Executive Summary

The world tea production has been increasing by a rate of 4.2% since the year 2009 with over 4.1
million tons in the same year. Black tea output has been increasing to 5.5% as evident in the huge
record prices. Furthermore, green tea output has increased by 1.9%. The growth has been due to
the fact that Kenya and Sri Lanka, two of the largest tea exporters, have been able to increase
their output in an efficient and effective manner. Argentina and Uganda have also exhibited a
significant increase in tea export while China has remains the largest producer of tea in the entire
country. China was found to have produced 1.4 million tons of tea in the year 2009. Indias
contribution towards the tea market has been declining with only 0.97 million tons in the year
2009. The international tea market is highly competitive as world tea exports grew by 8.5 percent
in the year 2009. The volume was estimated to be around 1.68 million tons in the year 2009. Tea
consumption has been rapidly increasing as it is a major beverage in different parts of the world.
Growth has been fueled with an increase demand in China due to higher per capita income
levels. The tea industry has been highly dependent upon the external markets for its viability and
profitability. The Sri Lankan tea industry has been facing problems because of external and
internal factors. These include the lack of an appropriate development model; the undervaluing
of agriculture as a development priority; the weak nature of the state; the inequitable distribution
of land, which marginalizes the highly productive small farmers and negates their contribution to
national production output; and an overwhelming inertia and lack of political will for change.
These shortcomings are anathema to sustained national development and have sprouted a number
of constraints that perpetuate underdevelopment and external dependency.
The internal factors include inadequate and/or inappropriate use of technology and too much
emphasis on outdated, unable to compete traditional export products and too little on the

countrys unique non-traditional crops. There has been inadequate emphasis placed on research
and development (R&D) and lack of irrigation, especially for the farming majority toiling in the
hills. There is poor farming infrastructure, especially roads for transporting goods from farm gate
to market. Furthermore, there is high rate of crime, especially predial larceny and seemingly
intractable dependence on imported food, especially carbohydrates (i.e., rice, cornmeal, and
flour) for domestic consumption. Government policies are inadequate such that government
shortsightedness, inaction, and/or malfeasance along with governments downgrading of tea to
prioritize tourism and services. There is also private sector apathy and dependence on
government to mobilize growth when industry, not government, should be the driver of
economic development. The governments rapid acceptance of structural adjustment
conditionalites has marginalized agriculture while commodity marketing boards weakened by
structural adjustment commitments. There is high cost of capital due to prevailing high interest
rates which makes attaining funding for retooling prohibitive and high cost of inputs, most of
which must be imported.

Introduction
The Sri Lankan tea industry is one of the key contributors to the countrys GDP amounting to
roughly 12% of GDP and is the worlds fourth largest exporter of tea. Tea manufacture
serves as one of the main sources of income to laborers and currently employs
approximately 1 million people directly and indirectly in Sri Lanka. This also solves the
huge employment issue in our country. The plantation companies are currently facing
challenges in meeting profit targets due to a number of reasons like increasing labor wage,
interference from trade unions, competition from other countries and lack of support from
the government. This research aims to identify these issues and find suitable solutions to
assist the companies to survive and keep the tea industry alive in Sri Lanka. One of the
reasons for fierce completion is that the strength and presence of the Kenya & Turkey in the
market place. It is evident that some of the Asian countries such as China and, India also
playing a major role in the market in terms of lower prices due to lower production cost and
higher efficiency. The unstable economic condition in the Middle East and Europe and
movements and volatility in exchange rates will play a major role in the global market in
terms of pricing the products hence forces to remain competitive to secure the export
volume.
Aims and Objectives
The following are the aims and objectives of this dissertation:

Analyzing the external and internal factors that are impeding the development of the Sri
Lankan tea industry

Understanding the reasons that has prevented Sri Lankan tea industry from being
profitable and competitive

Finding the basic problems that the Sri Lankan tea industry faces

Literature Review
Sri Lankan Tea Market
Sri Lanka is a major exporter of tea in the entire world with an estimated 2% of its total GDP. It
generates approximately $700 million annually which means that it is a significant source of
foreign exchange for the country (Anderson & Tyers, 2009). One million people are currently
employed in this sector with over 200,000 on tea plantations and estates (Wickramasinghe &
Cameron, 2004). It is the worlds fourth largest exporter of tea in the world because of its
historical importance. Tea production has been major source of foreign exchange for the entire
country. During the 1990s, Sri Lanka had a total market share of 23% of the total tea sector in the
entire world. In recent years, this has declined because of an array of external and internal
constraints. A study conducted in the year 2009 found that the local tea industry has been beset
by poor management, rising labor costs, and increasing competition from major tea producers.
The study also found that productivity has lagged because of the absence of sound planning and
preparation in the industry (Anderson & Tyers, 2009). Sri Lankas humidity and cool
temperatures make it an ideal market for producing tea. It has rainfall in the central areas which
is a favorable factor for growing tea. Tea was introduced in the country in the year 1852 by
James Taylor who was a British planter. Sri Lankas major markets for export of tea are the
Central Asian countries as well as former Russian republics. UAE, Russia, Syria, Turkey, Saudi
Arabia, Egypt, and Japan are also major importers of Sri Lankan tea. Sri Lanka has been trying
to modernize the tea sector so that it can ensure high levels of success within a short period of
time. It has been striving to create a modernized sector which can lead to long term levels of
success by using an innovative and creative approach.
International Tea Market

The world tea production has been increasing by a rate of 4.2% since the year 2009 with over 4.1
million tons in the same year (Nagoor, 2009). Black tea output has been increasing to 5.5% as
evident in the huge record prices. Furthermore, green tea output has increased by 1.9%. The
growth has been due to the fact that Kenya and Sri Lanka, two of the largest tea exporters, have
been able to increase their output in an efficient and effective manner. Argentina and Uganda
have also exhibited a significant increase in tea export while China has remains the largest
producer of tea in the entire country. China was found to have produced 1.4 million tons of tea in
the year 2009. Indias contribution towards the tea market has been declining with only 0.97
million tons in the year 2009 (Nagoor, 2009). The international tea market is highly competitive
as world tea exports grew by 8.5 percent in the year 2009 (Nagoor, 2009). The volume was
estimated to be around 1.68 million tons in the year 2009. Tea consumption has been rapidly
increasing as it is a major beverage in different parts of the world. Growth has been fueled with
an increase demand in China due to higher per capita income levels. The tea industry has been
highly dependent upon the external markets for its viability and profitability.
The world tea economy is highly robust and dynamic because of the distribution of plantations as
well as the consumption patterns. The demand and supply of tea is highly divergent in different
parts of the world (Ridwan et al, 1997). Trade agreements as well as policy suggestions have also
been identified as being the major factors that impact the performance of the world economy.
Studies have found that on a per capita consumption basis has not led to a corresponding increase
in production of tea in the world. Tea plantation industry is a highly export oriented industry
while the fact is that tea producing countries do not consume tea because of its inferior quality.
The tea supply is inelastic when compared with the price changes that have occurred. This is
based upon the supply demand analysis. The price elasticity has been found to be very low while

the same conclusions have been derived for income elasticity. The slow response that has
occurred due to the supply of tea creates problems in terms of supply and price. These cyclical
fluctuations tend to cause negative implications in major countries (Amarasinghe, 1993).
Studies have also tried to find out the ways that tea industry can be improved with an emphasis
on output and cost (Amarasinghe, 1993). Technological innovations while maximum utilization
of production factors can lead to long term development in the future. Labor costs in the tea
plantation economy have been found to very high which means that machinery is needed for
reducing costs so that economies of scales can be achieved within a short period of time. The
amalgamation of small units into larger ones has also been suggested as an important one in the
development of robust features for success. Furthermore, it is through the use of innovation and
creativity that success can be attained (Amarasinghe, 1993).
Duties and taxes on tea industry machinery can also be rationalized while social overheads have
to be enhanced in order to ensure the development of the plantation economy. Empirical studies
have also found that low rate of profit together with rising costs and reduced prices have
negatively impacted the tea industry. The value of tea companies has progressively declined due
to the array of external and internal variables. Tax structures for instance have been identified as
increasing costs. Replantation along with modern technology continues to be neglected which
creates negative impact upon major tea exporting economies. Hence it is through the use of
innovation and creativity that success can be attained within a short period of time. The market is
also found to be lacking an efficient marketing strategy that can lead to stabilization. Exports
need to be promoted without curtailing domestic consumption. Furthermore, studies have argued
that it is vital for allowing small planters to work together so that they can achieve high levels of
economies of scale (Amarasinghe, 1993).

