charindra chandrasena  00:06
Hi Dana.

Dhananath Fernando  00:06
Hi Jari.

charindra chandrasena  00:07
Hi Sudharaka. Hi,

Speaker 1  00:08
how are you?

charindra chandrasena  00:09
Sudaraka, you're I'm in a new face for this show, but you're well known in the circles, a research fellow at Advocata Institute. Right, good to have you, and Dana. Today we are. I

Dhananath Fernando  00:25
hope Riyadh is. Yeah, yeah. I hope abs and not because of any rugby interaction or any school interaction. I I hope

charindra chandrasena  00:32
not. I hope not. We're hoping to see him back next week. Dana. Now today, of course, there is no bigger issue in Sri Lanka than what happened over the past two days in Nigambo. So, so far, 25 plus people have been killed, Dozens injured, some you know pretty severely. Quite a big issue, and this is the first time in a couple of years that we are getting this. But every time this issue comes up, there is this overcrowding issue that we, you know, always go into. The official numbers are that we are our prison system is equipped for about 11,000 inmates, and currently we have over 40,000, which is a huge ratio in the wrong direction. So that's three to one, four to one ratio in terms of capacity. To it's about three to four times over capacity. Initially, as this is an economic show also the overcrowding Dana is a lot to do with our justice system, but in a more physical sense about the location of location and the and the the architecture of these prisons, there is a move right now to relocate some of these prisons. In my opinion, way too late. I mean, we shouldn't have maximum. We should have gone double capacity. We shouldn't have waited till it went to three times, four times the capacity to to start these initiatives, but as as usual, Sri Lanka is quite late in you know getting the ball rolling on these things. In terms of prison relocation, what can Sri Lanka think about? What should Sri Lanka, the government, focus on?

Dhananath Fernando  02:58
Yeah, on a charimoni economic point of view, as you can see, and as we all know, most of these prisons are first located at prime real estate, like what we see in Valley Kada, even what was in earlier in Bugambara. These are all prime locations, which prison shouldn't have. I mean, it could have been the kind of the last or the least choice that you basically set it up. Of course, it comes from for a long time when probably the things were not developed to this extent. So then, then the urbanisation things that those happened. So I think definitely it has to move basically for the economic benefit of it and value. That's to look at like one side. But at the same time, when you are having at a very restricted area, that also adds on top of it, like the deteriorating the quality of it, because you really cannot expand, and you don't have space. As a result, it basically drains down like everything else. For an example, even if you look at Balikada, it is like closer to the airport, so the airport as well as the port proximity. Definitely, there could have been something better than a prison that we all agree, and things would have moved somewhere else, which is less congested. All that. So I think, on an economic point of view, that's something that we have to think. That's point number one. Point number two is I think also the prisons are it's governed under an ordinance coming from 1800 ordinance. So definitely the things have to change. I mean, I'm sure things have moved for the last 200 years. We should not govern all these prisoners under an ordinance of 1800. And also the recent events because we had an event in I mean Valikarad there was an event in 2012, and then there was another incident in Mahara, and this one, and even how we got to know about these maintenance issues is the female inmates, especially Advocata lot of work on menstrual hygiene products. Where we also got to know about it because female prisons went on a strike. Because they received only like one sanitary pad during their menstruation, so that means the quality is completely, I mean, poorly maintained. And

charindra chandrasena  05:10
I I feel like it's almost by design that that is happening, because governments tend to underfund the prison system,

Speaker 1  05:21
correct,

charindra chandrasena  05:22
and that's also because there's little chance of them ever getting to experience those prisons. Correct, right? There's a there's a there's this famous story about Ratan Tata, if I remember correctly, about these toilets that in one facility in one of the branches, and I'm I'm just telling off memory, so the audience can correct me if I'm misquoting certain things. But basically, in one of his major branches, he went for a visit, and then he met everybody, and then there was one complaint that was coming from the the minor staff, the two tiers, the low level and the high high level. So the low level staff were complaining that the toilets are just completely in in a bad state, more than like cleaning. You know, it was just bad state, right? And then he went and inspected the toilets. He saw it was bad. Then he inspected the toilets reserved for the the upper tier, and they were fantastic condition.

