Independence

For Ceylon and for Merrill J Fernando

The tea industry was subject to absolute exploitation via regulations of the British dominated Colombo Tea Traders Association (CTTA), shipping cartels, freight rates fixed to make value added tea exports far too uncompetitive, and numerous other restrictions aimed at protecting vested interests. They were harmful to local traders as they placed severe restrictions on their progress. I could not accept many of these. I was identified as a rebel. As I was running my own small business, I was the victim of all the rules and regulations which only benefited foreign trade interests. I created awareness of them by recording my protest fearlessly. It was during this period that I acquired trading disciplines, knowledge and experience about tea and the industry, its weaknesses and shortcomings that the trade and government failed to recognise. Merrill J Fernando

Although Ceylon gained its independence from the British in 1948, the tea industry continued along much the same path as before. Roughly two thirds of the sector was owned and controlled by sterling companies based in the UK and, as well as the actual growing and manufacturing of tea, the majority of the related activities of buying and selling, storing, shipping, blending, packing, banking, insurance and retailing were in British hands. Several of the largest tea companies (Brooke Bond, the Co-operative Wholesale Society, Lipton, etc.) now had interests

in the island’s tea industry and the structures had changed very little since the first Ceylon tea was exported to London 75 years before. Tea was the backbone of the country’s economy and provided, both directly and indirectly, employment for almost a million people. It was the largest earner of foreign exchange. But with the trade still in the hands of foreign, mainly British owners and investors, the profits from the tea industry were reaching bank accounts and pockets outside Sri Lanka rather than benefiting the newly independent country. And this continued well into the 1960s and inhibited essential changes in the Ceylonese economy. In their determination to keep control for themselves and with the usual arrogance displayed in so many similar colonial situations, the British tea planters had run their business rather like a club with limited membership. No Ceylonese had ever been allowed to train as a tea taster. Those jobs were for ‘members’ only! The locals were allowed to work as recruitment agents or factory managers but, despite persistent requests by the Ceylon government to the foreign companies to train local tea professionals, the skilled jobs were closely and jealously guarded.

However, it must be remembered at this stage that some local planters had been active, alongside the British and other foreign investors, in buying land and in developing Ceylonese-owned tea estates – particularly in the low country. While the British had focused their energies on the higher regions, the locals had concentrated on the coastal areas where rubber and coconuts were grown alongside tea. Indeed, it has been suggested that without the early pioneering work of those enterprising local planters, the important lower altitude areas of the island may well never have been developed agriculturally. To represent the interests of these local tea producers, the Low-country Products Association was formed in 1909 by Ceylonese planters and businessmen and included amongst its members the man who was to become the first Prime Minister of Sri Lanka, Don S Senanayake. So, although the majority of the industry was owned and controlled from London, it was not unheard of for Ceylonese businessmen to also be involved and to be very successful.

During the lead up to Independence, there was a growing understanding in Ceylon of the way in which colonial powers controlled their underdeveloped colonies both politically and financially, and an increased awareness of how the world in general, and Ceylon in particular, was divided into ‘haves and have-nots’. Independence brought a series of policies that aimed to ‘Ceylonise’ employment, ownership of land, trades unions, banking and investment, but continuing foreign involvement in the plantation industry hampered this. Some of the local elite clung to the British ways, maintained established systems and perpetuated colonial attitudes. But a few of the newly independent Ceylonese knew that the economy of the island depended largely on the plantation sector and recognised the dangers of a prolonged dependence on the London market. They understood that the basic structures set in place by the British had to change if Ceylon was to be allowed to develop as a truly independent state. One of those new Ceylonese was Merrill J Fernando.

As a young man in newly independent Sri Lanka, Merrill knew that he could not expect life in the tea trade to be easy. He knew that he would have to develop a new strategy if he was to break into a world that had a long history as a British institution; he understood clearly that new approaches and smart techniques would be needed and that risks would have to be taken; he also knew that he must stick unwaveringly to his principles.

