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From Plantations to Smallholder Production: The Role of Policy in the Reorganization of the Sri Lankan Tea Sector

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  • Herath, Deepananda
  • Weersink, Alfons

Abstract

Summary The Sri Lankan tea sector has changed from one dominated by vertically integrated plantations to one where independent processors of black tea purchase their input (green leaf tea) from small, independent growers. This paper provides a unifying conceptual framework to characterize three major factors affecting the changes in vertical coordination arrangements (transaction, production, and management costs). Regulation and government policy have altered these determinants of organizational change. Transaction costs have been reduced by state intervention into the price for green leaf which subsequently lowered the risk of processors re-negotiating prices downward. Production costs, which continue to be dominated by labor expenses due to the lack of technological developments for harvesting, have increased more for plantations than independent producers due to union pressures.

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  • Herath, Deepananda & Weersink, Alfons, 2009. "From Plantations to Smallholder Production: The Role of Policy in the Reorganization of the Sri Lankan Tea Sector," World Development, Elsevier, vol. 37(11), pages 1759-1772, November.
    • Handle: RePEc:eee:wdevel:v:37:y:2009:i:11:p:1759-1772
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    8. Perera, Devmali & Białkowski, Jędrzej & Bohl, Martin T., 2020. "Does the tea market require a futures contract? Evidence from the Sri Lankan tea market," Research in International Business and Finance, Elsevier, vol. 54(C).
    9. Gunathilaka, Rajapaksha P. D. & Smart, James C. R. & Fleming, Christopher M. & Hasan, Syezlin, 2018. "The impact of climate change on labour demand in the plantation sector: the case of tea production in Sri Lanka," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 62(3), July.
    10. Mohan, Sarah, 2016. "Institutional Change in Value Chains: Evidence from Tea in Nepal," World Development, Elsevier, vol. 78(C), pages 52-65.
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    12. R. P. Dayani Gunathilaka & James C. R. Smart & Christopher M. Fleming, 2017. "The impact of changing climate on perennial crops: the case of tea production in Sri Lanka," Climatic Change, Springer, vol. 140(3), pages 577-592, February.
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