Dhananath Fernando  06:36
Right.

charindra chandrasena  06:37
So what he did was, he said, "I want to equalise this whole thing. So why don't we have a rotating system where one day those toilets are used by the upper management, another day those toilets are used by the lower management, as it is now. So you alternate, right? Right. Within a week, those toilets were fixed,

Dhananath Fernando  07:02
right?

charindra chandrasena  07:02
Right. They were the the the bad toilets were fixed, and they had been complaining about this for months and years. So the same thing over here, where the politicians never have to experience these conditions, and therefore there is no incentive for them, because what happens is they are transferred to the hospital, right? Because they they they get sick, I suppose, right? Seeing those conditions, they might get sick. Yeah. So I feel like they are underfunding it because one is there's no incentive to improve. Secondly, that they believe they don't believe these inmates deserve a well maintained place or a lot of space. It's it's like dehumanising them, no? Actually, you know, because now these pet shops have these animals caged, you know, multiple birds or fish or you know pets in like very small area, because they don't think of the pain and the suffering those people those animals go through. Same way here, while it says prisoners are human beings outside Valley Kadar, I don't think they actually think of them as humans. Is is my view? No,

Dhananath Fernando  08:19
absolutely, absolutely. That's the challenge. And also, there's a for the point that you made. Even if you look at the budget expenditure, it's mainly 95% is recurrent. There's very minimum capital expenditure on these prisons, and also politically, it's not a vote block. And you have that perception: people like they who are in prisons are like the bad people, but actually it's the other way around. A lot of people are waiting to see like for the courts day to to actually prove that they are innocent. Like not everyone who is detained are the victims, you know. Yeah, the person in the

charindra chandrasena  08:57
remand facility. Yeah, yeah, yeah. So

Dhananath Fernando  09:00
it's basically over congesting, and also most of them are I think for minor offences. The Sri Lanka is not like a country like you know every street corner there is a murder or something like that. So as a result, and in

charindra chandrasena  09:13
the the drug space, then particularly a lot of people are they are just because of possession and small time dealing, you know, it's not the big fish who go in. Correct, you know, it's that that little guy who is maybe hooked and therefore is giving to his network, correct, and kind of getting

Dhananath Fernando  09:35
a double whammy or a triple whammy. Who like basically consumes it,

charindra chandrasena  09:38
yeah,

Dhananath Fernando  09:39
basically go to prison. So as a result, he also loses like you know income for his family, and then like of course when you go inside, you also gain of course you have resources to continue the same habit. So you are basically not rehabilitating or anything. You are just continuing the same thing inside at the government expenditure. Of course, losing income for your family. And everything, and they also go through the same vicious cycle. Yeah. So I think the larger point is now this is because Chary as a market-driven think tank, we have been always in the view that or like proposing a context how the markets work. At the same time, while we say the markets work, there are certain sectors that the government should intervene, or like you know the govern the state should be strong, and there are things that they should do. Definitely, this prisons and judiciary system is something that they have to do. So that's an area we recommend that the government take serious note and invest money, especially on like capex and all that, and fix it like rat and tata, fix the toilets, not to engage in these commercial activities, but this is an area actually they have to fix and think on a more broader point of view. Where how the larger economic resources can contribute to the economy, where how to relocate the prisons and how you increase it, increasing the you know prison, not the prison like the the judiciary is like the efficiency rate. How you can even I saw former Supreme Court judge Yasanta Kodakod has mentioned like we have only about 333 courts, but we have about I think 1 million pending cases. Even Minister Ali Sabri, when he was the who's coming from the system itself, said like our our murder case or a criminal case takes about 10 years if you're lucky. Let's not talk about the civil cases like land cases and all that, which takes about like 20 years, 30 years. So those things are the issues that we have to fix. So I think we have to look at this prison incidents on that context, not as an isolated incident. These drugs issues and all that is a problem of this larger context. If you have like you know serious criminals and all that, then you'd have a separate prison. You know there are techniques. Probably I'm not an expert on prisons, how you manage it. But now you because of the capacities you put everything at the same thing. Even I think former army commander Sarad Fonsekay. I mean, I'm just quoting him. He also said, "I was put with these, you know, very high-level criminals, which I was very surprised, and you know, it was a threat. And even I think the Shani Abeseka, he also said, "Like, you know, I was put with these people. I don't know the truth for it, but you know the same thing comes back and forth, and this is definitely not the way to manage it. Yeah, not good on economic indicators either. Yeah, that's

charindra chandrasena  12:27
the thing, and and overall, if you now this has become global news, the Nigamma incident, and I don't think that paints a good picture about this country because a good prison system is indicative of a proper developed or very high-level nation. Correct. This is not indicative of a high-level nation. No, I mean when it's in its three to four times capacity. About the justice system, also I think I think that has an impact on the economy as well, Dana. In terms of and Sudaraka, in terms of you know perception about about this country and investor confidence and all of that. Sudaraka, do you have any any thoughts on on on how this can affect investors. Yes, I