MJF Starts Trading

Born in May 1930, Merrill was just finishing his education as Ceylon was gaining independence. He had developed an interest in the tea industry, was determined to make this his profession and, when in 1950 the then Tea Commissioner, Mr P Saravanamuttu, eventually persuaded the British to train young Ceylonese tea tasters, Merrill joined the first group of six apprentices. To support himself during this training period, he established a small local business supplying bulk tea to retail shops and restaurants in and around his home town of Negombo. He purchased his supplies from North Meddeloya Estates, owned by his good friend and wonderful person, the late K R Mathavan, with the help of their mutual friend, Michael de Silva. He also bought from private auctions. He paid around Rs 2.00 per pound for his purchases and made profits of about 20 cents a pound to pay off the instalments on a brand new Morris Minor car. His marketing strategy – and it is one that has underpinned his career in tea – was to only sell carefully selected, good quality tea and to stress its freshness

and quality to his customers. Clients in those early trading days quickly switched from the more ordinary teas they had previously been buying to the reliable and consistently high quality teas offered by Merrill.

Despite having successfully completed his training as a tea taster, despite his early financial achievements and his very useful experience in the trading of tea, and despite Sri Lanka now being in control of its own destiny, Merrill could not find a way into the British-controlled tea industry. It was still closed to locals. Instead he took a job with an American petroleum company but continued to look for an opening in tea. Finally he was offered a job with A F Jones, a British, family-owned tea company, who took him on as a tea taster. A year in London, during which he trained with tea wholesalers, Joseph Travers & Sons, gave Merrill a thorough understanding of what happened to tea from different origins once it arrived in the London warehouses. He discovered how price counted for everything, how quality had subsequently dropped and how cheap teas from several origins were blended together but then marketed to an unsuspecting public as single origin teas as, for example, ‘pure Ceylon’ or ‘pure Darjeeling’. He recognised that if the major packers and blenders were so strongly influenced by price, the future of the Ceylon tea industry was at risk, for those large, influential companies would and could easily source cheaper teas from other producing regions such as Africa and Indonesia, and turn their backs on quality Ceylon teas. And so, Merrill decided that his approach, the approach of the Ceylon tea industry and the methods of marketing and selling Ceylon tea would have to change radically if the island’s tea industry was to survive. But, over the years that followed, Merrill had to contend not simply with outmoded systems within the trade, and with shifts in world markets and consumption patterns, but with major political changes within Sri Lanka itself.

A year in London, during which he trained with tea wholesalers, Joseph Travers & Sons, gave Merrill a thorough understanding of what happened to tea from different origins once it arrived in the London warehouses. He discovered how price counted for everything, how quality had subsequently dropped and how cheap teas from several origins were blended together...

It was common practice in my small business to ship out over the weekend most of the tea I had purchased at the Tuesday auction. Such service was unknown in the trade but my employees believed it was the right way to do things and performed their duties as if they were working for themselves. Such was their loyalty and dedication that they helped me to establish a very strong, successful business. They shared the stress and pressure of work and every one of them performed well above and beyond the call of duty. We cared and we shared!

Changing the Systems

After his year’s training in London, Merrill returned to Colombo in 1955 and continued his employment with A F Jones. In 1958, he was made a director and when his British colleagues decided to pull out of Sri Lanka and return to London, he was able to buy the company with two friends. In 1960, he became Managing Director and expanded the company’s business selling bulk teas, breaking into new markets, while increasing exports to existing markets. A F Jones had for many years enjoyed strong business links with Iran, Iraq and Libya while developing good exports to the UK, USA, Japan, Hong Kong and South America. Their weekly orders were promptly and efficiently shipped out.

The company’s reliability, emphasis on quality and attention to detail meant that it grew at a time when others were struggling to retain their customers. Indeed, some of the multinational companies, with their own offices in Colombo, often purchased substantial quantities of bulk tea from A F Jones, as Merrill explained: “I was singularly fortunate in breaking into major international packers and blenders directly or via agents, despite the fact that they operated their own offices or had exclusive agents in Ceylon to service their business. Understandably, this made me very unpopular with those who were affected by my activity.” But those companies liked working with Merrill and his team simply because they were helpful and efficient. “It was common practice in my small business to ship out over the weekend most of the tea I had purchased at the Tuesday auction. Such service was unknown in the trade but my employees believed it was the right way to do things and performed their duties as if they were working for themselves. Such was their loyalty and dedication that they helped me to establish a very strong, successful business. They shared the stress and pressure of work and every one of them performed well above and beyond the call of duty. We cared and we shared!” Merrill took risks that the older established companies were never prepared to take and this sometimes caused him problems but, despite criticism and efforts by some competitors to discredit him, he stuck to his principles and proved himself to be a shrewd and determined trader.

