Talking to a Tea Titan 0 341

There aren’t many people in the world who can boast of having spent as much time as Dilmah founder Merrill J. Fernando, doing what they are passionate about and love. The results of this effort are clearly evident with Dilmah today Sri Lanka’s only significant globally recognised brand name.

Sri Lanka’s Tea industry is facing difficult times, and with low yields and a higher level of competition from larger producers, the future remains uncertain. With that, we spoke to the iconic Ceylon Tea trailblazer, Merrill J. Fernando, about his legacy, his vision, and his prescription for the ailing industry.

Back in 1950, when you joined the industry as one of the handful of Ceylonese to be trained, how challenging was it, and what spurred you on to build your own legacy?

Well, it was a big challenge because the British, who dominated the tea industry at the time, did not want to recruit any locals for tea tasting and training. They thought, or their excuse was, that they said that the Sri Lankans, or the Ceylonese at the time, ate too much spicy food and they can’t taste tea. That was, of course just to protect their work permits and visas.

Somehow when the tea commissioner selected six trainees for learning tea tasting under Mr. O.P. Rust, who was then the Tea Commissioner’s chief taster, and who had an undertaking during the war for a few years to supply a limited amount of tea direct to the UK food commission.

So Mr. Rust was overlooking that and the Tea Commissioner had clout with him. So he persuaded Mr. Rust to train six people. Soon after, when I heard about this, I got to him through a friend and maybe two, three months later, I was taken in for training. Learning it was not much of a challenge. He taught us very well, and he then left the country.

Then, I had the good fortune to learn again under two of the best tea traders in the country – that was Heath & Company, Mr. Sandy Mathewson, and Mr. Stan Campbell, two brilliant people. I then had a slight interruption when I broke away from tea and worked in an oil company, but came back to tea and joined A.F. Jones & Company.

It was then that the real difficult times started, because I went to London to learn tea branding and marketing. What I saw there accounts for my personal success, and when I saw what they did to our tea there it shattered me.


What was it that was happening to Ceylon Tea in the UK?

All of us, as exporters, including myself until 1985, were supplying tea in bulk and making other traders around the world richer and richer. Even today, most exporters – especially the large multinational brands – are traders in tea. Traders are what we were taught to be during the British period. We compete with each other here to sell it as cheap as possible to our buyers abroad, and they take our bulk tea and mix it with other teas and call it Ceylon Tea.

So in terms of what happened to our tea in the UK, when I say I was shattered, it was because I had a great respect for Englishman, and thought they were very honest and honourable men. I suppose once they become traders, honour and integrity all disappears for money. So I saw them mixing cheaper teas or teas from other tea producing nations, with Ceylon Tea, and their packs were marked ‘Ceylon Tea’ and were being sold out. I realised, oh my goodness, our poor labourers and our plantation owners are working their guts out to enrich people and traders outside our country.

They squeezed the tea farmers and their workers, and also lied to their consumers, because what they called Ceylon Tea was just a mixture of tea from other countries.

So that’s what changed me, and when I saw that I thought this cannot be, we should never sell bulk tea, but we should supply our own branded tea. Soon I realised I was dreaming and tried to forget that, thinking that we have no hope in this big world of tea. However, the thought kept haunting me and 34 years later, I came up with my brand Dilmah. That was the beginning of Dilmah.

How were you able to break out from this key trade monopoly and establish Dilmah as a Sri Lankan made brand and capture the global market?

Well consumers realised, or rather did not realise until I embarked on this journey with my tea, that they were drinking a lot of other blended mixed teas. They realised that what I launched was a real product, because I selected Australia to launch my brand because I was a strong supplier of bulk tea to Australian markets and to New Zealand.

So when I decided to launch in Australia they were importing 52 million pounds of Ceylon Tea for many, many years, but in the 80s the multinationals entered the market and acquired the family companies that were dominating the tea industry strictly with Pure Ceylon Tea. Once the multinationals entered the market they started eliminating Ceylon Tea from their original brand names and progressively replaced, maybe almost 60 to 70% of those packs and brands, with foreign teas and cheaper teas. However, the consumer perception was that these were Ceylon Teas.