Speaker 1  13:23
think there are two angles that I can think of the top of my head, where the you know the economic angle comes in. One is obviously the investor confidence because you know when you as an investor hear about these stories and riots or whatever you may call it, right? Then obviously you know you're probably not going to be having a favourable perception of Sri Lanka. You're probably not going to be then willing to come and invest in Sri Lanka, right? So these things are things that need to be seriously looked into. And there's a second aspect of it also, which I may even argue is probably more important to think about, which is the human rights aspect of it, which also is then tied to the economic aspect, right? If you, if you, even if you think about, you know, something like the GSP plus, you know, human rights is basically a very big part of that. And the more bad PR that Sri Lanka gets with respect to, you know, incidents like this, it's not going to reflect well on Sri Lanka and Sri Lanka's ability to basically, you know, be in the good books of these, you know, bigger, you know, nations that we need the help of, right? And also, I think when you were talking about, I think I don't remember how exactly you phrased it, but a more developed country or a more, you know, high level country, advanced,

charindra chandrasena  14:39
advanced nation, advanced

Speaker 1  14:40
nation, right? Like you know, all of these advanced nations are actually seriously thinking about criminal justice reform, and have been doing so for a long time. So, Sudhakar,

charindra chandrasena  14:48
there was there was a there was a Scandinavian country, if I remember correctly. Okay, again, they actually had to downgrade their prisons at one point, meaning. Make their prisons less less well maintained.

Speaker 1  15:05
Yeah,

charindra chandrasena  15:06
so that people

Speaker 1  15:08
even want to come to them because

charindra chandrasena  15:09
they found that that a lot of people who were homeless were preferring the prisons because they are getting free food and so I mean now that's a good problem to have where you can always downgrade easily. Upgrading is a problem, but just just think about the level that they had gone to for the government to try and reverse

Speaker 1  15:32
that. Yeah, I think putting on an economic strategy also, Charendra, what we need to think about is what is our objective of having a prison system, right? Is to keep the dangerous people of the streets, but also to reform them into better human beings. Right. So, what is the you know again putting on the economy? That what is the most efficient way of doing that? Then you know it is to have a system where you know you of course put people in prison when they do things they shouldn't do, but also you know rehabilitate them into human beings that wouldn't, you know, basically do it again, right? So you need to think about how do you prevent recidivism among these people, right? So I'm not convinced that the kind of overcrowded prison system that we have is actually going to help in achieving that objective, because as you can see in this example, clearly also, you know it's only going to you know basically make the issues work you know turn these people into more violent things. If you have to basically if it's the survival of the fittest in a very overcrowded you know limited space, then obviously it's not going to bring out the best instincts of these people. It's going to in fact bring out the worst instincts. So the question is: Is that going to help us reduce recidivism once they are maybe like you know hopefully one day released back into normal society. I don't think that that's going to be the case, right? So in terms of you know larger criminal justice reform, how do we first of all make sure that you know it complies with the economic objectives? Like I said, investor confidence or you know the human rights track record, then that gives us access to say concessional credit and whatever whatever, but also you know economically speaking, how do you make the you know the criminal justice system that you have make economic sense in terms of you know justifiable? Are we getting a good bang for our buck? Right, I don't think that that is at all the all the case here. So we need to think about how we make the system more efficient, so that we don't. I mean, while we have to pay, we will have to pay. I mean, invest more money into it at the outset to improve the system, to you know, increase the capacity and whatsoever. It would then help us in the long run reduce the cost of the cost that the country has to bear on the criminal justice system because it will help basically develop better human beings, all the people that we put in the system to begin with. Yeah.

charindra chandrasena  17:49
Yeah. True. So I personally have an issue with this, the justice system, how it is enforced as well in terms of why are so many people in prison, right? I mean, there are clear-cut black and white cases, guys. Where somebody has committed, I mean, murder. It could be manslaughter, whatever it is. It could be a clear-cut case. Violence, like assault and all could be clear-cut cases as well because we see a lot of videos of people just being assaulted mercilessly. When it's minor crimes, why why do we have so many? And if you do the stats, that bulk of it is minor crimes. Yeah. So why why?