Merrill also managed to develop a very good working relationship with the Russians soon after the establishment of diplomatic relations between Sri Lanka and the USSR. The Russian Embassy was

established in Colombo in 1957, and in 1958 Merrill was invited to assist the Russian Trade Commissioner and a tea taster from the commercial division of the Embassy to set up a Tea Tasting laboratory prior to their entry into the tea auctions. Once this had been achieved, almost every company in Colombo tried to win the contract to supply tea to Russia, but it was A F Jones that was awarded the business and Merrill considers this to have been his greatest achievement in the bulk tea business. An exclusive deal made him the first to export tea to Russia since ties had been severed between Ceylon and the Bolsheviks in 1917 and Russia has continued to be a very important part of Merrill’s business operations. His close friend, the late Senator Sarath Wijesinghe, Deputy Finance Minister and a very prominent businessman, and the late Senator S Nadesaan, a well known lawyer, were largely instrumental in securing this business.

In 1962, following a dispute with one of his partners, he walked out of a Board meeting and quit A F Jones, leaving his investments and some funds behind. That experience taught him the greatest lesson of his early business career. He pondered for a while and then returned to his favourite hobby – selling tea! To assist him, his good friend, the late S I Jaferjee, very kindly offered the use of the facilities of his family’s

company. S I Jafergee and his brothers were all extremely kind and Merrill remains very grateful for their assistance in his hour of need. Two years later, Merrill moved into his own premises and established his own business under the name Merrill J Fernando Co. Ltd. Through his determination to prove that a Ceylonese Tea company could succeed, and by judiciously using the goodwill shown him by a few important public officials who understood his mission, his new company began to grow in strength and he clung to his dream of building a brand name of his own.

Merrill began to consider the possibility of packaging ‘value added’ teas in Colombo rather than simply exporting chests of bulk tea. Up to now, all the teas exported from Ceylon, India and other tea producing countries were shipped in bulk to the consuming countries where they were blended, packed, branded, retailed and sometimes re-exported. If the raw material was readily available at lower prices elsewhere, he knew that the buyers would easily switch allegiance to other origins. Some of the largest of the British tea companies already had interests

in Africa and would not continue to purchase from Ceylon if prices were high. With supermarkets growing in influence and small family shops beginning to disappear, the price of tea was dropping even further as stores offered cheap products such as tea as loss leaders. And, even though consumers were still buying what they thought was ‘Ceylon’ tea, the blend in the packet was far more likely to contain other teas from other origins such as Africa, Indonesia, China and India. Merrill understood that if Ceylon tea producers simply went on offering bulk teas that were expensive, gradually they would find that they could not sell their teas and their industry would collapse. The drift towards mass market commodity tea had begun and quality was beginning to fade away.

The answer, he thought, was not to continue selling chests of bulk loose teas but to also start packaging high quality, 100% pure tea at the source and to export the value added tea in packets that were ready to stack on the supermarket shelf. As he had customers in Australia who were interested in importing packaged tea, he decided to press ahead with the project. But the freight charge on packeted tea was 15 cents per pound higher than on bulk teas and any profit in sales would be absorbed by the higher fright costs and this was a deterrent to developing value addition to tea in Ceylon. So he went to see the Minister of Trade and Commerce, Hugh Fernando (who had taught Merrill at school and was now in the government) and urged him to appeal to the shipping cartels to reduce the rate. The Minister knew that the shipping companies would drag their feet and perhaps never agree to a reduction. Instead, he agreed to reduce the export duty on value added packets by 15 cents in the pound. The Colombo Tea Traders’ Association and the shipping companies (working together to protect their own vested interest) immediately raised the freight rate by a further 15 cents per pound, thus forcing Merrill to abandon his plans to pack Ceylon teas at source. But he did not give up. He simply bided his time. “My failure to correct the freight rate imbalance inspired me to look seriously at moving away from bulk teas to value added teas – this became my dream. I committed myself to developing a suitable infrastructure for value added exports.”

