Moving up the processing ladder in primary product exports: Sri Lanka's “value-added” tea industry
Source: Agricultural Economics, Volume 33, Number 3, November 2005 , pp. 341-350(10)
Governments in many developing countries, influenced by the experience of the East Asian newly industrialized countries, have adopted policies to enhance domestic processing of primary commodities as a tool for accelerating employment growth, export revenues, and development. Sri Lanka has traditionally exported tea in the form of bulk (commodity) teas, but “value-added” teas such as packaged teas, tea bags, etc., have expanded in recent years. This article examines factors affecting the processing of value-added tea products in Sri Lanka by modeling export supply behavior. Estimates of the long-run relationship and short-run dynamics of export supply are presented and discussed. The price of value-added tea relative to bulk tea, and industry capacity, are identified as the main determinants of export supply, while exchange rate changes have no discernible effect. The policy implications of the analysis for enhancing further expansion of such value-added teas are presented. These are of interest for both policy makers and development analysts. In particular, the reasons that undermine the effectiveness of exchange rate policy as an instrument to stimulate value addition of primary products have much relevance for similar developing countries.
Document Type: Research Article
Affiliations: 1: Agricultural Economics Division, Tea Research Institute, Talawakelle, Sri Lanka 2: Department of Economics, Melbourne University, Victoria 3010, Australia 3: Department of Economics and Finance, La Trobe University, Victoria 3086, Australia
Publication date: November 2005