Dhananath Fernando  18:38
So I think it is. I think couple of reasons. One is because we run like under this 1870 some prisons ordinance. Second thing is I think our judiciary system has to update. I think there are a lot of options. Like for an example, like giving suspended sentences. And I think the new technologies there, like for an example, geo fencing and all that, where you can really identify where the prisoner is, and you give it like you know you have the home custody, or like actually you give some little bit of free wage that you can also engage in some job or occupation, so that helps them to rebuild. Because on and also it's mainly most of it. I think as we discuss, the congestion is not coming from the the real like the prisoners. It's like the detainees who are basically waiting for like the the court day. And the other thing is, I remember once there were there was a politician who basically because there are also some people because of poverty even they cannot pay the fine.

charindra chandrasena  19:40
Yeah,

Dhananath Fernando  19:41
and they are basically these are minor offences. They are just basically they are because they really don't have the means to pay. So on those cases, actually, if if you really look at what you can collect as a pay and comparatively or maintenance of the prisoner, like with food and the jailer. Cost and the staff cost and all that it doesn't make sense and that's why if you recall like even this president when he came to power there were main government officials that has been their duties have been suspended one is the the prison commissioner right yeah because of this Visakh day or poston day like how we release people and all that. So when you really have that, I mean that what do you call that? You know the the the consent power, the power of consent,

charindra chandrasena  20:31
discretionary power. Discretionary power is the

Dhananath Fernando  20:32
right word. Yes, thanks. So when you have that, this happen, and even if you look at like from the stories that we have here, from the from who are coming out from prison, like how the the price of a cigarette inside the prison, if you want like additional food, like how much that you have to pay, all that combined together, like have you if you want to use a mobile phone, like all that has become like a another vicious cycle and economic system because of that very poor maintenance and because the overcongestion challenge, so I think those things has to be looked at on a more holistic point of view. Yeah,

charindra chandrasena  21:07
over here I think this drugs thing is a huge deal because we, I mean everything is criminal, including marijuana.

Dhananath Fernando  21:16
Yeah,

charindra chandrasena  21:17
Portugal had this experiment, where now it's still ongoing, where they actually decriminalised, and this comes back to what you were saying also, Sudha. They decriminalised the possession and consumption of all drugs. Right? This is outside the Advocata thing, but I'm saying you know all drugs, the possession and consumption, they decriminalised. Right. The ones who were caught doing that, they didn't send them to prison like they used to. They send them to these things which I think are called like re-education centres or something like that, and it's like a rehabilitation process where they were, you know, given like-minded people and and and you know in a in a safe environment they were encouraged to speak and about their experiences and then they were taught certain things, and after a while after they feel like they have been rehabilitated. They were sent out, but not just back into society. They were connected with employers, where the government took that risk of the employees employing them. So I don't remember whether it was in the form of tax benefits or whatever. But the ones who employed them received certain benefits because government was basically insuring those inmates, and and comes back to what you were saying, Sudharaga. That is about treating them as human beings who made a mistake, who made a bad choice. You know, not punishing them forever and ever to like you know burn in hell, and what they found is that drug use went down significantly over the years. So this this was started I think about 25 years ago.

Dhananath Fernando  23:12
Right,

charindra chandrasena  23:13
drug use went down considerably because they are being connected and they were connected with their families again, you know there was a whole process there after the rehabilitation. You know over here you're even if you're sent to jail, you're in trouble, and then when you're sent out, you're just sent out. So there could be relapsing as well. So I think certain you know we have to get with the times our system because as you said, we are still, you know, governed by colonial law, and quite sad. But let's hope that this kind of incident we don't ever have to hear about again. After that, I briefly want to touch on something that we we discussed last week, cause you guys about tea, but specifically about the the blending of tea. Now we our our tea Industry is globally in terms of premium quality. I think we are still very much we are we are number two. If we are not number one, I I would think in terms of quality we are maybe still number

Speaker 1  24:38
one. In terms of latte, yes.

charindra chandrasena  24:40
Yes, right. In terms of value, we are not number one. In terms

Speaker 1  24:46
of the volumes that we do and the yes, volume. Yeah, sorry, not value. Volume. I think it volumes. No prices for black tea were still the number one. Yeah.

charindra chandrasena  24:55
Yeah. So that that is that is in terms of value, right? Yeah. Yeah. If you take in terms. Volumes, yeah, maybe I don't know fourth. I,

Speaker 1  25:03
off top of my head, don't remember. But in terms of you know, you also need to then think about you know whether you're talking about export volumes or production volumes. Export countries like India and China, for instance, produce a lot of tea, but most of it is you know 80 90% of it is domestically domestically. So in Sri Lanka, on the other hand, almost 95% of the tea that we produce is exported. So I think, in terms of the you know ranking of Sri Lanka as an exporter of tea, it's either the fourth or the fifth.

charindra chandrasena  25:32
Yeah, exactly. Do we do we have anything over here in Sri Lanka's industry, and I think specifically I want to talk about blending. Now, Sri Lanka by regulation doesn't allow blending, right? Correct me if I'm wrong. It's a big solution blending. I'm talking about yeah.