Control of the Shipping Lines

But Merrill had to endure other injustices and imbalances. His spat with the shipping companies highlighted the way in which the old systems continued to allow an unfair advantage to British or foreign owned companies and worked against Ceylonese enterprise. The British companies still controlled the shipping of tea very tightly and Ceylon’s own shipping lines were not permitted to carry any tea at all. Ceylon was exporting between 70 and 80 million kilos of tea direct to the London auctions every year and every single gram of it had to be carried on ships owned and run by the UK Ceylon Shipping Conference. Ships on the outward journey took tea and other produce to Britain, and ships sailing back to Colombo brought plantation supplies such as fertiliser and machinery. These conferences had been formed during colonial days and prevented other companies from trading, not just in Ceylon but in other countries too. The Ceylon Shipping Lines, with the Ceylon government as the major shareholder, simply could not carry Ceylon’s own tea. In order to research the situation further, the government set up the Ceylon Shipping Enquiry Commission in 1958 but the Ceylonese members of the group could not agree with the foreign experts (who, not surprisingly, reported that they felt that Ceylon was not yet economically stable enough to be able to support her own merchant fleet) and so the establishment of a Ceylonese Shipping Corporation was postponed until 1971. And, although the Ceylon Shipping Lines managed then to extend their business into ship-broking, they were still not allowed to carry tea.

Merrill was angered and frustrated by the fact that the government was listening more closely to ‘foreign experts’ than to local professionals and that the restrictive practices were holding local businesses back. “I was incensed at the plight of the national shipping line owning ships but not allowed to carry our own cargo because it was not a member of the Conference line. Repeated applications to join the Conference were turned down and we remained impotent. Finally the cartel was broken by a government official, the late P B Karandawela, Secretary, Ministry of Shipping, who had the courage to do something that should have been done years before.” Merrill made up his mind that the situation must change. He went back to Hugh Fernando, explained how serious the situation was and managed to gain the support of the Minister who subsequently ruled that all teas shipped to London must be carried by local shipping companies and not by the UK Ceylon Conference. It was a bold step and one that caused shock and outrage in both Sri Lanka and London. Other Ceylonese could not believe that Merrill, with the support of key politicians, was prepared to ‘upset the apple cart’, and many of his friends turned against him, convinced that this change would mean that Sri Lanka would no longer be able to export her tea. But Merrill was unmoved. To him it was utterly wrong that Ceylon’s ships were not allowed to carry Ceylon tea. And he was right to stay firm. In the end, the National Carrier was allowed to join the Conference and Ceylon tea continued to reach the international markets on Ceylon’s own ships.

Having won the shipping war once, Merrill took on the major shipping lines again later in the 1980s when his business with Australia was building. The only two Australian Ceylon Conference shipping lines authorised to carry tea were P & O and Nedlloyd and their ships did not sail on a regular basis. This meant that cargoes sat in expensive warehouses for anything up to three months, accumulating interest charges and, in the case of tea, losing freshness and quality. Merrill could not afford to have his tea sitting around for three months and his customers could not afford to wait – they wanted their deliveries every month. And while the international lines sat idle in port, he knew that vessels from the French shipping company, Messagerie Maritime, sailed through Colombo every fortnight on their way to Australia. But, not being part of the Conference, they carried no tea when they sailed out. Merrill knew that if the Australians could not get their tea from

Ceylon, they would buy more and more from Indonesia whose ports had regular sailings to all destinations in Australia.

The British remained unconcerned while Ceylon’s exports to Australia were dwindling. After a long fight, Messagerie Maritime vessels were permitted to load up to 250 tons on each sailing from Colombo. This should have helped the smaller companies like Merrill’s, but instead, the larger companies now booked the entire space on board Messagerie ships, thus shutting out the smaller companies. So, having done the groundwork and having successfully influenced the government and other bodies to change the rules and regulations, it was not Merrill who benefited but the big powerful companies. They would sometimes book their entire space allocation but then fail to use it at the last minute – too late for smaller consignments to be loaded. This was a game of tactics calculated to block the smaller local traders. But Merrill persisted, used his well wishers to prevail on shipping agencies to respect the needs of small shippers by allocating space on board for small consignments of 40 or 50 tons. As in all the situations where he saw injustice, Merrill simply refused to give in. He fought “tooth and nail” until the situation was resolved.