I told the press that I was going to get integrity and honesty back to tea. I went to market with Pure Ceylon Tea grown by us, branded, packaged and processed completely in Sri Lanka by us, and marketed it in Australia as my first market.

I told them that from every pack you buy, I send a share of the earnings of what you pay back to Sri Lanka, and not into the pockets of big multinational traders.

So the consumers liked the concept that money was going back to Sri Lanka to help the poor, and I said I will bring single origin 100% pure Ceylon Tea, grown and packaged in Sri Lanka, and I will bring to the market the world’s only ethically produced brand. This was possible because all the value addition is done and the proceeds are retained in Sri Lanka. In my case I said I will share my earnings with the poor and the needy and I launched my brand named Dilmah after the names of my two sons Dilhan and Malik. That made the brand very valuable in the eyes of tea drinkers. I did not consult any marketing experts because I had no money to pay their fees.

Secondly, I had to find a method to market and advertise my tea. I used Kamal the famous singer in Australia, at the time who had been forgotten, but we relaunched Kamal in Australia, and we used him for two years.

Then my advertising agency said that the best person to promote and advertise your tea was me, because I knew so much about the tea, and suggested that I become the face on the product. I said I can never get on screen. So, for about six months, they worried and worried me and finally I agreed, and I started with a really simple commercial where I told the consumer “this is my own tea grown and packaged by me and named after my two children”. I just said “do try it” and still the equity of that line is enormous today.

When I used to walk around Australia and New Zealand people used to shout “do try it” and say “Mr. Dilmah how are you?”. So there was emotional value in the brand name and me as the owner facing the brand on TV and radio. Only I spoke for the brand.  So, the consumers began to really like the tea and my concept of putting my face on my own pack.

Consumers in both countries, Australia and New Zealand, would write to me and say “Mr. Dilmah you are not a faceless multinational, you have a face to it”. This meant that international traders and multinationals have a brand name, but when consumers try to find out who the owner of the brand is they realise that there is no owner. All the multinationals and big international companies are owned by investment banks, so there is no face. If consumers want to complain about it or compliment there is no one to write to. Whereas with Dilmah they have me, I was there to take responsibility. So consumers value that enormously, the integrity.

Today consumers have supported the brand so much it is globally the number three brand, and I’m aiming to be the number one brand in the next three years, because the quality, freshness and the purpose behind Dilmah remains unchanged. Not even a little bit has changed from the day I launched that tea to today, and forever it will remain that quality. So consumers around the world know this is an excellent, outstanding quality.

We are the only company in the world that is fully integrated in the tea industry. We own plantations, we own the factories, we own our own printing and packaging facilities and everything that is needed to bring Dilmah tea into overseas markets. No other company in the world has that, and importantly, we are the only company in all tea producing countries and coffee producing countries too, which has a country-owned, farmer-owned brand globally.

So what I have to say is that traders say “we can’t do this”, but you can if you say “I can do it and I’ll be different”. I named the brand, and I face the brand in a way that nobody else could, and every step of the way, I did the right thing. I never did anything wrong by the consumer or by the tea producer.

You’ve recently increased your pledge up to 15% of Dilmah’s pretax profits for your foundation. What will it focus on?

I established a charitable foundation called the MJF Charitable Foundation which contributes 15% of all our companies’ profits before tax, and the foundation earns a very generous amount of money which is spent in changing thousands of lives.

We have in Moratuwa, a MJF centre where we treat children with Down’s Syndrome, autistic children, abused children, and another one in Rajagiriya that helps children with Cerebral Palsy. If you go there, you will give away all your wealth to those people. We have several other centres in the country and a big one in Kalkudah in the East on 22 acres of land, entirely devoted to the welfare of underprivileged children and others.

So the lesson I learned from this business is a great one; a lesson for all other business people. That is, when I started sharing my profits in the in the first year itself, in a small way, it got bigger and bigger and my business grew.

Today, many of my employees’ children have benefited from my Foundation’s scholarships and have become doctors, lawyers, and architects. The MJF Foundation has a broad education programme which includes scholarships for children at Ordinary and Advanced Levels, thereafter for University, and vocational training.