Speaker 1  25:57
Complicated than that. So basically, you can't bring in any tea that's already produced in Sri Lanka. So any regular black tea, for instance, you can't import into anything that is produced in Sri Lanka

Dhananath Fernando  26:10
producer. If

Speaker 1  26:11
yeah, yeah, basically. But you know, green teas, for instance, that are produced in China and Japan and all of that, or even like Darjeeling, my understanding, certain quantities people do bring in, which means that it is allowed. It's just that the idea is that you know whatever can be achieved type substitute for cilanti, it is legally not allowed. The idea is to prevent the blending of cilanti with these other cheaper varieties,

charindra chandrasena  26:38
which are source from Sri Lanka.

Speaker 1  26:40
Yes. So,

charindra chandrasena  26:41
so the so the the regulation aims to prevent blending

Speaker 1  26:46
of cilanti with other origin teas of Sri Lanka. Yeah.

charindra chandrasena  26:51
Right. Okay. Okay. Okay. So it's it's a it's a it's a source market issue. You know entirely, right? You said we are China's tea can be blended with Sri Lanka. Yeah,

Speaker 1  27:02
because China primarily, like you know, produces green tea, and that same restriction does not apply to you know these different Chinese varieties of green tea, right? So if Sri Lanka already produces that type of tea in Sri Lanka, then no, then if Sri Lanka doesn't, then you can. Right, that is basically the regulation.

charindra chandrasena  27:21
But but other markets like say for example India Kenya those markets do allow blending.

Speaker 1  27:28
They yeah

charindra chandrasena  27:29
yeah yeah and and I mean Darjeeling

Speaker 1  27:31
doesn't because they have the GI, but you know there are parts of India where yeah that is. But

Dhananath Fernando  27:36
is GI stand for Sir Darragan? GI stand

Speaker 1  27:38
it's a geographic indicator. Ah, so basically where you

charindra chandrasena  27:42
know where the product is from. Yeah, so basically the

Speaker 1  27:45
reason Darjeeling also doesn't allow for blending is because Darjeeling tea has what's called a GI or a geographic indicator, which means that you know it is a globally recognised trademark. The

charindra chandrasena  27:57
consumers know exactly where it's from, and therefore that is not exactly where

Speaker 1  28:01
it's from. It's not adulterated, and the GI is important for a you know tea producer like Darjeeling because you know it's meant to have a certain quality. It's globally recognised to have a certain characteristic that you know gives it a particular value, right? Say champagne, which is basically you know wine that's made out of you know grapes stuck grown in the champagne region, right? And when you have a particular product that has a particular quality because of the geographic region that it comes from, then these kind of GI certifications allow you to basically retain consumer confidence in the product that you're putting out, so that there is no you know second guessing about whether something is adulterated.

charindra chandrasena  28:50
Understood. So going going back to that question, Kenya, India, and China would be our biggest competitors on the global market is that correct? China

Speaker 1  29:02
mostly produces green tea, so in terms of the black tea market, Kenya and India because competitors. But actually, we don't really compete with them also, and I'll tell you why. Because what Sri Lanka produces is what's called orthodox black tea, which basically means that you processes the orthodox way. It's a process that says takes say like you know three days. You know, as opposed to China, sorry, as opposed to Kenya and India, who basically processes what's called the CTC tea, which is like you know process that takes less than a day, and you know it's a different processing method. So the tests test of the different two teas are actually quite different. So say if your tongue is used to the the taste of cilanti, then you would probably not find Indian or you know Kenyan tea that appealing. So in that sense, Sri Lanka also doesn't really compete with so so.

charindra chandrasena  34:55
I mean export revenue than it is now.