The Ceylonisation of the Ceylon Tea Trade

As a young trader with very strong views about the Ceylon tea industry and its future, it was inevitable that Merrill became actively involved in some of the trade bodies operating in Colombo. The Colombo Tea Traders’ Association (CTTA) had been created by the British in 1894 to protect the interests of both planters and exporters and, until the 1960s, remained heavily dominated by British interests. The Ceylonese traders had to accept this situation without making any attempt to change the balance of power.

The Colombo Tea Traders Association (CTTA) had been created by the British in 1894 to protect the interests of both planters and exporters and, until the 1960s, remained heavily dominated by British interests. The Ceylonese traders had to accept this situation without making any attempt to change the balance of power.

Two or three members, including Merrill, began to realise that things could not go on as they were for very much longer. The first rebellion came when the Muslim tea trading community requested that the tea auction be held back by a few hours so that its members might be free to fulfil their religious duties on the day of Ramadhan. The British refused the request and emotions ran high. A secret decision was taken among the non-British members to vote the CTTA committee out at the subsequent AGM, which preceded the election of a new committee. Two prominent members of the Muslim community in the trade, Abbas Akbarally and Amin Suby, convinced Merrill of the need to change the committee so they worked together to achieve this objective. Accordingly, a new committee was elected with majority control resting in the hands of local members. The chairman was replaced by Austin Perera of the Cooperative Tea Society, and all the European tea buyers (with the exception of Lipton, whose chairman George Willis was one person who appeared to appreciate local aspirations) were replaced by local buyers, including Merrill. He was invited to become Chairman but declined the honour. Abbas Akbarally also declined. Just as the Ceylon tea trade was learning to take charge of its own affairs, so the Associations and Committees that governed it were also maturing and becoming more independent. But the new controlling group had to take care. Behind the scenes, the plantation owners with tea to sell went on calculating and manoeuvring to regain some of their lost power. In 1969, an unusually large number of plantation companies in the Whittals Group applied for membership to the CTTA and Merrill, being the most outspoken of the existing members, objected. He pointed out that the producers’ interests were well looked after by the Planters’ Association and, although the CTTA had been established to protect both buyers and sellers, it would be unacceptable to allow the membership to number more sellers than buyers. The vote backed his view unanimously and so the locals won. George Willis, CTTA Chairman at the time, understood Merrill’s point of view and held with him.

Merrill was not the only vocal member of the CTTA but his determination and continued pressure certainly made others aware of the importance of an independent tea trade as well as an independent nation.

From Independence to Nationalisation

After Independence, the tea industry carried on much as before but, lingering in the background was the threat of future nationalisation of the tea estates. This meant that British plantation companies started to divert their financial interests elsewhere (mainly to Africa) or, if they were still involved in the island’s tea industry, they invested little and allowed estates and factories to stagnate. Some sterling companies sold out to new local owners and some of the large estates were split up and sold as smaller gardens, but, with a lack of continuity of ownership and management, tea yields, efficiency and production levels all suffered. Although the Ceylonese government had started to nationalise other industries, the tea sector was left alone because the government did not want to alienate British goodwill or scupper the possibility of loans. And so the trade continued much as before, with little thought to the future, and when the nationalisation of the plantations started in 1971, tea bushes on at least two thirds of the estates were neglected, buildings run down and the standard of workers living conditions well below what was considered acceptable.

In 1972, Ceylon became a Republic and took the new name of Sri Lanka, but the Ceylon tea industry was allowed to keep its old name for marketing and publicity purposes. Up to this point, despite Independence, the tea industry was still run by British-owned ‘agency houses’. Under this system, British tea companies had an agency house in London and another in Colombo, and the plantation managers managed the labour on the tea estates, the Colombo agency managed the plantations and the London agency managed the company. The Agency houses also exercised a great deal of control over warehousing, shipping, insurance and the marketing of tea, and were, of course, resisting nationalisation of the plantations. A study carried out by the Commission of Inquiry from 1971 to 1974 under the United Front government concluded that this was working against Sri Lankan interests and reported that they felt the agency houses and tea broking companies should be closed down.