Plantation tea picker’s children today are doctors, lawyers, and judges, and have achieved amazing success. So this proves that a little bit of help to the poorest child in our country can make them all grow to what you and I can become.

Your foundation the MJF foundation has long been heavily involved in making life better both for people and planet. What kind of a better world do you envision through it?

I learned a lot from this exercise and I’m happy we give away so much. My children are following in my example; my grandchildren are following in my example, so I’m sure that the good Lord directed me all the way. All my success is owed to Jesus Christ, who leads me, shows me the way, and teaches me to help those who need help.

Everyone, every consumer helps me to help the poor and I sincerely hope that the success of my business; the moment it started flowing towards the poor and the needy, will continue to become a method of human service.

I appeal to all other successful businesses to share a tiny bit of their earnings to make other people happy, or poor people happy; the sick and needy to be comfortable, and their businesses will thrive and grow beyond their belief.

Finally, when I say we come to this world with nothing, we go with nothing. The wealth some of us acquire it with the help of so many others. Therefore let us learn to share that wealth with the community and the world will be a far better place than it is now.

Dilmah has been at the forefront of value addition, with a host of new products including Tea Beer as well. How have they been received?

We do everything with tea, and we have opened tea centres and tLounges all over the country, and in other countries also there are a lot of people asking for them. We do amazing things with tea. We are totally committed and dedicated to tea. Airlines from Australia, Air New Zealand and leading Middle Eastern airlines carry only Dilmah,

Emirates, works closely with us for training through our School of Tea, and tea inspired innovation that enhances the guest experience in-flight and in their lounges globally. Six or seven out of ten five star hotels will have Dilmah Tea. That’s what we earned, because we served absolutely spotless quality, fresh with my heart and soul in that tea. Nothing has changed and nothing will change.

For your information, if you see the export earnings of this country, Dilmah Tea earns Rs.2,000 to Rs.2,200 per kilo. A few others earn over Rs.1,000 but the majority earn Rs.800 or below. This is because our governments and institutions do not do anything about marketing, and they will not know how to support marketing, how to encourage value addition. There is much talk, but little action in terms of effective promotion, adequate incentives for value addition and enforcement of the standards we need in the industry.

How can Sri Lanka take advantage of its many resources and products through value addition?

We have products with high potential such as our tea, our coconut products, and spices. Our spices are a gold mine. The government must recognise the need to add value. The world has changed dramatically, especially in 2020, and to help the tea and spice growers, as well as the exporters and our national economy, we need expertise and focused effort.

They must identify people who are successful in branding, marketing, advertising and promotion. Government servants can’t do this. Government officials, however clever they may be, can never handle these aspects. It is impossible for a regulator to also assume the role of marketer. There are successful marketers in Sri Lanka. If five or six people should get together and tell them now work for your country, and retain all the value addition of our bulk tea exports, that used to enrich other traders, for the benefit of the country. Then it will be done.

However, if I go and tell them how to sell tea or how to brand it, and market it like I have done, they will say “very good” but they don’t know how to do it. They will get government officials to do it but they don’t have a clue. So the implementation is lacking.

Now our president is very keen on value addition, and he has referred to Dilmah several times, and I can give all the ideas, but who will implement them? Government servants can’t do it. If our value added exports are shipped as value added branded products, the income from our exports will immediately double, and in three or four years’ time they will be selling at three times the price. I know exactly what I’m talking about, and I do believe that it is the case.

Your legacy in the tea world is beyond comparison; however what is your future vision for Ceylon tea?

Well I’m surprised that our government and our plantation community have virtually written off the tea industry. It is an herbal product. It is the world’s most popular natural beverage, but we have written it off. In the correct hands, it will grow and grow and be more and more successful if it is handled well.

Now we are talking about COVID-19. The Chinese say they steam inhale four times a day, and drink four cups of tea a day. So we do not know how to cash in on those things. We do not know what effective advertising and promotion is. The people in charge of those things haven’t a clue about marketing, so that is our fate.

I’m not criticising anybody, I’m just saying the opportunities are there, but we do not know how to seize them and take advantage of them and turn those opportunities into cash. However, there are people who can do it and help the government, if they’re given the proper incentives and are allowed to do this without interference.

