A Silver lining in the dark clouds : stimulating economic growth by promoting tea-based radical innovations in Sri Lanka

Abstract

Introduction :

Scientific evidence has proved anti-viral, anti-carcinogenic and anti-diabetic properties in tea (Camellia sinensis) due to the presence of high levels of antioxidants (Modder et.al, 2002). However, the major tea producing countries including Sri Lanka paid less attention to such properties until the covid-19 pandemic hit the world boosting demand for black tea in Sri Lanka with a FOB price hike of 15%. In 2018, Sri Lanka was the third largest tea exporter in the world, accounting for 14.7% of total global tea exports. Nearly 60% of this tea was exported in primary processed bulk form. Bulk tea is sold at lower prices than value-added tea forms. For instance, in 2018, the average price of Sri Lankan bulk tea was 4.01 US$/kg, while the average prices for tea bags and tea packets were 8.18 US$/kg and 4.47 US$/kg respectively. During the last five years (2014-2018) Sri Lanka earned only 4.83 US$/kg, comparatively lower than non-tea producing countries such as Poland, which earned US$10.13/kg; Germany.US$9.55/kg; and the UK,US$7.18/kg). These developed nations were already capitalizing on producing tea-based innovations (e.g. confectionaries, tea wine, pharmaceuticals and cosmetics in Japan, Poland, Germany, and UK) using raw materials mostly imported from tea producing countries such as Sri Lanka (Koch et al., 2019). We see this as a missed opportunity for tea producing countries. Product innovations based on tea can be categorized basically into two types: 1) incremental innovations (e.g. - flavoring, bagging, packeting) and 2) radical innovations (tea concentrate, tea cordial, tea-based confectionary).

Innovation has two basic dynamic impacts; 1) make upward shift in the production function, and 2) increase economic efficiency for the industry as a whole due to creative destruction (Baumor 2002; as cited by Sengupta, 2014). This study is based on resource-based view of innovation (Lockett et al., 2001) and social cognitive factors of innovation (Wood et al., 1989). Empirical findings on determinants of radical innovations in food and beverage industry are mostly based on the US and Europe limiting the practical implementation to an industry in developing countries. Therefore, this study aims to contribute to minimize this research gap.