Tea Sector Market Structure

The tea sector is very important for developing countries because it provides jobs to millions of
people. The Indian tea industry for instance is the second largest employment provider in the
country after manufacturing. The nature of the industry is such that some people work as casual
workers or in smallholdings which means that it can generate employment for millions of people.
For some countries like Kenya and Sri Lanka, tea is an important source of foreign exchange.
Tea exports contribute towards 2% of the GDP for Kenya and Sri Lanka (Sundaram, 2009).
The international market structure of the tea industry is complex because of the huge number of
actors that are involved in the supply chain management system. The system starts with workers
and smallholders who collect and select the tea leaves. Large-scale tea plantations hire these
workers because they have been the traditional source of producing tea. Smallholders have
tended to employ workers but large plantations can be larger than 8,000 hectares. Such
plantations attain economies of scale because of their ability to focus only on tea. Many such
large plantations are part of large corporations in the entire world. The process of tea
manufacturing occurs in factories that might be present in the estate or private enterprises.
Plantations that have 10-12 hectares of tea are defined to be small growers but they play a
leading role in countries like Sri Lanka and Kenya (Sundaram, 2009). In Sri Lanka, small
growers contribute towards 65% of the total production. The smallholder sector has grown
considerably because it offers an attractive option for small workers in terms of work and
income. Farmers also do not need many investments while the risk of crop failures is relatively
small. The farmers can sell the leaves to collectors and plantations. The rising price in production

and volatile international market prices means that the smallholder tea production model is
gaining popularity in several countries.
Global tea production has created auctions where trading occurs. Private sales account for 30%
of worldwide tea production. The main auction markets are found in Sri Lanka, India, and
Kenya. China and Turkey are major tea products but they do not have auction system. The
supply chain management system in the tea sector is similar to that of a vertically integrated
production chain. Companies have the ability to control the production stages upstream and
downstream (Sundaram, 2009). The link between manufacturers and producers is direct. Tea
packers like Unilever and Tata Tea are the major players in the industry. They have the ability to
dominate the market as they can influence the transport companies while obtain supplies from
their plantations. Tea is exported with plucking and primary processing occurring in the major
tea producing countries. Blending and packaging together with marketing occur in team
companies that are found in buyer countries. The majority of profits are obtained by the
companies involved in the tea industry (Sundaram, 2009).

Comparative Studies
A number of comparative studies have been conducted about the tea sector in other countries like
Kenya. A study conducted found evidence that the Kenyan tea industry has been plagued by
rising costs of production (Jayasuriya, 2010).
Labor for instance has increasingly become expensive with the passage of time. The study found
evidence that 43% of total costs are related to labor in Kenya (Jayasuriya, 2010).

The study also concluded that unstable global prices of tea were major problems for the Kenyan
tea industry. The price of tea in 2009 for Kenya was considered to be USD1.7 per KGS as
compared with USD 2.1 in the year 2000. Another study conducted by the University of
Michigan in the year 2009 found that some countries like China have increased their tea
production from 24% of global tea production to 29% by the year 2009 (Weerahewa, 2010).
On the contrary, Sri Lanka witnessed a steady decrease in tea production from the years 2002 till
2009. Kenya was found to witness an increase in tea production but exports continue to lag
behind the process of production. Another study conducted by researchers sought to compare the
Sri Lankan and Indian tea industries. The results were that the Indian tea industry has sharply
fallen behind as evident in the fact that it currently only produces 12% of the global tea
production. Furthermore, this is a decline from 26% in the 1980s which is very significant given
the huge nature of the Indian tea industry (World Bank, 2010).
The study found evidence that the Indian tea industry has been declining because of increased
competition, rising labor costs, and poor management in Indian tea plantations. Another study
was conducted which examined the dynamics of the international tea industry by comparing the
nature of the tea industry in the major tea exporting countries: India, China, Kenya, Sri Lanka,
and Indonesia. The study concluded that these countries produce around 80% of the total world
tea production. The countries compete with each other by reducing prices. This can impact the
tea exports of different countries (World Bank, 2010).
Another critical factor impacting the tea exporting countries is the fact that import by developed
countries has largely declined in the past few years. This is because the demand for tea is based

upon the income elasticity of demand. The price of tea is inelastic which means that negligible
income elasticity for developed countries and high for developing countries has been found.
Globalization and Trade Liberalization
Global financial markets have emerged in different parts of the world which provide better
access to external financing for corporations and local borrowers. The creations of world
organizations which regulate the relationships between nations and protect their rights have
sprung up due to globalization. China is an amazing success story of globalization because of its
tremendous economic growth rate. In recent years Chinas economy has rapidly grown. This
rapid growth of economy is the important point in the field of economic development which has
been acknowledged by the international community. The UN says that China is the backbone of
Asias economic development. This statement is enough to tell that China is playing an active
role in contributing to the world economy. Chinas rapid economic growth has made a huge
impact on the worlds economy in stabilizing and recovery it. China is the globes best
commodity market (Sundaram, 2009). Globalization has helped in the creation of an integrated
world capital market. This has been facilitated through the development of financial instruments
in a consistent manner. As a result, high quality instruments have rapidly gained popularity by
connecting industrialized and emerging economies. The European Monetary Union (EMU) is an
example of the impact that a single integrated capital market can have upon member states.
Exchange rate variations have been eradicated and interest rates have registered a significant
decline.
Theoretical Framework
Sri Lankan tea plantations have been unable to remain competitive in the current global
environment. A theoretical framework needs to be developed which can be used to enhance the

competitive edge of tea plantations. This can be done by identifying the key strategies which
help organizations to remain successful in the global environment. Furthermore, the theoretical
model will help in creating a framework that can understand the external and internal factors that
impact the development of the Sri Lankan tea sector.
Strategic Management
Organizations must be able to develop their strategies as a means of establishing long term
targets and goals. They should be able to identify the course of action that can help them to
achieve those targets. Finally, it is essential for organizations to pool adequate resources that play
a major role in achieving key objectives. Strategy should be able to assist managers in
developing short and long term solutions to organizations that are facing financial crisis.
Managers must recognize the need for turning the organization when it is faced with critical
problems. There must be a system that can successfully integrate acquisitions and enhance
performance (Koch, 2000).
Strategy should be able to assist managers in defining the different components of the business.
These components must be upgraded that can lead to long term success. Strategy should be able
to ensure that organizations can recognize the areas that are the most profitable. Additionally,
organizations have to recognize the areas where effort and cash need to be invested in order to
ensure long term success (Levy, 1998).
Organizations should be able to utilize strategy so that any deficiencies found in the work
process can be remedied in an efficient and effective manner. Finally, strategy plays an important
role in enhancing the institutional culture and competencies so that it can become competitive in
nature. Strategy should be employed in order to enhance the performance of business units by
implementing financial control that is based upon established methodologies and practices. Other

empirical studies argue that strategy should be with concerned about the scope of the
organizational activities. The strategic vision should be based upon integrating organizational
activities with its resource capability. Moreover, the major decisions should be based upon
adequate allocation of resources (Levy, 1998).
Strategic vision is attained only when organizations are able to craft a superior strategy that
focuses on operational decisions which are key element in order to remain competitive in the
market. Corporate leadership should be able to affect the long term direction of the organization
while they should be aware of the implications of the long term strategies.
Strategy also involves having a robust and versatile plan. The strategic planning process must be
applied at corporate, operational and functional levels. Strategic planning should ensure that
goals are divided at various levels while strategies are aligned with the overall business
framework. This helps to achieve the long term goals of the organization. Strategic analysis is
another important approach because existing techniques must be used to evaluate long term
projects (Nyangito, 1999). The decision making guidelines and rules are the most important
aspect of the development process. The need for direction and focus in new activities can be
achieved only when they are matched with the current ones. Strategic decisions need to be
according to the environment. Strategy should be able to create a common thread that ensures the
direction for the institution. Studies have documented that organizations must be able to develop
strategic management because of several factors (Porter, 1990). Firstly, organizations must be
proactive in anticipating new threats and opportunities in the environment. Secondly, they should
implement effective strategic management so that the employees can have a powerful incentive
in order to achieve basic goals. Thirdly, research in strategic management must be enhanced so

that organizations can be managed in an effective manner. Finally, strategic planning increases
the chances of success for organizations.
Empirical studies have found evidence that organizations have managed to incorporate strategic
management as part of their management programs. A corporate strategy is important for the
survival of organizations (Stevens, 2001). The benefits are that the workforce can work towards
strategic objectives in an intelligent manner. Furthermore, well-crafted strategic principles can
help to ensure that management is able to implement advanced decisions in an efficient manner.
Strategic principles help the organization to grow in an efficient manner. It helps to provide
continuity when organizations are faced with external crisis.
Trade Liberalization and Economics
Developing economies like Sri Lanka often rely on commodities for earning foreign exchange
but this can be a problem because of the fact that such industries remain vulnerable to different
types of problems. Specific types of commodities make countries vulnerable to external
economic shocks. Primary commodities are the major source of export revenues for many
countries. 95 countries in the developing remain dependent upon commodities for their export
earnings. The indigenous industries in such countries are vulnerable because of international
commodity process that remains highly volatile in the short to medium terms. Such variance can
be as much as 40% in one fiscal year (Anderson & Tyers, 2009). Price volatility has been
increasing with the passage of time.