The Commission’s chapter on Exporting Activities of Agency Houses wrote, “The observation has been made more than once in

this Report that the trading profits available to Sri Lanka and to other developing countries from the export of commodities like tea, rubber, coconut and other agricultural products, are limited by price movements and the fluctuations of exchange rates over which these countries have little control.... there are several possible causes that can lead to this situation”. Some of those causes were listed as “competition among local exporters which enables importers to keep the export prices low; the sales contracts or agreements having conditions that they preserve the buyers interests to the detriment of the sellers; the currency of invoicing as well as the carrier being determined by the buyer; the timing of contracts, purchases, shipments and payments being at the buyers’ choice instead of the exporters”. These were all matters that had preoccupied Merrill and which he had worked vigorously to change and figures published in the Commission’s Report demonstrate how successful he had been in combating the negative effects of the Agency House system. The Report includes a list showing the “outcome of exports made in 1970 by local branches of companies incorporated abroad, Agency Houses and their associates and some other exporters”, and shows how results varied. Companies wholly listed abroad obtained large profits with net profits on turnover of 9 cents per lb. Most Ceylon-based companies and Agency houses earned smaller profits with net average profits per lb ranging from 0.001 cent to only 2.2 cents (or they sustained a loss), whereas Merrill J Fernando & Co., a private liability company with Sri Lanka nationals as its shareholders obtained a large profit and a net profit on turnover of 8.2 cents per lb. The Report went on to clarify that, “the profits generated by the transactions of the Sri Lanka company belong to the parent company.” This guaranteed that profits inevitably left the country. But, despite its findings, the Commission did not recommend that any British owned companies should be nationalised.

Prior to this, in 1971, the government had already introduced a Land Reform Act which imposed a limit of 50 acres per person as the maximum area of agricultural land that any individual was permitted to own. All land above that amount was taken over by the government and compensation was eventually paid to the previous owner. In 1974, Merrill J Fernando lost the greater part of a plantation that he owned.

A second wave of the takeover of land by the state took place in 1975 and, as a result of this five year programme of land reform, the ownership and management of the plantation sector completely changed. British control of the tea sector was finally broken and the larger tea estates were put under the control of two newly established government bodies, Sri Lanka State Plantation Corporation (SLSPC) and Janatha Estate Development Board (JEDB). By 1990, the government owned 502 estates ranging in size from 150 hectares to 1,000 hectares. These were almost all managed by the SLSPC or the JEDB and produced roughly 65% of all Sri Lanka’s tea. But the long-term effects of this arrangement were disastrous. With private ownership replaced by state management, all incentive and motivation was lost, productivity and performance fell dramatically and almost all the plantations ran at a loss. It was to take another 20 years to successfully restructure the plantation industry.

In 1990, the government appointed a task force to examine ways of reversing this downward trend and their findings, published in 1991, led to another major restructuring of the state-owned plantation sector. Carefully selected private sector companies were invited to take on the role of Managing Agents, originally on a 30-year contract. But the length of contract was suddenly reduced to 5 years which meant that banks and other financial organisations were unwilling to lend the necessary funds. Additional problems were caused by the political instability of forthcoming general elections in 1994, increased labour costs and falling tea prices. Since those days, an on-going programme has aimed to involve the private sector more and more in the management of the plantations while ownership remains in government hands. As a very successful company in the 1990s, Merrill J Fernando Co. Ltd. was invited to take on the management of one group of estates and his involvement has continued since those days. But he declined the offer of management in view of his other business commitments which began to demand more and more of his time. In an alliance with two of the plantation industry’s management companies, MJF Plantations Ltd. (a company within the MJF Group) today has significant financial interests in two groups of estates – Elpitiya Plantations Ltd. and Talawakelle Plantations Ltd. – and a controlling stake in a third group, Kahawatte Plantations Ltd.