Speaker 1  35:03
Yes, and I will actually point to the example of Japan. If you say look at the you know the tea prices of Japan between 1960 to today, you will see that the prices have gone up. You know, basically exponentially. You know, high compared to where it used to be, and what Japan did was not to you know increase its you know extent of cultivation and cultivate basically like put you know bigger volumes in the market and try to earn more money that way. Neither did it you know try to basically compete on cost. If you look at the you know very famous types of tea coming out of you know Japan, they are some of the most expensive, right? Like things like matcha. What they were successfully managed to do it was to like you know understand the market conditions, understand what scarcity means, and they've created you know very scarce product in these matcha's and other different types of tea that they put out in the market, and then you know convince the the buyer basically that it's worth paying this price for this, you know, very good product that is difficult to come by, right? And they've used this philosophy to then, like, you know, earn in aggregate higher revenues for the industry than they would have been able to had they continued on the direction that they were in the 1960s, you know, when they were basically again trying to, you know, be a cost leader in the industry, right? And part of that shift happened in Japan also because they couldn't keep competing on price because their labour costs also went up because Japan went through a you know massive industrialization phase, and Sri Lanka is also currently struggling with our labour. So it means that you know in the near future, at least we are not going to be able to you know carve out that cost leadership for ourselves because you know our labour shortages are getting worse and worse, so we are going to have to offer more and more money to these employees to keep or import people,

charindra chandrasena  36:50
or import labour.

Speaker 1  36:51
Yeah, but you know the thing with importation also, then you know what does that mean for the Ceronti brand, and that that is also the GI comes in, right? What the GI does is to assure the international consumer that this is unadulterated pure Ceylon tea. But if you were to like say import say cheaper you know alternatives from India and labour, I will not be labour. Oh, not labour. Yes, yes.

Dhananath Fernando  37:17
Yeah, my point is that I mean, Sudarka is. I think he has also spoken about this in the report, like the productivity angle in terms of production because our productivity is low and our tea. I think the bushes are quite old and replantation hasn't been done. Those are also issues, and of course the labour unproductivity. I think in the report we speak about like the performance or like the incentive methods that really need to you know boost up, but on the blending, I think Sudaraka is the expert expert in the sense that he has done enough research on on the understanding the pros and cons. Sudaraka just if I ship in now I'm surprised why for an example okay understand that okay if you blend it that people may think it is like you you even have a Ceylon tea label with some adulterated products also that risky is there but isn't there like can is can it can't it be like a separate category where Ceylon tea is like pre I mean the the the premium like the pure Ceylon tea it is like for an example, let's say like Toyota Lexus, like you know, you know, it comes with separate features, but if you blend it, it can be like a. It's not Ceylon tea, but it is like tea, some tea. I don't know whether it is

Speaker 1  38:34
Sri Lanka, but can be blended in Sri Lanka. Although,

Dhananath Fernando  38:36
isn't it an option? Or if if not, why it is not? I'm just asking. Tana,

Speaker 1  38:40
yes. So this is a very philosophical question at one end, and also you know it's like a logistical, you know, question that you need to answer in terms of you know the theory behind it. We know as a free market think tank ourselves that you know free trade always is good in a free market, right? But the question is, is it a free market, and if not, why? One of the things that cause market failure here is the fact that there is no perfect information, or there is an information asymmetry built into the fact that you know someone buying something that's called cidron tea can't for sure tell, you know whether it's actually Cilanti or adulterated, and that means that they are not going to be willing to pay the price that Ciranti deserves for the Cironte that they are buying, right? So that is going to actually basically monetarily punish the good players in the market who will, you know, not call like you know adulterated Cironti and only call pure cilanti cilanti. So then, what we need to figure out is how. Oh, but but

charindra chandrasena  39:45
if I'm if I'm not wrong, then you're not talking about branding it as cilanti, right? Yeah, yeah, yeah. So the question is, you know, if

Speaker 1  39:54
you were to allow free imports into the market, and then say like you say you basically allow. In a particular geographical, you know, area where blending is allowed to happen, you're not allowed to sell it as Cinonti. You can sell it as, say, packed in Sri Lanka, right? Yeah, exactly. So the question is: Do we first of all have the consensus within the industry for this to happen? And the second thing is: Do we still have confidence that this will not lead to basically, you know, abuse of the law, and then you know all kinds of irregularities taking place. Unless and until you can put that framework in place, I think you know these information asymmetries in the market actually are not in favour of you know blending being allowed, and I think if you allow blending, that they will you know adulterate and also can we have a monitoring system? You know we have this. But Sudarga now

charindra chandrasena  40:51
they are. I mean, I I don't think that's the main issue there because I mean a lot of industries that you take from food to anything, they have certain you know compositions that have to be intact, and there's a monitoring system and all of that. I just I'm I'm thinking more on like you said the philosophical level about about whether the industry is reluctant getting the framework in policing this shouldn't be the big problem,

