand and allow exporters to derive far higher margins, even – or especially – with a lower output volume, while completely bypassing the competition for price.
Branding through natural and cultural heritage
Fernando pointed out that the same natural and cultural factors that make Ceylon Cinnamon so unique play a role in so many of our local industries. In terms of produce, they could apply to cardamom, pepper, cloves, cashew, ginger – the list goes on. We also boast a number of craft industries involving kithul, rubber, clay, and other raw materials available locally, which utilise unique traditional methods that can be marketed as part of the value-addition.
“In Sri Lanka we have some of the finest products in the world, agriculturally, in terms of health, taste, authenticity, and heritage,” he noted. “Looking at tea, and the incredible variety that we have available – that variety comes from nature. If you go to the West, they would kill for things that are natural! They’re even trying to artificially create the natural experience; but in our case we have the most amazing things. So we must appreciate the value that we have, but we also need fresh thinking in marketing.
“We need to understand that certain competences are necessary in terms of talking about our product and developing its storyline, and also in terms of understanding the market. For instance, we’re saying we have cinnamon, but we have to give it at the cheapest possible price, because Cassia is cheaper.
“But we’re not telling our story – we can take our cultural heritage, where we have a strong association with nature, and use that to market our products. It’s about connecting that heritage to the Geographical Indication, because this heritage has ensured that our processes are unique.”
Adding value at all levels
However, Fernando explained, such marketing cannot only be on the front-end, and will require the alignment of every aspect, from harvesting and production to packaging and sales, with the brand Sri Lanka is trying to establish. The value added to the products being exported must translate back into an impact on the lives of the workers and communities involved in their production.
Referring to the tea industry, where workers are still negotiating with RPCs for a Rs. 1,000 daily wage, he noted that such value addition, in bringing up the price fetched for Ceylon Tea, could easily translate into higher wages for workers.
“If we are marketing the fact that we are providing decent livings, putting sustainable agriculture and agri-forestry into the plantations, and other sustainable measures, people will come and say ‘I want to buy that tea, because they’re doing good things’. Then we’ll be able to let the plantation companies pay a higher wage, because we’re selling more; because our market is understanding and accepting our product.”
This strategy can also help ensure that traditional livelihoods and production methods are kept alive. This is because in a price-competitive marketplace, focus is placed on increasing production volume, causing such traditional methods to be phased out for industrial practices and machine-assisted work.
Though traditional methods may prove slower and result in lower output volumes, the products they generate can be marketed at a higher value for being unique and of a higher quality, allowing the practitioners of these methods to sustain themselves and continue passing these skills down through generations.
An example of this would be kithul harvesting, where tappers climb the palm trees that grow up to 40 feet in height, make an incision and let the sap collect over several days, and then let it boil over a wood fire. Such a time consuming process would have no place in the hunt for cutting costs, but if this process is marketed properly – if this story is told – kithul treacle can be branded better and fetch a higher price, which would result in a sustainable income for the traditional harvester.
Regulation, incentives, and institutional co-operation
Another important point Fernando brought up was that once products are marketed in this way, under a Sri Lanka brand, the industry will then need to stand together to maintain quality standards. In such a scenario, the export of any substandard products would result in heavy damage to the brand and lose the trust of consumers, so a concerted effort must be made to prevent this.
Unfortunately, this quality dilution has happened with several local spice exports, and even Ceylon Tea, where certain exporters cut corners to ship products in violation of quality standards, leaving the entire industry reeling from the fallout. Thus, with value-addition also comes the need for strict regulation.
“You can’t have exporters coming in and mixing, for instance, Indian pepper and Vietnamese pepper, with our pepper shipments. But the point is, the regulations must understand the objective of value creation,” he noted. “Today, they don’t do that, and that’s the tragedy. My assessment is that even if you add Rs. 5 to our FOB on tea, you’re creating some $ 3 billion across the board. So we should start by saying ‘let’s incentivise these guys’.”
In this regard, regulatory bodies do little to incentivise sustainable production methods and promote better practices, and instead serve as merely monitoring bodies that, in many cases, only result in stifling innovation, as opposed to facilitating it. Further, despite the availability of capable scientists and research institutes, rarely are new technologies developed and implemented to aid local production.
This lack of technological assistance also results in environmental damage. For instance, rural farmers, once their land loses fertility, tend to engage in deforestation to acquire more land for farming. However, with the right knowledge and tools, they could instead be directed to engage in more sustainable practices that prevent this need for expansion.
Stressing the need for change, Fernando pointed out that several of the government institutions involved in production and export were implemented at the time of Independence, whereas the market has evolved so far ahead that a new approach is required. “The world has changed, and right now the value in our product is unbelievable, but we’ve got to harvest it by, first of all, getting our product right; aligning it with science – we have the scientists here who can do it – as well as the market.”
“It’s also the mindset – to say ‘we don’t need to be the largest exporter of tea in the world, producing 500 million kilogrammes, but instead to produce 200 million kilogrammes at a profit; and we want the profit to build better factories, better agriculture, and better livelihoods’.”
This change in mindset would require a major restructure, or at least realignment, of the related government institutions, as there are several departments for the various industries under a number of different ministries – making it near impossible for a co-ordinated effort to implement a holistic vision. Of course, this would require a break in Sri Lanka’s norm of switching policies and goals every time a new government takes the reins, but if such a vision could be implemented, the nation stands to greatly benefit.
Unlocking our potential
“Today, the consumer is different, and the opportunities are huge. We need foreign investment, but the local potential must be identified and its value unlocked,” highlighted Fernando. “It’s a big story, because it resolves our unsustainable urbanisation. You have the possibility to address inequality, some of our pressing social issues. People could be back in their villages, earning a sustainable income, instead of moving to the city to look for opportunities.”
Again, alignment is key. On one end, demand must be created through effective marketing communications to sell the story of products made in Sri Lanka and what makes them special; on the other end, innovation must be encouraged so that local production can meet this demand with the right level of quality; and in between, there need to be effective regulatory measures to ensure these standards are met consistently, as well as incentives for producers that achieve this.
Ceylon Tea’s success in the global market was not by some stroke of luck; it came about by concerted efforts from players in the industry, and these measures can definitely be used to uplift our other products, agricultural or otherwise, through value-addition. What it comes down to, as Fernando put it, is that we, as a nation, need to start appreciating what we have. Our natural abundance, our rich cultural heritage – our stories – need to come into play to create a Sri Lankan brand; one that, like Dilmah (and Ceylon Tea itself), will continue paying dividends through generations.
This article was taken from The Morning