Macro-economic instabilities and complicated

macroeconomic management can be the cause that indigenous economies are unable to make
their industries competitive and profitable. Erratic movements with respect to export revenue as
well as instability in foreign exchange have been identified as the major cause. The huge share of
primary goods that are found in exports makes it highly vulnerable to price shocks. This can

complicate the state of affairs that exists in developing countries. It can create negative outcomes
that have the potential to make indigenous sectors highly vulnerable to external fluctuations.
Vulnerability to Global Market Factors
Developing countries that sell agricultural products are vulnerable because their sectors are
unable to respond to the difficulties of the global system. Globalization has now created extreme
pressures in the form of highly competitive markets. Removal of trade barriers along with an
increase demand for higher quality products and higher standards has meant that indigenous
economic sectors are vulnerable (Anderson & Tyers, 2009).
Moreover, trade preferences have eroded while the need to comply with new trade rules means
that producers in the developing world are unable to maintain competitiveness. World market
conditions are responsible for the state of the agricultural sector in many developing countries.
The small economic size of developing countries as well as their dependence upon imports
means that they are highly vulnerable to shocks in the external environment. These problems
have increased because the real prices of commodity exports have been decreasing since the
early 1990s. This means that the incentives to modernize specific commodity sectors in
developing countries have been reduced. Additionally, the gains and economic stimulus have
been negative in the commodity sector. Globalization has therefore considered being a major
threat for developing economies because it leads to negative outcomes. It creates tremendous
pressures on developing countries that do not have the resources, capital, and technological
capability to respond to problems. Agriculture producers in the developing world are hindered by
external and internal problems according to empirical studies. These hindrances can cause
negative outcomes as they tend to limit the profitability of various sectors. Furthermore, they can
create an impact where the organizations are unable to develop effective strategies to cope with

different types of problems. It is through the use of innovation and creativity that success can be
attained (Anderson & Tyers, 2009). Countries that are dependent upon agricultural products are
being faced with technological challenges that are designed to enhance productivity and output.
The technology employed is still at early stage while there is much potential for enhancing
productivity in an efficient and effective manner.
Importance of Technology and Innovation
Sustained growth requires a high level of technological development which can help to achieve
the goals in a proficient and dynamic manner. This means that there is the need for major
investments in irrigation as well as rural infrastructure. Other development needs to be done in
human capital and institutions. Biotechnology has increased the threat for export based growth
(Anderson & Tyers, 2009). This is because of the fact that producers in the developed world can
leverage the new technologies in order to increase productivity and therefore reduce the prices
which gives them a competitive advantage over producers in the developing world. Institutional
environment that guides the world markets has considerably changed because of the advent of
international trade. This means that trade is now occurring at a globalized context which
increases the challenges for the producers in developing economies. IMF and World Bank are
financial institutions which have also promoted the concept of ensuring that liberalization and
structural adjustment programs can be implemented in the member countries (Anderson & Tyers,
2009).
Producers in developing countries are faced with insurmountable obstacles as they have to
compete with other foreign producers. This can reduce their market share which leads to negative
outcomes. Empirical studies have identified the major problems that agricultural sector in
developing countries face when they have to compete in the global context. There is not an

emphasis on differentiated ability of different groups to have access to new market opportunities.
Additionally, this can lead to negative outcomes in terms of accessing resources needed for
enhancing growth. Furthermore, trade policies in sectors are not nuanced which means that
agricultural sector is unable to achieve self-reliance and stimulate production. This can cause
serious problems which need to be rectified through an integrated and coordinated strategy
(Stamm et al, 2006).Liberalization also means that state support to supplies and extension
services are limited. Improvements in infrastructure are not pursued while development of
irrigation systems is neglected by states. The absence of formal institutions means that equal
access for all producers is not present in the developing world. This can deprive producers of
information about markets while creating negative problems (Anderson & Tyers, 2009). Global
supply chains need to be streamlined and automated in order to create higher levels of success.
This can help to attain long term success within a short period of time. Furthermore, there is the
need for a collaborative framework which can help to achieve long term success within a short
period of time. The development of efficiency and effectiveness is critical for success because it
leads to the development of a collaborative framework for success within a short period of time.
It is now a consensus that agriculture is the engine of economic growth and development (Stamm
et al, 2006). Early classic theory viewed economic growth as a process of reallocating factors of
production from low-productivity agriculture to high-productivity industry. Most estimates of
agricultural multiplier found large values, which determine the prominent role of agriculture in
spurring economic growth (Stamm et al, 2006). Consequently, agriculture is central not only in
promoting overall growth but also in connecting the poor to growth given its size and the impact
of multipliers. Since the majority of the poor produce non-tradable goods and services,
agricultural growth appears crucial as a stimulant to the demand for these goods and services.

These include production of backward links in which farms demand inputs and services for
production and forward links in which farms demands services after harvest, like processing,
storage, and transport produces. There are also consumption linkages as increased rural incomes
are spent on domestically produced manufactures and services. Agriculture also contributes to
the alleviation of poverty through other indirect sectorial linkages. For example, increased food
access and farming incomes allow better nutrition and thus higher productivity (Stamm et al,
2006).
Government Initiatives
Studies have estimated the returns to alternative public investments on agricultural productivity
and poverty in rural Sri Lanka (Stamm et al, 2006).

The greatest impacts on both variables

came from investment in roads and in agricultural R&D and extension, which apart from
increasing incomes, had much of their effect through wage increases and lower food prices.
Studies have decomposed growth linkage and found agricultural sector contributes the most to
overall poverty alleviation in Indonesia. Cross-sectional studies corroborate these findings on the
importance of strong agricultural growth in countries that successfully reduced poverty. On the
other hand, retarded poverty reduction could be attributed to slow progress in agriculture, even in
the case of stagnant overall growth performance. Studies have confirmed the strong link between
agricultural productivity increase due to investment in agricultural R&D and poverty reduction in
both Africa and Asia. Other empirical studies also show that growth in agricultural sector has a
more significant impact on poverty reduction than growth originated from industrial or service
sectors, suggesting the importance of sectorial priorities. Thus, we can safely conclude that
agricultural growth is a crucial ingredient in the formula of pro-poor growth. That is because
economic growth usually has a direct impact on poverty, any contribution agriculture makes to

speed overall economic growth will directly contribute to reducing poverty in most
circumstances. Effect of agriculture on poverty reduction is relatively greater in impact on the
poorest and the distribution of income among the poor. Industrial and service sector growth has
much less effect in reducing rural poverty in most developing countries. If growth occurs leaving
the primary sector out, two onerous burdens fall on the poor population: the overall growth rate
will be much lower and poverty reduction will be missing from the picture.