Speaker 1  41:23
and also in addition to that, you know you have a product that's packed in Sri Lanka. You know, as a consumer, how would the consumer, you know, make the distinction between Cironti and tea that's packed in Sri Lanka? You know, is that going to lead to some confusion? Like these are all questions that need to be answered, and I think the best way to answer this actually is through a GI framework that lays, you know, the the you know criteria out clearly, so that you know there is no confusion, right? It says that you know only teas that are produced in Sri Lanka and packed in Sri Lanka can go as Ceylon tea. If there's any form of blending that happens, then you know it has to be labelled separately, but you know how do you also make it clear to the consumer who may not be aware of when you're this right that you know what you're buying as tea that's packed in Sri Lanka is not actually pure Ceylon tea because they would buy it and then say oh this does not taste any different to you know this X Y Z brand of tea that I bought that said it was from this other place so you know. So what is actually you know so special about Ceylon tea? Then I might as well go back to buying like my cheaper tea from another source, right? So it's a question of you know how do we distinguish the difference between the two, and whether we are actually able to do that. And that framework I think has to be built into any GI framework that we bring into the industry,

charindra chandrasena  42:43
I I feel like Sri Lanka has the potential to, you know how we talk about Cuban cigars, Russian vodka, like you know Mexican tequila. Sorry to go on the alcohol thing, but like other like Italian luxury vehicles, like say Lamborghini or French fashion, you know there are there's a certain German cars. There's a certain quality associated with them. When you hear the name and you hear the source country, you know that it's of a certain quality, right? I think Sri Lanka has the ability and and even what you said, I think Sri Lanka has a solution to that as well because it's not branded as Sri Lanka. It is Srilanty. I don't know if you guys remember a couple of many decades ago actually there was a debate about do should we change the name from Srilanty to Sri Lankanti.

Speaker 1  43:38
Right.

Dhananath Fernando  43:38
I think what Sudarga when when I had the preacher, he said that is one of the problem because Ceylon, since it's not a country, to getting to the GI is a challenge, isn't it?

Speaker 1  43:48
It's also been a challenge over the years, and also the fact that you know Ceylon tea doesn't have the same taste profile across the different regions, right? That's basically a dimuloty is very different to a tea. That's a donate, so that also you know has added to the complication of it, but my understanding is that the tea board has been very successfully working towards this. Another thing that I want to flag also is also the the you know the the human rights aspect to all of this, which is I think important in global trade because you know in most places like secondness, like you know, say at the Mombasa tea auction, a lot of tea that's sold also comes from other parts of Africa, like Malawi, where child labour is a huge thing. You know, there are questions about you know forced lab and child lab and all of these things in India. So then, if you were to import this tea and then sell it to other countries, then we also might be exposing ourselves to all of these things, which are not known to be very big issues in the Ceylon tea industry, so I think it's also important to take these things to consideration before you know, and also to understand the economic impact and also the you know the reputational impact on the Cilanti brand name before you know any of this is actually strategically executed. So just sorry, I know we are running out of time. Just checking with Sudarakar Sudarsa on that. We published an extensive report on the tea industry, no? Yes. Because not probably the viewers may have not gone through the entire report. Probably we'll link provide the link at the description. Now in our report, what's the stance on kind of blending? Like or like have we listed out like pros and cons of if you blend, if you love blending, this could happen. If you don't allow blending, this could happen. Or is there a particular stance that you take, or like you have a view on this since you have gone through? Yeah, yeah. Actually, it's a strategic decision the industry has to take because you know it's not economic policy; it's you know business strategy. And I think the stakeholders in the industry are more than capable of making the strategic decision for themselves, but you know the decision has to be made in unisonous point. In terms of taking a stand on it, I think what we try to do the report is you know point out the pros and cons of each each you know direction. But what I would say is the data strongly supports the more premiumization aspect of it, just because I can't see how, for the foreseeable future, we can have cost leadership in the industry because of our excessive cost and also the value proposition of Sinology. So, so just for our audience,

charindra chandrasena  46:11
just for our audience, what you're saying is that your report it points out the pros and cons of blending, but it there are more pros to not blending to not blending. Yeah, also want to point out to maintain the premium Cilanti brand.

