Colombo Tea Auction faces scrutiny as smallholders raise concerns about dollar gains

The structural framework of the Colombo Tea Auction has come under intense scrutiny as growing socio-economic disparities threaten the livelihoods of the grassroots producers who form the backbone of the nation’s tea industry. Despite contributing well over 75% of Sri Lanka’s total tea production and serving as the primary lifeline for more than 500,000 smallholder families and an estimated two million livelihoods, the actual producers are reportedly systematically deprived of the true US dollar gains generated by premium Ceylon Tea exports. This widening disconnect between export earnings and ground-level compensation is said to have sparked a severe trust deficit across the tea smallholders. Speaking to the The Island Financial Review, Ushan Dhammika Samarasinghe, Secretary, Tea Estate Owners Association (TEOA), expressed deep concerns over the current closed auction system, calling for urgent transparency, inclusivity, and fair play. He noted that while Sri Lanka possesses a unique equatorial geographical advantage with seven distinct agro-climatic zones producing globally unique, aromatic teas, the industry’s marketing strategies have stagnated. For decades, exporters have heavily relied on traditional, conflict-vulnerable markets and bulk tea exports rather than securing premium international prices through advanced value-added products and new global market penetration. The financial fallout of this marketing failure is being borne entirely by the smallholders. While grassroots producers are pushed to the wall, struggling to purchase basic agricultural inputs, intermediaries at the top of the supply chain enjoy luxury lifestyles, high-end vehicles, and premium properties. In the current economic climate, where a fluctuating US dollar has drastically driven up national import costs, the primary argument of the growers remains clear: if import prices are rising exponentially due to the dollar’s strength, then a premium export commodity like tea should reflect that exact same dollar advantage in the payments received by leaf producers. Official data from the Central Bank of Sri Lanka underscores this grim reality, showing that production costs and imported agricultural inputs have surged rapidly. Following the depreciation of the Sri Lankan Rupee, the prices of essential fertilisers, pesticides, and machinery have skyrocketed by nearly 300%. Yet, because the dollar revenues earned from exports do not flow directly back to the local producer, smallholders are forced to rely on a devalued rupee while absorbing these staggering production costs. While expenses increase at dollar-pegged rates, real income remains severely depressed, and the conversion of auction values fails to reflect the higher exchange rate through increased rupee earnings. At the Colombo Tea Auction, exporters consistently place their bids only after safeguarding their own profit margins and factoring in all overheads, including insurance, freight charges, packaging, and Simplified Value Added Tax (SVAT) liabilities. Consequently, while exporters successfully eliminate their own financial risks, the entire weight of agricultural inflation is shifted onto the back of the smallholder. Furthermore, although the government’s SVAT system offers tax relief to exporters, brokers and exporters have failed to pass this benefit down to grassroots producers through higher competitive bidding. Having made these comments, Samarasinghe dismissed the claim that the country needs massive dollar reserves to conduct the auction in US dollars as a myth, asserting that shifting the auction to direct dollar bidding would simultaneously benefit global buyers and local smallholders alike. Past data also indicates that the current closed auction system acts as a barrier, preventing new entrepreneurs from entering the industry. Furthermore, while the government has actively intervened to increase the wages of estate workers managed by Regional Plantation Companies (RPCs) – entities that rarely make long-term investments in the soil – no such justice or equity has been extended to the small and medium-scale smallholders who make up the vast majority of the sector. To rectify these deep-seated inequities, the TEOA is calling for immediate intervention from the Sri Lanka Tea Board, the Ministry of Plantations and the Ministry of Finance. Chief among these demands is the implementation of a definitive exchange-rate price formula for green leaf prices, indexed directly against the dollar value of the Colombo Auction. Such a mechanism would guarantee that small and medium-scale landholders receive a fair and premium value for their yield, empowering them to break free from a mindset of dependency on government subsidies. With a fair and guaranteed income, smallholders would gain the financial stability to pay higher wages to their own estate workers and independently reinvest in the long-term advancement of the tea industry. “The future of Sri Lanka’s tea sector can only be secured if the price discrepancies highlighted by the Central Bank data are eliminated, allowing the true dollar advantage to flow directly into the hands of the producer,” Samarasinghe said in conclusion.

By Sanath Nanayakkare