What kind of stumbling blocks did you have to face at the start?

When I started, even the government was against it, and not aware of what I was going to do. All the multinational companies had their representatives here. The big companies and multinationals at the time used their clout to tell the government that if my company starts exporting tea bags and value added teas, they will stop buying Ceylon Tea. So I was told this by Treasury officials, so I explained to them that the multinationals have already reduced their Ceylon Tea purchases, and they will progressively reduce Ceylon Tea in their packs.

For example, they were buying about 80 million pounds of tea in the 1970s and 80s. Today they buy about 20 million pounds when the prices drop, nothing more. So that was the trend. I saw it coming. The government officials also said, you can’t do this, because this may happen. I said, no, that will not happen and I fought my way through and I got it.

All our exporters turned against me. They published articles in the newspaper condemning me and at the end of it all, I gave the government ideas on how to add value and promote and advertise. I served on the Tea Board for some time and gave all the benefits and advantages, but as soon as I left they reversed all those things.

We are sitting on a gold mine with our produce, but we are not able to take advantage of what they offer. I have no doubt the President is working very hard towards value addition in our products. Yet he needs people with the knowledge and commitment to implement his vision.


What advice would you give to upcoming entrepreneurs?

An entrepreneur is someone who creates something out of nothing, but his vision and the commitment must be there. We have a programme in the MJF Charitable Foundation, the Small Entrepreneur Program, where we don’t fund anybody but we buy all the tools and machinery that they want even if its Rs.15 or Rs.20 million. You will not believe how those entrepreneurs have risen and developed their businesses, because the first thing is a young entrepreneur goes to a bank or development banks and asks for a Rs.1 million loan. For this, the bank asks for collateral. What can he mortgage? He has nothing to mortgage, so he doesn’t get the money and all that talent withers.

What I believe is that government should launch a fund managed by successful entrepreneurs. They will be able to identify viable business after talking to 10 people and provide the necessary support. That is the kind of support that is needed. I tell young entrepreneurs, aspiring entrepreneurs, whatever you do have 100% commitment. If you have no money, go to a bank or some other source, go to a friend or relative and make you case. Offer a shareholding in the company.

I could have never have grown the way I did in my initial stages the way I did, but luckily I met the Managing Director of National Grindlays Bank Mr. Glen Gash, he gave me millions of rupees without any security and guarantee. Never did he refuse to give me an overdraft. My first overdraft was Rs.400,000, then it went up to several millions. I was fortunate enough to get bankers who trusted me. I never provided a mortgage.

Therefore I started saving money, and in the last 25 years I have not borrowed a single cent from any bank. All my businesses are funded from our own capital. That is carefully planning for the future. I wish there was a body of four or five entrepreneurs, who can advise people, spend their time, teach others to start businesses and how to grow. Our business people are generally content with what they do.

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Hyper-leap to a vibrant equity market 3 1348

 

In this exclusive interview with BiZnomics Magazine, the Chairman of the Colombo Stock Exchange Mr.Dumith Fernando, discusses the digitalization of the Colombo Stock Market. He also touched on the future investment environment in Sri Lanka. Fernando is Chairman of the leading investment banking firm, Asia Securities Holdings Ltd, which he has led for the last six years. He also serves as a member of the Financial Stability Consultative Committee of the Central Bank of Sri Lanka. With 25 years of experience in international and Sri Lankan capital markets, Fernando spent much of his career in global financial centers in New York and Hong Kong with global banking giants JPMorgan Chase and Credit Suisse.

What role will the ‘hyper-leap to the future’ play in creating a vibrant equity market for Sri Lanka?  

The “hyper leap” to the future, what it refers to is the digitalization of the stock market. The Chairman of the Securities and Exchange Commission (SEC) called for a joint committee of the Colombo Stock Exchange (CSE) and SEC with the intent of digitalizing some of the core activities of market and market participants. The goal was to digitalize as many of the stakeholder touchpoints, enabling end to end connectivity electronically with interactive user interfaces and interactive user experiences so that the stock market can be accessible to anyone with a smartphone. Early on we converted a lot of the statements to electronic form, for instance, CDS statement is sent via email, and companies listed on the CSE were allowed to pay dividends directly into their shareholders’ accounts, electronically. In the second phase of the initiative, we introduced a mobile application. A CSE mobile app that allows anyone from anywhere in the country to open a stockbroking and Central Depository System (CDS) account without visiting a branch of a stockbroker physically. It helps broad-base the market and brings a lot more individual investors onto the market, which is a fundamental part of creating a vibrant equity market.