Speaker 1  46:29
Yeah, I also want to point out there's not been a lot written about the actual price effects of blending because we actually did allow blending at some point, except an IPS report which I was, which I think probably was published in 2003 or so by I believe Dr. Saman Kalegama, who actually you know ran the numbers to show that you know when we did the outlending in the industry, the prices actually went down, which means that you know that kind of confirms that you know information asymmetry argument that I brought in earlier. When you love blending, you know the buyers don't have full confidence that what you're buying as cironti is that actually cironti. That means they're not going to be willing to pay the full price of cilanti because you know there's uncertainty built into your pricing calculation, value calculation, right?

charindra chandrasena  47:18
Shall I shall I say something about the industry, I feel like this blending argument is also coming in. One of the reasons could be that in this premiumization journey, we are not achieving our potential, right? And for the government, think about it. For the government, what would matter? One of the main things would be export revenue, you know, because it is one of the you know the the the established export export brands. I don't think we are generating enough revenue on that front, and that could be one of the reasons that the blending argument is coming in that we could generate more through blending. Not that it's right, Sudarakan. Yeah, I also want to point

Speaker 1  48:08
out the government is also misguided in this thing, and we have commented on this before as well. I think the government's thinking goes that if we increase our volumes of production, then that would automatically translate into a higher, you know, export revenue. But the problem is that you know, with higher supply comes over prices, and I think we don't even have to, you know, pontificate about what the effect would be. The you know example is right in front of us, which is Kenya, which has you know basically oversupplied the market, and the prices have gone, you know, so low that the the Kenyan tea auction had to actually impose a minimum price, and there's still a lot of tea that's basically sitting unsold in Mombasa, which has also depressed the prices for you know tea in India, and is also kind of depressing the prices around tea. So this is that this has had a global impact, right? So yeah, in a global situation where there is already an already an oversupply that no one wants to buy, basically at the prices that they're trying to sell it, right? So in that case, imagine Sri Lanka also trying to oversupply the market with higher cultivation and you know production amounts. I don't think that is the path we should take, you know, premiumization. If we were to actually follow that strategy, also comes with being strategic about what our quantity of production is.

charindra chandrasena  49:28
Yeah, but but my my point, Sudhak is exactly, and we'll we'll wind up now. But basically, my point is exactly that the the reason that this alternative is being suggested and mooted by certain parties is because there is not enough export revenue, isn't it? If if the industry had its house in order, nobody can point out that there's a dust speck there, that that that that chair is out of place. Get it? Yeah. Nobody can complain if everything's going smoothly. Yeah. This is because it's not hunky dory because we are. Not achieving exactly what we should achieve. Yeah, that these alternatives are being suggested. Yeah, right. Yeah, and

Speaker 1  50:06
I also want to point out it's not just industry. You know, the government doesn't have it. It's actually not like a lot of labour issues, land issues that actually we through our report point out are the root of these issues. Right. So unless and until you fix the factor market issues, and these factor market issues come because of misguided government policy over the decades. You know, there's no one single part you can point. It's like you know, across the board, very misguided issues that have been taken with respect to this industry that have led to the situation where we are in now. I think you know, all kinds of stakeholders, government and private sector have you know some kind of responsibility to bear for the situation the industry is in, but at the same time I want to you know I don't know positive note that Sri Lanka still has the potential to realise the full potential in terms of its tea industry, and you know it's not also rocket science. You know the economics of this is very clear. The strategic point is very clear. It's just decision that the industry has to make for itself, regardless of what the political context is. But the you know the ramifications are on that end because the industry has to fight for its own survival. Yeah,

charindra chandrasena  51:12
but still has the potential means this is an industry. This is not tech, right? Yeah. This is a new. Yeah. This is not

Speaker 1  51:19
a bubble. You know, this is an industry that has lasted for

charindra chandrasena  51:21
and and and hundreds and hundreds. Yes, exactly. So so by now, my my point is we should be figuring it out. If not, have figured it out already. But we have to wind up there. Dana, you have to make the message very short.

Dhananath Fernando  51:34
Okay, so to keep it very short, please become an Advocata insider. It's 12,000 rupees a year, 1000 rupees a month. The reason we are why we are asking your support is, we are an independent, nonpartisan think tank, and generally, when you are independent, nonpartisan, you get shot by both sides. And we don't want to take any side, so we would like to depend our sustenance and sustainability based on your support, because when you support the public policy discourse, that helps us to become independent because it comes from a larger base. And when you are supporting, you are not only supporting the policy discourse of Sri Lanka. You are also getting some additional benefits, including analyses about the exchange rate, property market, vehicle markets, and so many other sectors. So please consider becoming an Advocata insider. All

charindra chandrasena  52:24
right, thanks Dana, thanks Sudarakar for bringing us all that insight and quite interesting. Wish we had more time actually. Thank you for tuning in as always, and let us know your feedback. What we should talk about, what issues you have seen. We will see you next week.


Transcribed by https://otter.ai