Research Methodology
Introduction
Selecting the research methodology is one of the most important aspects of dissertations because
it helps to ensure that the basic research questions and objectives can be answered in an efficient
and effective manner. Additionally, the right methodology can lead to the development of
accurate and reliable inferences. Hence it is through the use of integrated strategies that success
can be attained.
Research Questions
The following research questions will be answered in this dissertation:
1. How can Sri Lankan tea industry identify and control costs in order to ensure profitability
as well as increase the market share?
2. How can the industry strive to meet the challenges while reducing the production and
targeted costs?
3. Will the Sri Lankan tea industry challenge the competition from other countries and
retain the current position?
Research Philosophy
The research philosophy helps to provide a framework where the basic assumptions can be
elucidated in an efficient and effective manner. The philosophy helps the researcher to
successfully analyze the data in a neutral and objective manner. It provides guidance about the
need to ensure that the critical objective of the dissertation can be applied. The research
philosophy selected for this dissertation is subjectivism because it is based upon treating human

beings as subjects that can be influenced by the external forces. Human beings in essence act
when they have to respond to the challenges in the external market. Hence individuals are
perceived to be highly rational and flexible beings that have the potential to develop unique
thoughts and processes. Subjectivism is in accordance with the objectives of this dissertation as it
uses a qualitative and quantitative mixed methodology in order to create interaction between the
researcher and subjects.
Research Purpose
The aim of this dissertation is to identify the problems faced by the Sri Lankan tea industry. It
will investigate the high production costs, economic changes, global challenges, political
challenges, market trends, and foreign currency impact upon the industry.
Research Approach
There is no detailed analysis which can identify the problems faced by the Sri Lankan tea
industry. This research aims to identify the key problems which are faced by the Sri Lankan
industry. The scope of this research is to identify the ways that the industry can remain
competitive in the context of the global tea industry. This requires a study of the market forces
which impact the entire industry. The presence of imperfections in the market structure is
responsible for the current state of the industry. Government intervention can sometimes lead to
economic inefficiency for many sectors. This is because they lack the information which can be
used to correct the market imperfections. The scope of this research is therefore about the ways
that the market imperfections in the Sri Lankan industry can be rectified through the use of an
innovative and creative strategy. It will seek to develop a collaborative framework which can be
used for attaining long term growth and development. Furthermore, it is through the

identification of different strategies that success can be attained within a short period of time.
The limitations of the research are that it cannot study all the variables which impact the
performance of the Sri Lankan tea industry. Such an undertaking can be done by using this
research as a base for achieving future conclusions in an efficient and effective manner.
Research Strategy
Quantitative research is concerned with identifying the statistics and figures related to any
particular phenomenon. It can be used to study large population samples while general inferences
can be drawn. Qualitative research is concerned about investigating the reasons behind specific
phenomenon. It can also be used to investigate the problems behind any previous research
studies or to propose a new theoretical framework within any discipline. A mixed qualitative and
quantitative research strategy has been selected because it will help to triangulate one set of
findings obtained from a single data collection method to another different method. Statistical
data can be obtained which will be researched in a deep manner through another method. This
unique approach will be beneficial in answering the key questions in an efficient and effective
manner.

Adopted Research Strategy Combining Quantitative and Qualitative Research Methods

John Mingers (2001: 240) suppresses that research results will be better-off and more dependable
if various research methods, if at all possible from different (existing) paradigms, are regularly
combine together instead of recommending a single substitution class, either interpretive or
positivist, or even a plurality of paradigms within the regulation as a whole. Although the
researcher here wanted quenched results, the principle for using both the methods at the same

time was undergo to research in nature as per the phenomenon under investigation. For this
reason the third way of adductive access was engaged and the research started with the building
of loose theoretical framework, following real-life observations. It then kept on trying to find a
corresponding model of research and to expand the surviving concepts to the observations placed
on empirical find outs, says (Dubois & Gadde 2002, Kovcs & Spens 2005).

Gummesson (2000: 184) says, we have so far studied that two of scientific prototypes have
different starting points, so they would have different ending points as well, so they should not
be evaluated on the basis of other counterpart. According to (Susman & Evered 1978, Aguinis
1993), action research would not be justifies on the basics of other research approaches.
Moreover it should readily justify itself with its own general laws and theories, specified is the
case stating reflectivity, data generation and the developing theories cannot be captivated
promptly by optional approaches (Schein 1987, Eden & Huxham 1996).On the other hand the
threats deployed through this method are maximum which should be confronted(Coughlan and
Coghlan 2002: 236-237),for this purpose their assumptions should be put to public trial
consciously in the action research cycles to maintain maximum period of validity (Argyris et al.
1985) this whole study enables the researcher to enquire four questions (Gummesson 2000: 184185):

(i)

If the investigation through this method had been accomplished by someone other than

the writer, would the equal results have been prevailed? - Problem of replication typically
related to as dependability.

(ii)

Under the examination, does the evidence really reflect the reality? - The validity

problem.

(iii)

Is there any relevancy of the results with the genuine research? - The level to which

the outcome can be comprehensive.

To check the credibility of the research is there sufficient detail in the way the evidence was
produced? If we follow the researchers journey - from questions to methods of data gathering,
interpretation and answers - do we believe him or not? - The problem of credibility.
Data Collection Methods
The qualitative research method which has been selected is a questionnaire which was sent to 20
managers working at major tea plantations in Sri Lanka. The questionnaire was emailed and
posted by mail (wherever deemed feasible) to the managers of team plantations.
A total of 20 open ended questions were designed as part of the questionnaire. The benefits of
open ended questions are that the respondents can answer in their own words. They are not
influenced by any specific alternatives which are suggested by the interviewer. Another key
benefit is that the issues which are important can be discussed in an efficient and effective
manner. It can also reveal the findings which have not been originally anticipated. The
respondents can provide answers which are based upon the strength of their opinions. Each of the
managers was working in the industry for 5-10 years. The majority of the tea company managers
were belongs to Dilmah and Bogowantalawa which are the largest tea producing countries in Sri
Lanka. Dilmah is a company that was founded in 1974 by Merrill Fernando. This brand is
available in over 92 countries. The secret of Dilmah has been its ability to achieve long term
stability as well as process innovation and growth. Bogawantalawa Tea Estates ltd (BPL Teas) is
another large company which is engaged in the cultivation, processing, manufacture, and sale of
tea. The tea products of the company include black tea, green tea, white tea, and organic tea. The

company is also the leading supplier of iced tea to the USA. The tea managers for these
companies are between the ages of 35-50. Some of them have undergraduate degrees but many
of them have postgraduate degrees. The managers were selected based upon the size of the
companies. This is because of the fact that large companies tend to have managers who have
considerable knowledge and expertise about the local industry. This helps in ensuring high levels
of efficiency and effectiveness. Random sampling was used in order to select the 20 managers
from a total group of 100 people who are working in the industry. The data was collected by
using government statistics and official company websites. This was used in order to achieve the
highest levels of efficiency and effectiveness. This

helped in obtaining an idea about the

problems that the Sri Lankan tea industry faces.

The managers have valuable expertise as they have been managing the plantations for a long
period of time. Their input will be valuable in answering the main questions of the dissertation.
The quantitative data collection method will be to use existing studies on the Sri Lankan tea
industry. Another set of reports have been selected which have been specifically conducted on
the Kenyan tea industry. This comparative study approach will be beneficial as it will help to
identify the similarities and differences of the Sri Lankan and Kenyan tea industries. This will
also help in identifying the ways that the Sri Lankan tea industry can respond to challenges in an
effective and efficient manner. The statistical data obtained from these reports will be used to
study the comparison between the tea industries in Kenya and Sri Lanka. The statistical data can
be used to identify and compare the relative strengths and weaknesses of the different
approaches.
Research techniques should be selected in accordance with the resources available to the
researcher. This approach can be beneficial as it leads to the development of a congenial

environment for success. Moreover, the research process should be conducted in accordance with
established principles. Selecting the appropriate technique requires the presence of innovative
and creative approaches. This helps the researcher to minimize the chances of errors. Accuracy
and reliability are essential elements of the entire process as they are based upon sound
outcomes. Questionnaires have been selected because they are practical as they can be used to
understand the problems that the Sri Lankan industry faces. Moreover, large amounts of
information can be obtained in a relatively short time period. Questionnaires provide the research
with the ability to implement cost effective and reliable methods of deriving conclusions. They
also have high levels of validity and reliability which is essential during the research process.
Another key advantage is that the questionnaires can be used to collect and analyze data in an
efficient manner. It is a scientific and objective means of research as opposed to other methods.
The results from the questionnaire can be easily compared with existing research in order to
determine new findings or correlate with existing findings. There are some disadvantages of
questionnaires which need to be assessed. Firstly, the questionnaires are standardized which
means that it is not possible for the researcher to explain all the points to the respondents. This
means that some respondents might misinterpret the questions. This could lead to reduced levels
of accuracy and reliability with respect to the objectives of the dissertation. Secondly, some
respondents might not answer the questions because they might feel that they need to protect
their identity as well as confidential information. Finally, respondents might answer superficially
which can also limit the ability of the questionnaire to function as an effective research
instrument.