Dilmah is Born

Meanwhile, despite all the political upheavals and the problems that the Ceylon tea trade was facing during this period, Merrill clung to his dream of creating a company that would sell 100% pure Ceylon tea packed at source. As the consumer was being offered lower and lower quality blended teas, Sri Lanka was beginning to feel the impact of reduced demand from the big packers and blenders. Exports from Sri Lanka dropped to such a low level that the government had to subsidise the industry in order to keep the plantations afloat. Over a period of 15 years or so, Merrill planned and calculated, waiting for the right time to push ahead with his revolutionary idea.

In 1975, with socialism, nationalisation and an ailing economy, life in Sri Lanka was hard. Industrial strikes and work stoppages added to the economic difficulties, food was running out and the country was on the brink of bankruptcy. Many professionals and intellectuals were leaving Sri Lanka for good and Merrill too walked away – from the tea business and, for seven months of travel, from the island.

At the time, his two sons, Dilhan and Malik, were still small and were considered by Merrill to be his greatest asset. So, in 1988, he crafted their two names into the name of the new brand and Dilmah was born! And, as Merrill himself says, both the packaging and the content had to be excellent because Dilmah was to be the third member of my family!

He was dispirited and depressed that he had fought through all those years for nothing. So he spent time travelling around the world, visiting friends, meeting business colleagues, explaining his reasons for giving up, but “not one of them agreed with my philosophy!” They argued with him, told him he had made a huge contribution to the tea industry, reminded him that he had helped many of them to develop their own businesses in various parts of the world, and impressed upon him that, as an entrepreneur and a man of vision, he must not quit. They made him realise that there was a great deal more that he could and should do for the tea trade and urged him to return to Sri Lanka and to the tea business.

He did indeed go back – but not with the intention of following their advice. And then, something happened that was to change his mind. He was involved in a car accident that left him unconscious for several hours, and with a few broken ribs and gashes to his head and his back. His friends told him that his car was a total wreck and that, as it seemed to be a miracle that he had survived, he should now devote his life to prayer and to the service of the poor and underprivileged – a thought that struck him very deeply and stayed with him. During his period of recovery, he realised that if he did not return to the tea trade, he would never have the opportunity to build his dream ‘value added’ business. He also realised that to be able to help the poor and underprivileged, he needed to build up funds and goodwill – and the best way to do that was to go back into the tea business.

In 1977, the introduction by the newly elected government of a free market economy in Sri Lanka and the removal of import and export exchange controls started to make things easier for him, although it was not all plain sailing. A free market economy means a period of evaluation of currency to encourage manufacture and exports. This inevitably brings misery and suffering to the poor and even to the middle classes, while the rich grow richer and accumulate yet more wealth. However, the economical climate was good for business and Merrill set up MJF Exports Ltd. which, continued to supply bulk teas to foreign customers. By now he was exporting over 220,000 chests of tea a year to Australia, Canada, the USA, New Zealand, South Africa and the UK and his direct and indirect customers included nearly all international brands. He was classed as the fourth largest exporter of tea in Sri Lanka and the business was continuing to grow because of the honest and reliable service he offered all his customers. He focused on the small details in every situation so that the wider, bigger things would follow naturally. He chose his teas very carefully, he travelled widely in order to meet his clients and develop a personal relationship with them, he advised them as to which tea and which type of leaf was best for their requirements, he helped them save money wherever possible and he always persuaded them to buy good quality tea.

But Merrill was still planning his move away from the export of bulk teas and towards establishing a company that packed and marketed pure Ceylon tea in branded packets. This had been his goal for a long time and his mind was made up that this was the only way to save the Ceylon tea trade and keep the profits in the country. His unceasing efforts to import two tea bagging machines failed. An import licence and foreign currency allocation were needed to purchase them and his applications were always rejected. On one occasion, a senior official pointed out that he was chasing a rainbow and argued that if Merrill could export value added tea, why were the big multinationals operating in the country not doing so! That was a foolish question but Merrill quietly pointed out that the multinationals only source raw bulk tea for value addition elsewhere. Not surprisingly, the official did not understand his point!