How has the market performed in the past few weeks?

The activity levels and market valuations have gone up considerably. In the past few years, after 2015, every single year the average daily turnover in the market was under a billion rupees. It was Rs. 710 million a day in 2019. Today we are probably doing over Rs. 1.5 billion of turnover per day. On the 14th of October, there was a turnover of Rs. 5 billion, and the number of actual trades in the market was the highest since 2011. Before the lockdown, there was very heavy foreign selling in particular, and when the market reopened for one or two days you had markets falling about 13 or 14%. From that time what we have witnessed is local investors, seeing very good value in the market and taking advantage of this opportunity.

How will the market face a second scenario?

The market was closed for about 7 or 8 weeks in March through mid-May, a big part of that was the lack of full confidence that trades could be settled, due to the trade settlement process. So with the current digitalization move, we’ve asked brokers to get on board as many of their customers for online settlement and online payment to bank accounts. This allows us to be much more confident about operating the market even during the unfortunate eventualities of a lockdown or a curfew. In terms of COVID management we have performed much better, the markets and companies are better prepared now to deal with the COVID situation. So that’s why I think even if there is a second wave of any sort, companies are much better prepared for that and we would expect to see companies and the stock market also performing in a much more resilient manner than before.

What role has interest rates played in boosting the market?

This was a fundamental catalyst for the share market performance. Since the reopening after the lockdown, there was a precipitous drop in interest rates. Interest rates falling has always been good news for equity markets for three reasons.

First for individual investors in particular, if you’ve been sitting on high-interest rate deposits for the last few years they might sometimes be getting double-digit returns on fixed deposits. That has now fallen considerably. For a lot of people, the return they are getting on their money from bank deposits is just not enough.

That has made them shift to the equity asset class particularly because valuations were so low by the end of the lockdown. Dividend yields in the equity markets are probably about 3% so that combined with the price appreciation that have been expecting will give them a better return. Secondly, when interest rates drop, the finance cost of listed companies go down,  and with that comes a boost in earnings.  This resulted in some of these particular companies being highly geared and a boost in their earnings, leading to their stocks performing quite well. Third impact will be for those who trade stocks on margin. Their margin interest cost also goes down, then they are in a better position to get into the market. There’s a high degree of confidence that you can make more money in the market than you pay in margin interest costs. That is also one of the positive impacts of low interest rates.

Will we be seeing more IPOs in the coming years?

When people come to the market to list, generally we would look at two or three different things. High valuation, high price to earnings multiples, and high price to book value multiples in the market. These factors would assure much greater investor engagement. Sentiment and confidence also plays a big role, because it’s not just a matter of placing your shares in the market, you want the share price to perform well. Now we’ve obviously gone through a period where markets have been somewhat challenged. Even as of last month the valuations of our market were the lowest among peer countries. That’s one of the reasons why I think a lot of companies in the last three years have not gone out for listing.

We want to see more companies tapping into the public share market to raise money; raise capital for their growth. With the COVID-19 lockdown I think there may be a number of companies who have survived on bank financing, some challenges of the COVID impact may mean that raising equity is the way out of any sort of balance sheet challenges. So we would expect to see some of those companies as well, now considering equity markets. State minister for capital markets Hon. Nivard Cabraal has challenged the CSE to look at getting to 500 listed companies in five years. We’re at about 300 at the moment and that 300 hasn’t really changed over the last few years. We have been having promotional campaigns and doing various things to get them to come into the market but we are definitely going to have to redouble our efforts to push towards some of those targets now.

What is the outlook for the Sri Lankan economy in the medium to long-term?