Findings and Discussion

Based on the results of survey and review of historical data adopted from the other studies
discussed in the literature review section, following outcomes have been draw:
The Sri Lankan tea industry has been suffering from the threat of globalization which has led to
negative problems in many ways. Not surprisingly, anti-globalization activists argue the
converse, that economic integration is creating an increasingly wide gap between the rich and
poorboth among and within countries. Trade has increased exponentially since the launch of
the General Agreement on Tariffs and Trade (GATT) in 1947. This expansion has been
particularly significant since the establishment of the World Trade Organization (WTO) in 1994
at the conclusion of the Uruguay Round of the GATT. According to the IMF, world trade has
averaged a growth of 6 percent per year over the past 20 years, prompting rapid growth of the
world economy. However, as the IMF and other multilateral trade and financial organizations
have indicated, world trade has not achieved the degree of liberalization -that is, full
liberalization manifested by free trade - which neoliberal theory advocates as the ideal state of
affairs. Almost a decade after the WTO was established; many countries still practice
protectionism and retain trade barriers. Such protectionism not only contravenes the classical
liberal conception of market efficiency, it also thwarts market performance as measured against
the yardsticks of effectiveness, equity, food security, sustainability of resource use, and peoples
livelihood. The nature and extent of trade restrictions vary from country to country and across
sectors. However, the treatment of agriculture in the multilateral trade regime has demonstrated
that free trade in farm goods is not an objective that all countries are actively pursuing.
According to the United Nations Food and Agriculture

Organization (FAO), developing countries generally maintain low and even negative protection
of agricultural producers, whereas industrialized countries generally maintain high price and
producer-income supports.
Viewed cynically, free trade can be construed as an ideal held out by the industrialized
countries as an ace in the hole for securing further liberalization from developing countries in
areas of interest to the farmer. Sri Lankan tea industry has suffered because it is still natural
resource economies that specialize according to the liberal logic of comparative advantage in
primary commodity production. Agriculture, on the other hand, has been more reliable because
it is not as capital-intensive and its two most important factor endowments - land/environment
and labor - are bountiful in the countries themselves. Tea is, in a nutshell, Sri Lankas bread and
butter and agricultural trade their most reliable pathway to development and reduced dependence
on external assistance. The tea industry continues to suffer because of several reasons. Firstly,
because lower tariffs translate into lower food prices and greater variety of foodstuffs due to
increased imports, it assumes that liberalization fosters greater food security for importing
countries. However, this presumption is valid only if the majority of the population is consumers,
not producers - clearly not the case for natural resource economies such as Sri Lanka. Secondly,
it assumes that increased imports promote competition and efficiency. However, if the amount of
imports in poor countries overwhelms domestic farmers not privy to generous governmentfunded safety nets, impoverishment, not innovation, is the likely result. Thirdly, the model
implies certain assumptions negating the influence of constraints on development, both internal
and external. It assumes that the countries will: maximize their natural factor endowments in
production; have access to and/or be able to purchase the requisite technical inputs; be able to
sell their products freely in rich country markets; and will efficiently utilize and/or invest their

foreign exchange earnings into national development towards the achievement of reduced
external dependency.
Sri Lanka must avoid or overcome various constraints to propel the development of the tea
industry. Among the agriculture-related constraints impeding Sri Lankan development are:
internalland tenure irregularities; neglect of the agriculture sector by national policymakers
due to rent-seeking and clientelism; inadequate technical capacity for enhancing production;
weak regional cooperation and collaboration. There are external problems like restricted access
to developed country markets; massive foreign debt; structural adjustment conditionalities
mandating too-rapid liberalization of trade and financial markets; membership in preferential
trade agreements (PTAs) encouraging specialization on a few primary commodities; subsidized
agricultural production and export; and food dumping by developed countries. All have played a
role in facilitating underdevelopment and dependency in Sri Lanka. However, two constraints
restricted access to advanced country markets and rich country agricultural subsidizationstand
out as longstanding for change. If, after 50+ years under a multilateral trading regime, rich
countrieswhere poor countries must sell their exports in order to grow and develop still
subsidize their agriculture sectors, a leading cause of food dumping in poor countries, and
impose barriers to developing country exports, agricultural goods key among these, developing
countries will remain underdeveloped and dependent on these very countries.
To be sure, if developing countries such as Sri Lanka cannot grow and develop by trading
according to the logic of comparative advantage in that which they do best, either the
(liberal/neoliberal) theory on which the international trading regime is based is flawed, or the
regime, ostensibly grounded in said theory, has in fact undermined the theory and is based on
subterfuge, privileging one group of actorsthe rich and powerfulto the detriment of another,

less powerful, group. This subterfuge, if that is what it is, will guarantee the continued
underdevelopment and dependency of developing countries like Sri Lanka unless they open their
eyes to the situation and muster the political will, both internal and external, to change the status
quo for the benefit of their masses who do not belong to the rich and powerful group. Advanced
country protectionism in agricultural trade must be obliterated as a key step towards leveling the
playing field for, and invigorating development in, the poorer countries of the world trading
regime. Liberalizing access to developed country markets for developing country exports will
give them the incentive to remedy internal macroeconomic and microeconomic obstacles to
agricultural productivity in order to boost trade capacity and competitiveness and will over time
equip them to more effectively counteract the other constraints to development. Even with the
desired supply response, tea trade is influenced by forces beyond the control of Sri Lankan
government. The movement of international prices of commodities may turn out to be
detrimental to the pace of policy reform. For many commodities, international prices depend on
the trade policies pursued by developed countries, and these are intimately related to their
domestic agricultural policies. Current difficulties faced by GATT negotiators reflect this
situation.
The resulting uncertainties have considerably slowed down the pace of reform within Sri Lanka,
thereby affecting tea producers in the country who could otherwise have gained by capitalizing
on the comparative advantage they possess. Tea occupies a special niche in the trade policy
arena. It has always been a sensitive topic in world trade negotiations. In fact, although discussed
during successive rounds of the GATT, agriculture did not come under the purview of the
multilateral trade framework until relatively recently, during the Uruguay Round which
established the WTO. Since then, agriculture has been a significant polemic between developing

and developed countries and between certain developed country blocs, namely the US and EU.
Many trade experts agree that agriculturenot services, investment, or even intellectual property
is the bedrock of the multilateral trade regime and the crux on which all progress rests. The
FAO forecasts that full-scale liberalization in agricultural trade would raise incomes and decrease
poverty in poor countriesparticularly those in Latin America and the Caribbean which
would enhance development and reduce external dependency. All developing country regions,
however, are estimated to improve their terms of trade, as a result of an estimated decrease in the
real prices of manufactured and equipment goods exported by OECD countries following
liberalization in their agricultural sectors.
Liberalization would increase world prices, decrease world price volatility, and increase the
volume of world trade. Most importantly for developing countries such as Sri Lanka, the
knowledge that their exports will command higher prices on international markets would
stimulate and innovate domestic production, reduce their consumption, and facilitate import
substitution for both domestic consumption and export. Development would increase and
dependency would decrease proportionally. Liberalization would therefore unleash the gains
from trade now constrained by developed country protectionism in violation of the Adam
Smiths principle of laissez-faire and David Ricardos trade by comparative advantage. Yet,
despite the anticipated advantages for Sri Lanka, agricultural reform is stymied by multilateral
discord, which has slowed WTO momentum and threatens to derail the current Doha Rounda
prospect that the world trading regime can ill afford after the Seattle Ministerial debacle in 1999.
Put simply, developing countries have gotten fed up with developed country agricultural
protectionism and they are refusing to accede to any WTO negotiation that does not prioritize

agricultural reform reducing developed country trade barriers against developing country farm
exports.
Teas intractability stems in large part from its importance to national food security. In addition,
farm lobbies in advanced countries tend to be very powerful and this power allows them to wield
great influence in national policymaking to secure the protectionist policies on which their
livelihood depends. In a truly free trade system, these farmers would not survive without
generous governmental support. Realizing this, developed country farmers are not hesitant to use
their power at the ballot box and their sway over public opinion to pressure their representatives
into making policy that keeps them in business despite the economic inefficiencies that underlie
such policy and distort international trade. Agricultural protectionism in whatever guise causes
tremendous dislocation in the economy, both domestic and international. High tariffs,
particularly tariff peaks and tariff escalation, distort trade by impeding the flow of goods into a
country. Other mechanisms of agricultural restriction are subsidies and quotas. Of these,
subsidies are particularly destructive. By linking payouts to production, subsidizing governments
encourage overproduction and, ultimately, the flooding of world markets with surplus capacity.
Artificially-induced price deflation is the eventual, and unfortunate, result. Consumers benefit
from low prices, but such price depression harms countries reliant on commodity exports for
their foreign exchange earnings. Moreover, more intrinsic to the logic of free trade, subsidization
to facilitate production contravenes the logic of both comparative and competitive advantage.
Surely, it is nonsensical (and pernicious) when the countries that have comparative AND
competitive advantages in agricultural production are effectively incapacitated by rich country
subsidization in their export of farm goods and their ability to earn a fair price for their labor.