By now, the tea bag was beginning to take over from loose tea in the world market and so Merrill persuaded the Sri Lankan government to recognise the need to very generously extend support for the export of value added teas. Initially, he purchased two IMA bagging machines from Italy, installed them in a small factory of approximately 14,000 square feet, and secured the exclusive agency for the machines in Sri Lanka. He also secured the exclusive agencies of the leading suppliers of filter paper, tags, envelopes, wire and all other materials required for the manufacture of tea bags and he incorporated Package Care Ltd. to represent and service the local tea bagging industry when it got going. Package Care Ltd. became the leading supplier of packaging machinery and materials and still provides an important service to the packaging industry today.

At the start, tags and envelopes for tea bags had to be imported from Japan, were very expensive and took four weeks from the placing of an order to delivery. Merrill recognised an opportunity to produce them locally. He teamed up with his friend K R Ravindran and they jointly founded Printcare Ceylon Ltd in a garage sized space at Peliyagoda with three employees and an equal share each. This was a perfect partnership. Merrill knew his tea while Ravi had printing ink in his veins. Merrill in his foresight never interfered with the management and gave Ravi a complete free hand to develop the business and encouraged him to work with the rest of the tea trade. In due course they broad based the company inviting their friends (heavy weights in their own rights) to invest in the company. Printcare Plc is today the country’s largest printing and packaging company and is arguably, the world’s largest supplier of tags and envelopes for tea bags supplying nearly every major tea brand in the world including Lipton, Tetley and Twinings. It was listed in the Colombo stock exchange in 1995 with a sizable float amongst the general public.

In 1982, Merrill was persuaded by his friends in government to take the company public since there was not one single public listed tea company. In return, he was offered tax free status for a ten year period and this was quite an attractive and tempting proposition. So Ceylon Tea Services Limited floated 20% of its stock on the Colombo stock exchange and was oversubscribed within 7 hours. Its performance since then proves that value added exports are the answer to the elimination of poverty! Today, Ceylon Tea Services Ltd markets tea to 90 countries around the world, is No 22 in rank and accounts for 0.86% of the Colombo Stock Exchange capitalisation. In the company’s 2008 Annual report, Merrill wrote to shareholders, “Your return on investment over a 27 year period has been remarkable. An investment of Rs10,000 on 1000 shares at the IPO has delivered Rs1,400,250 dividends up to 31st March 2008 and its current market value stands at Rs6,100,000. This is equivalent to an annual compound return of 34.9%. Your original purchase of 1,000 shares now stands at 20,000 via bonus issues. Tea is a very profitable business but unfortunately profits often go into the wrong pockets. In establishing a Sri Lankan owned brand, all the Company’s profits remain in our country and they are shared with our workers, the wider community and are reinvested in making tea a sustainable industry.”

As a major bulk tea supplier to Australia, Merrill had made many good business contacts there. Bill Bennett, who trained as a tea taster and blender at Heath & Co. in Colombo became one of his close and trusted friends. Bill worked with his father in their family company, H A Bennett & Sons, and later became its owner. He was the leading broker in tea and coffee and represented Merrill’s company, selling Merrill’s bulk teas to many of his customers. He also introduced Merrill to Jack Sholer and his brother Peter J Bennett who owned the Australian Tea & Coffee Company and operated a factory in Melbourne supplying private label tea and coffee to supermarkets. Peter and Jack were very different to Bill both in character and in their approach to business but they were good fun. Demand for tea bags was increasing rapidly and their factory was unable to cope so they turned to Merrill for help. That was Merrill’s great opportunity.

Merrill made a major breakthrough when he won the contract to pack ‘Farmland’ tea bags for G J Coles, the largest supermarket chain in Australia at that time, and so the tea bag business thrived and profits increased. Nearly all the other chains in Australia turned to Merrill for their house brands and he kept this business for years until generic tea replaced good tea in most house brands.

The time now seemed right to take the final step to achieving his long-term dream – to launch his own brand of 100% pure Ceylon tea packed in Ceylon and shipped out to the world ready to go straight onto the supermarket shelves. But what would he call this exciting new brand? At the time, his two sons, Dilhan and Malik, were still small and were considered by Merrill to be his “greatest asset”. So, in 1988, he crafted their two names into the name of the new brand and Dilmah was born! And, as Merrill himself says, “Both the packaging and the content had to be excellent because Dilmah was to be the third member of my family!”