I’m generally positive. We should expect to go back to 5 percent or 5% plus growth as an economy. Even though there is a lot of noise around the current sovereign rating downgrade and international debt repayments I’ve never had doubts about our October bonds being repaid. I don’t have doubts about our July repayment. Clearly there are concerns and fears! I’m not trying to say that the future or the next year or two is going to be easy but, there’s a lot of free space between it being easy and not being able to repay debt and I think we will definitely find the middle ground in that space to do what we have done for all these years, which is, never default on a sovereign issue.

Outside of that we are in a very good position. There’s a lot of infrastructure investment that still needs to happen, the road network and the country being better connected, the two ports being expanded, the Hambanthota Airport now potentially getting more utilized, I think the logistics infrastructure is a fundamental necessity for economic growth and it is all falling into place. We’re also seeing potentially quite positive wins from some of the government focus to move towards local manufacturing. If you look at local manufacturing stocks on the exchange, they performed extremely well in the last few months

One sector that is seeing a bit of slowdown and will do so in the next 12 to 18 months will be the financial and banking sector in particular. But with other parts of the economy growing and strengthening the banking sector will pull through.

We don’t have the answers to when the tourism sector will bounce back, it’s not a massive part of our economy but contributes about 4-5 % of the economy. It’s a big foreign exchange earner and there are quite a few jobs that depend on it. There’s a lot of dependencies, not just economic dependencies, primarily health-related dependencies including travel bans been lifted, a vaccine for COVID, and treatments for COVID advancing. So there are number of things that are very hard to predict at this stage.

However we’ve seen exports bouncing back with about a billion dollars of exports a month, that run rate would make it possible to put us ahead of last year’s full year export number.

On the production and manufacturing side, I think we’re much better organized to operate even if there were a COVID second wave.

With that in mind, there will need to be much stronger capital formation across industries and that’s where we see a big opportunity for the Stock Exchange. With more companies raising capital through the CSE.  I am positive about our outlook! We have a game plan; we’ve been able to stabilize policy uncertainty which we had for the last few years, with a consistent government in place, good policy and solid public sector private sector engagement, I think we should get back to 5% plus growth.

Nanotechnology in Agriculture System 0 864

By: Chantal D.

Sources:  Agronomy

Agriculture is the backbone of most of the developing countries in which a major part of their income comes from agriculture sector and more than half of their population depends on it for their livelihood.  The current global population is nearly 7.7 billion with 50% living in Asia. A large proportion of those livings in developing countries face daily food shortages as a result of environmental impacts or political instability, while in the developed world there is a food surplus. For developing countries, the drive is to develop drought and pest-resistant crops which also maximize yield. In developed countries, the food industry is driven by consumer demand which is currently for the fresher and healthier food products.

Nanotechnology-Applications-in-Agriculture-System--BiZnomics-1

Specifically in agriculture, technical innovation is of importance with regard to addressing global challenges such s population growth, climate change and the limited availability of important plant nutrients such as phosphorus and potassium.

Nanotechnology has gained intense attention in the recent years due to its wide applications in several areas like medicine, medical drugs, catalysis, energy and materials. Those nanoparticles with small size to the large surface area (1-100nm) have several potential functions. These days, sustainable agriculture is needed. The development of nonchemical has appeared as promising agents for the plant growth, fertilizers and pesticides. In recent years, the use of Nano materials’ has been considered as the alternative solution to control pant pests including insects, fungi and weeds.

Nanotechnology-Applications-in-Agriculture-System--BiZnomics-4

Despite these potential advantages, the agricultural sector is still comparably marginal and has not yet made it to the market to any larger extent in comparison with other sectors of nanotechnology application.

Nanotechnology helps agricultural sciences and reduce environmental pollution of pesticides and chemical fertilizers by using the nano particles and nano capsules with the ability control or delayed delivery, absorption and more effective and environmentally friendly and production of nano -crystals  to increase the efficiency of pesticides for application of pesticides with lower dose.

In the agricultural sector, nanotech research and development is likely to facilitate and frame the next stage of development of genetically modified crops, animal products inputs, chemical pesticides and precision farming techniques. The use of nanotechnology in agriculture has been mostly theoretical but it has begun and will continue to have a significant effect in the main areas of the food industry development of new functional materials, product development and design of methods and instrumentation for food safety and bio-security.

Cont..

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