Yet, despite the evidence of economic irrationality and inequity, many developed countries
maintain entrenched systems of agricultural protection to boost the production and export of their
farm goods to the detriment of developing country production and exports. Most poor countries
like Sri Lanka cannot compete, not only because they lack the financial resources to subsidize at
similar levels but also because they are precluded from subsidization by the Uruguay Round
Agreement on Agriculture (AoA). Only those countries that subsidized farm goods prior to the
Uruguay Round were allowed to continue subsidizing afterwards, albeit at lower rates. Hence,
Sri Lanka has neglected the tea sectors, choosing instead to depend on developed country
agricultural aid and imports for domestic consumption. Many economists deride subsidization
and other forms of government largesse as not only profligate, but also counterproductive in the
grander scheme of trade liberalization.
The US is by no means the only advanced country that subsidizes its agricultural sector
excessively and, from the point of view of developing countries, unfairly. It goes without saying
that subsidization to this degree marginalizes farmers in countries like Sri Lanka that are
dependent on tea as a primary source of income. Clearly, legislators beholden to their agricultural
constituencies pass laws that are favorable to domestic farming and, in multilateral negotiating
fora, fight to entrench these preferences in the world trading regime. Farmers in developing
countries, on the other hand, tend to be very fragmented and weak.
They wield little to no influence on national policymakers and, as a result, their interests are
usually rendered secondary to other, more powerful constituencies. Their voice is even more
enfeebled by their countries inability to persuade advanced countries to eradicate their barriers
to agricultural products of export interest to developing countries. With little hope of selling their

farm goods to rich countries in order to boost their GDPs, many developing country governments
have either marginalized or abandoned agriculture altogether.
This, in large part, explains why tea production has deteriorated so drastically in Sri Lanka, both
in contribution to gross domestic product (GDP) and national food security. Throughout the 50+
year tenure of the GATT, protectionism on the part of advanced country agricultural interests,
and the powerlessness of developed countries to alter the status quo substantially in their favor,
has made agriculture almost sacrosanct in multilateral trade negotiations. The battle at the WTO
has yielded clear-cut winners and losers.
Advanced country agricultural interests have grown more powerful and prosperous while
developing country farmers have been largely marginalized and squeezed out of the world trade
regime. This is not to say that some developing countries are not protectionist. Indeed, like their
developed counterparts, many impose barriers to foreign trade. The IMFs retraction of its
endorsement of foreign investment as a panacea for developing country growth is shocking but
not surprising to people who live in the countries that effected such liberalization prior to
achieving a modicum of broad-based developmentsocial, economic, and institutional
following the example set by the developed countries and, more recently, India, China, and the
newly-industrialized countries (NICs) of East Asia.
High tariff barriers and entrenched non-tariff barriers such as subsidies and quotas are paramount
but are not the only problems. The controversy surrounding genetically modified food, labeling,
environmental stewardship, and sanitary and phytosanitary measures has also bedeviled
agricultural trade negotiations. Other trade impactive issues include: the relationship between
regional trade agreements (RTAs) and the WTO; the role of state trading enterprises (STEs) in
agricultural trade; the booming agricultural biotechnology industry; and the interface between

trade and the environment. The disparate, and often polemical, positions of developed and
developing WTO members also merit special attention. Developing countries are increasingly
exercising their voice in WTO negotiations. This primarily post-Uruguay phenomenon has
altered the scope and tone of WTO negotiations and has forced developed countries to reckon
with the concerns and interests of their less affluent counterparts. China, with its hybrid
developing/developed and authoritarian/liberal economic tendencies, is proving to be another
force to be reckoned with. During the GATT prior to the creation of the WTO, the worlds
advanced countries were resolute in their determination to not include agriculture in multilateral
trade negotiations. To a large extent, the US and EU have shaped the agriculture debate and
defined the negotiation agenda. To be sure, the longstanding battle between the US and EU over
the extent to which government should subsidize and otherwise protect its farmers is a major
complicating factor in the agricultural trade debate. Ironically, although both the US and EU
staunchly endorse the logic of free trade, they brazenly flaunt their own rhetoric by maintaining
massively subsidized, tariffied, and quota-laden farm sectors. Japan, with its refusal to open its
rice and other industries to foreign competition, is another free trade delinquent. Each country
has an ostensibly sound rationale for sanctioning protectionism in agricultural trade while
endorsing open trade for industry .
Regardless, this discrepancy smacks of a double-standard that not only unfairly privileges a
select, powerful few at the expense of large segments of the worlds people who rely on farming
for basic sustenance, it also invalidates the argument for liberalized trade. Together, the US, EU,
and Japan maintain the most highly protectionist policies in the world trading regime.
Consequently, they have become the most vilified of countries in the WTO. They are routinely
castigated by countries seeking access to their lucrative but protected markets and civil society

endeavoring to level the playing field in agricultural trade. By the late 1980s, GATT members
conceded that protectionism in agricultural production and trade had gotten out of hand. Where
they had previously avoided including agriculture in the multilateral trade framework, they
recognized the political and economic expediency of including the sector in the Uruguay Round
negotiations to arrest the spiral of protectionism.

The Uruguay Round, although significant for its breakthrough de jure incorporation of
agricultural issues into the multilateral trade framework, ultimately did not redress the distortions
that are prevalent in agricultural trade. Countries generally have not executed the reduction
commitments negotiated during the round. There is a significant divide in this regard between
two primary groups of countries: the developing countries that sought financial assistance from
the World Bank and IMF and the advanced countries that did not. As part of their structural
adjustment agreements with the World Bank and IMFmost signed prior to the Uruguay Round
the countries of the former group surrendered their ability to restrict their trade via tariffs or
other means long before the Uruguay negotiations. By comparison, the advanced countries, not
bound by any structural adjustment conditionalities, have been free to protect their farm sectors
and restrict foreign agricultural trade, often manipulating WTO rules to their advantage. As with
dumping, the US, EU, and Japan lead the world in restricting agricultural trade. All engage in
restrictive trade practices as a matter of policyboth de jure and de facto. However, the US and
EUs trade policies and practices have pressing implications for Sri Lanka because they are its
most significant trading partners and export markets. It is certainly understandable that a country
would want to protect its farmers.

What is not reasonable is a countrys practice of encouraging other countries to liberalize their
agricultural regimes in the name of free trade, while said country does the reverse and maintains,
even expands, trade restrictions simply because it has the political and economic clout to do so.
The new farm bill raises the question of whether the US has abdicated the commitment to
agricultural trade liberalization which it professes so avowedly in multilateral negotiating fora to
encourage further trade liberalization in areas of interest to industrial countriesi.e., services.
Further exacerbating these adjustment effects, products of export interest to developing countries
agricultural goods significant among thesecontinue to face high tariff peaks, tariff
escalation, and non-tariff barriers in key advanced country markets. Moreover, developing
countries are now facing the likely terminationin the name of free tradeof the commodity
arrangements under which some of their major exports are granted preferential market access
into advanced country markets. Most developing countries still lack the resources and technical
expertise necessary for competing in a free trade regime devoid of preferential trade access for
developing country exports yet replete with developed country subsidization, use of special
safeguards to restrict competing imports, and continued imposition of high tariffswhich,
thinking pragmatically in light of the historical record, developed countries like the US, EU, and
Japan are not likely to abandon prior to the scheduled 2005 end of the Doha Round or anytime in
the near future. Not surprisingly, given its sensitivity, the development dimension of the Doha
Roundlike agriculture, another intractable and closely related issueis being held hostage by
negotiating conflicts. Developing countries are standing their ground and insisting that developed
WTO countries recognize their unique needs, eradicate policies that restrict developing country
trade, and extend the assistance necessary to help them surmount the trade-related constraints on
development to which they are subject. Despite their allowances for meeting developing country

needs, existing special and differential provisions have received much criticism. Critics say the
concession of allowing developing countries longer phase-in periods and reduced commitments
completely misses the point of what developing countries need and is not enough sufficient for
moderating the dislocative effects of liberalization.
In general, the special and differential provisions are overly optimistic in their expectations of
developing countries and not sufficiently so in requirements for developed countries vis--vis
poorer countries. However, the developed countries do not form a cohesive negotiating bloc due
largely to their disparate histories and cultures. In addition, because they are so dependent on the
preferential market access to developed country markets, they are often susceptible to their
patrons request (demand?) that they cooperate on negotiating modalities of interest to the more
industrialized members of the WTO. The deficits of WTO power politics notwithstanding,
Members have pledged in the Doha development Round to enhance the trade opportunities of
poor countries by allowing them expanded market access whereby to sell the products they
produce competitively, particularly agricultural goods, and extending them increased technical
assistance for generating additional trade capacity and competitiveness. This action was lauded
across the globe as both the logical and humane thing to dological per the theory of free trade
and humane in the interest of improving the socio-economic condition of large segments of the
worlds people. To improve trade relations for developing countries, developed countries must do
more than simply treat poor countries as special and differential, i.e., via the implementation of
preferential trade agreements. However, using farm subsidies to sustain this countryside, and
Europes cultural history, has wrought too high a price: an interminable volatility in international
commodity markets due to artificially depressed prices, the impoverishment of a majority of the
worlds farmers, the destruction of rural livelihoods in many Third World countries, and a

dependence by these countries on external food aid and imports to meet the requisites of food
security, human well being, and national development.
However, developing countries, Sri Lanka included, must harness this strength effectively to
propel meaningful change at all levels of trade multilateral, regional, and bilateral. Since the
worlds advanced countries swear by the liberal logic of development, developing countries must
hold them to backing the theory up with action. Indeed, Sri Lankas plantation economy is
shaped by the conditions under which it was established. Human resource endowment is limited
by the specialization of its labor force in plantation work. The plantations allot a limited amount
of land to the peasant sector because they need to keep land in reserve and ensure access to wage
labor to preserve the plantation export economy. The economy is dependent on wage not
property income hence entrepreneurship and property ownership is limited, which limits the
national surplus and investment opportunities. The structure of demand favors imported, not
locally-produced goods. The instruments of the state are oriented toward the provision of law and
order, not the promotion of economic transformation.
The tea industry has manifested since independence as increasingly lower levels of production,
productivity, and competitiveness vis--vis the levels the country recorded in the decade after
independence and in comparison to other countries. Sri Lankas tea industry is constrained by
both externally-driven and internally-motivated factors that evolve from its longstanding position
in the world trading regime as a plantation economy and its indoctrinated self-perception as such.
However, external challenges are even more devastating than internal negligence in that they
overwhelm any product the country manages to produce in spite of its ignorance and/or
negligence.

Consequently, this research argues that if Sri Lanka eradicates the internally-motivated
constraints on agricultural development, but current externally-driven constraints remain
unabated, domestic agriculture will be as marginalized in the world trading regime as if locally
driven constraints remained constant. While Sri Lanka must act expeditiously to remedy
internally-motivated constraints on national development, the onus is also on developed
countries and international organizations such as the World Trade Organization, World Bank, and
IMFall controlled by developed countriesto eradicate the externally- driven constraints that
marginalize poor natural resource economies like Jamaica in the world trading regime by
denuding their comparative advantage in agriculture. Sri Lankas tea sector is characteristic of
other tropical developing countries. Tea provides significant foreign exchange earnings and
employs a large percentage of the population. Because Sri Lanka is a developing Third World
economy where many people still earn their living from the land, agriculture is an even more
integral part of the local economy than in the more advanced First World economies (Stamm et
al, 2006). The structure of tea production is dualistic with a large scale estate system and a smallscale subsistence system. The former produces the bulk of the export crops while the latter
produces domestic food crops and some export crops. Applying the theory of plantation economy
to the global economy and world trading regime, Sri Lanka is one large plantation created and
supported by external forces for the purpose of serving metropolitan needs for raw materials and
cheap labor. Within Sri Lanka itself, the plantation takes the form of the large-scale commercial
estate, the agricultural sub-sector that is most externally oriented.

With the exception of the government-controlled estates, Sri Lankas plantation system is
dominated by wealthy, commercial elites who employ landless or land-poor farmers to work

their estates, typically located on most fertile, arable land. In contrast, the small scale system is
dominated by ubiquitous resource-poor small farmersmany of them tied to the plantations in
order to earn regular wagesworking small, hilly plots of approximately one acre. Historically
marginalized in the export economy, this sector is becoming increasingly important to tea future.
To be sure, the plantation economy typical of Third World countries renders them particularly
susceptible to an intrusion of foreign capital and control. From their beginning as colonial
territories, they were cultivated by external actors as appendages of metropolitan economies.
Countries like Sri Lanka served, and continue to serve, metropolitan entities as plantations,
feeding them the raw materials, natural resources, and cheap labor they need to grow and
develop. In the process, Sri Lanka experienced, and continues to experience, a development that
is associated with and dependent on the development attained by its metropolitan country
investors and stakeholders. Indeed, agriculture is typically the first primary economic activity
from which countries evolve. Moreover, agriculture constitutes a large percentage of Third World
economies and is still a leading employer of labor in these countries,
Sri Lanka included. Multinational corporations (MNCs), institutionalized the primary
commodity plantation economy throughout the Third World and stymied the development of
value-Added production therein. These enterprises have been in Sri Lanka and other developing
countries for years, centuries even, and have long been the locus of metropolitan country
policymaking vis--vis developing countries.

In Sri Lankas case, it must somehow muster the political will and economic wherewithal to
move into value added production for both domestic consumption and export. In todays
globalized knowledge-based economy entrenched in the neo-liberal capitalist ethos, a country

must innovate and diversify in order to compete and, ideally, thrive. To be sure, primary
commodity productionalthough an important economic mainstay for Sri Lanka given its
history and comparative advantage imbued in its favorable climate, profuse vegetation, and
underutilized labormust be accompanied by more advanced production that adds value to a
countrys output and thus builds its human capital as well as increases its foreign exchange
earnings, which, according to classical liberal economic theory, should be reinvested into local
production to hasten the countrys progress along the capitalist path of development. External
and internal actors work symbiotically to condition the country as an appendage of the global
economy such that the power and hegemony of united foreign and local special interests, i.e.,
economic elites, is preserved and the interests of domestic elites are served. On the contrary,
although the WTOs mission requires it to liberalize and equalize world trade, agricultural
protectionism has become even more intractable under the WTO. Developed country subsidies
and tariff barriers against products of export interest to Jamaica and other developing countries
namely agricultural goodscontinue unabated despite the commitments these countries made in
the Uruguay Round.
Trade experts posit several explanations for the agricultural failings of countries like Sri Lanka.
These explanations impugn either externally-driven or domestically motivated forces but all
relate to and evolve from Sri Lankas history and standing as a plantation economy in world
trade. Externally-motivated constraints on Sri Lankas agriculture limit access to locally
produced goods in rich foreign markets as well as pose insurmountable, unfair competition for
locally produced goods in the local market. These challenges include developed country
subsidization of their farm sectors, utilization of border tariff barriers against developing country
agricultural imports, and dumping of agricultural surplus in poor countries under the guise of

food aidall egregious practices that are permissible under the World Trade Organization
(WTO). Such protectionism by rich countries poses an almost insurmountable burden on
developing country agricultural production and competitiveness in both export and local markets.
Rich country agricultural subsidies and border barrier mechanisms such as tariff peaks and tariff
escalation restrict market access to developing countries traditional exports and dissuade poor
country diversification and industrialization. Some scholars attribute Sri Lankas agricultural
decline to the countrys underdevelopment and external dependency wrought by its
marginalization in and by the world trading regime. Other external challenges that have eroded
Sri Lankas agriculture includes the one-model- fits-all structural adjustment methodology
designed by the IMF and World Bank and implemented by Sri Lanka and other developing
countries as a precondition for securing international financial assistance. In addition, the
preferential trade arrangements that have shielded Sri Lankas traditional export agriculture since
independencewith both positive and negative consequencesand which are bedrock of the
countrys economy, are now threatened under the WTO.
Much to Sri Lanka and other beneficiary countries dismay and chagrin, other countries have
challenged these preferential arrangements at the WTO on several counts; the challengers assert
that the arrangements violate the WTO tenets of most favored nation, nondiscrimination, and
reciprocity. Sri Lanka is concerned about developed country subsidization, dumping, and tariff
barriers. However, the impending demise of the PTA is an immediate and pressing concern. Sri
Lankans, from government officials to taxi drivers, are worried that, without the PTA, Sri Lanka
will no longer be able to sell its goods due to its small size and economies of scale, high cost of
production, lack of productive and marketing resources, and the developed countries pervasive
utilization of protectionist trade practices like agricultural subsidization, dumping, tariff peaks,

and tariff escalation. Notwithstanding the advantages of preferences, critics allege that these
arrangements fostered complacency, apathy, and dependency in Sri Lankas agriculture
community. They say the PTAs programmed Sri Lankan farmers, processors, and distributors to
accept the primary commodity plantation agriculture model as their lot, never aspiring to more
than the production and export of raw farm goods. Unfortunately, Sri Lankas producers became
quite content with the export outlet and income potential afforded by PTAs, so much so that the
countrys production of key export products has dropped precipitously in recent years, which has
caused the country to fall short on some PTA quotas, a completely counterproductive and
counterintuitive consequence of PTAs.
Others blame Sri Lankans own lack of foresight and innovativeness. Studies argue that the
blame cannot be attributed to any intrinsic malevolence on the part of sponsoring countries
whose primary motivation for extending the arrangements was a desire to help poorer countries
develop. The international trade regime has become increasingly discriminatory against Sri
Lankas and other developing countries agricultural exports, both primary and value-added.
Despite the reforms invoked under the Uruguay Round Agreement on Agriculture (AoA) almost
10 years ago, Sri Lankas exports still do not have the kind of non-PTA market access in rich
country markets particularly its two largest trading partners, the U.S. and EUthat one would
expect in an ostensibly free trade regime. Sri Lankas agriculture is also being undermined by an
onslaught of cheap, imported food that is flooding the Sri Lankan market and sold below cost,
which poor country governments and consumers find hard to resist .
Much of this food is produced in, and exported by, the U.S. and EU with the assistance of
massive domestic and export subsidies. Rich country domestic subsidies benefit their largest and
most prolific farmers, most of whom enjoy an above average standard of living, while export

subsidies privilege the large agribusiness transnational corporations (TNCs) domiciled in the
U.S. and Europe that export the agricultural surpluses produced with the aid of domestic support.
Whereas the average American farmer is thriving and makes a good living, the average Sri
Lankan farmer is not so lucky. Due to dislocating import competition, many Sri Lankan farmers
are being pushed out of farming and are fleeing their rural homes for the overcrowded ghettoes
of urban areas.
With regards to internally-motivated constraints on poor country agricultural development, one
popular explanation is the modernization school theory that a countrys lack of economic
development is due to internal deficiencies that impeded its development momentum causing it
to deviate from the proper evolutionary development path that was taken by the advanced
countries.
Although modernization theory has been rightly assailed as ethnocentric and oblivious to the
complexities endemic to the particular poor country context that mitigate against growth and
development, it has some relevance to Sri Lanka in that Sri Lankans have contributed to their
countrys agricultural underdevelopment. Sri Lankas internal negligence is significant and
should be addressed by a tripartite coalition of government, industry, and civil society with
immediacy and urgency. Sri Lankas internal negligence stems from several shortcomings, all
tied to the countrys status in the world trading regime as a plantation economy, which has
fostered complacency with the status quo. These include the lack of an appropriate development
model; the undervaluing of agriculture as a development priority; the weak nature of the state;
the inequitable distribution of land, which marginalizes the highly productive small farmers and
negates their contribution to national production output; and an overwhelming inertia and lack of
political will for change.

These shortcomings are anathema to sustained national development and have sprouted a number
of constraints that perpetuate underdevelopment and external dependency. The internal factors
include inadequate and/or inappropriate use of technology and too much emphasis on outdated,
unable to compete traditional export products and too little on the countrys unique nontraditional crops. There has been inadequate emphasis placed on research and development
(R&D) and lack of irrigation, especially for the farming majority toiling in the hills.
There is poor farming infrastructure, especially roads for transporting goods from farm gate to
market. Furthermore, there is high rate of crime, especially predial larceny and seemingly
intractable dependence on imported food, especially carbohydrates (i.e., rice, cornmeal, and
flour) for domestic consumption. Government policies are inadequate such that government
shortsightedness, inaction, and/or malfeasance along with governments downgrading of tea to
prioritize tourism and services. There is also private sector apathy and dependence on
government to mobilize growth when industry, not government, should be the driver of
economic development. The governments rapid acceptance of structural adjustment
conditionalites has marginalized agriculture while commodity marketing boards weakened by
structural adjustment commitments. There is high cost of capital due to prevailing high interest
rates which makes attaining funding for retooling prohibitive and high cost of inputs, most of
which must be imported.
The public policy burdened by social concerns (i.e.,, the tea industry is artificially maintained as
the countrys largest employer of labor). There is dependence on preferential trade arrangements
as export vehicles while there is inadequate supply of primary goods to meet quotas under
preferential trade agreements (PTAs) and supply agro-processors. There are lack of effective,
integrated distribution and marketing systems. Because external challenges can overwhelm any

product the country manages to produce with or without the presence of internally motivated
constraints, external variables are deemed to have more explanatory force. There are externallydriven constraints like rich country tariff barriers and agricultural production and export
subsidies which encourage overproduction of surpluses that are shipped to poor countries like Sri
Lanka and sold at artificially low prices that undermine domestic production, productivity, and
competitiveness.
There is too much rapid trade liberalization under IMF/World Bank mandated programs which
imposed structural adjustment conditionalities without sufficient due diligence regarding the
potential societal and economic consequences of the liberalization. There is food dumping under
food aid programs, a corollary of rich country agricultural subsidization, which undermines poor
country production, productivity, and competitiveness. There is internally-motivated apathy and
complacent dependence on PTAs for their guaranteed high price points for primary commodity
exports. Furthermore, too little attention paid to unique, non-traditional farm products and agroprocessing as the next logical step forward beyond production/export of primary commodities
and an inappropriate development model that is based entirely on narrow structural adjustment
policy dictated by neoliberal ideals with little consideration for local particularities that
necessitate unique treatment. This development model has marginalized Sri Lankas tea sector,
its small farmers in particular.
Taken together, these constraints have institutionalized the plantation economy in Sri Lanka,
exacerbated its external dependency, and limited its development potential to associated
dependent development. Given the magnitude of its external dependency and underdevelopment,
Sri Lanka should realistically assess its ability to compete in the knowledge-based world trading
regime with an economy that is based largely on tourism and productive sectors grounded in

primary production for export. Sri Lanka definitely needs to acknowledge tourisms vulnerability
to external shocks, the inevitable exhaustion of its bauxite/alumina stores, and the challenges to
preferential trade arrangements upon which its major agricultural exports depend. To compete
more effectively in the world trading regime, Sri Lanka must build on its natural comparative
advantage in agriculture by diversifying targeted production to include niche nontraditional
products, cultivating a stronger agro-processing sector to add value to the countrys agricultural
exports and build stronger backward linkages to farmers and forward linkages to the tourist,
bauxite, and manufacturing sectors. If done properly, and if externally-driven constraints are
moderated, these efforts should increase the countrys earnings in world trade and facilitate
sustained, self-reinforcing development.

Conclusion
The Sri Lankan tea industry needs to become competitive so that it can increase its productivity
and output. It needs to have clear and precise goals which can be used for attaining long term
growth within a short period of time. Furthermore, there is the need for a collaborative approach
which be used to ensure long term success. Productivity growth is often cited as one of the
major contributors to the continued economic growth of the postwar agricultural sector
throughout the world. Experience from Green Revolution in Southeast Asia has proved that
agricultural productivity growth is the key determinant of regional economic growth and rural
development in less developed countries. A more productive tea sector will not only help to
eliminate malnutrition and hunger, but also act as an essential factor in the fight against poverty
and unemployment. There is a convergence of professional opinion that agricultural supply
responses are restrained by many institutional and political factors, like input quality and
infrastructure, and the importance of such non-price constraints on agricultural production and
productivity growth has been universally recognized. But which of these factors is critical and
what policy best supports the achievement of external conditions for agricultural productivity
growth is still open questions. Improving tea productivity is fundamental to the sectors
development and to the healthy growth of the overall economy. Another key reform should be in
the development of the workforce. Education is an investment in human capital. Education is
important because it can boost the skills and competencies of the workforce. It can create a
collaborative strategy for success which is based upon sound outcomes. It is through the use of
integrated and coordinated approaches that success can be attained within a short period of time.
Traditional inputs continued to be a dominant source of labor productivity growth and modern
technology has not yet had a pervasive impact on Sri Lankan tea industry. Land quality had a

significant impact on labor productivity. Land and labor productivity should be enhanced in
order to achieve high levels of efficiency and effectiveness. It is through the use of an innovative
and collaborative approach that success can be attained within a short period of time. The
development of this approach is critical in order to ensure sound outcomes. Research and
development (R&D) are needed to increase agricultural productivity. Demand for food continues
to grow from population pressure and increased income, and this demand will have to be met
chiefly by increased production from agricultural land already in use, as there is little potential
for area expansion. Without continued funding for agricultural R&D and extension, reducing
hunger in food-insecure region while protecting the environment will not be possible. Rwanda is
a clear example. Per capita food production actually has declined in the last decade, a period in
which public sector investment in agricultural R&D stagnated while population growth at 3%.

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