The information obtained from the study justifies the need for convenient involvement to improve the Smallholder tea producers.The research is of importance in contributing information on policy is issues in smallholder tea production and the provides areas for research to en-hence smallholders role in the the growth of tea industry. In additional, the information generated from the study can be used by the building up a tea small holders community with an economic and social sustainability. The study helps in the provision of information that the government can use in the formulation of management policies on tea production and other key organizations in the tea industry to identify the factors influencing sustainability of smallholders in tea production in the sub – sector.1:8 Operational identificationSustainability:Promoting farming practices and methods that are profitable, environmentally sound and good for communities. It rewards the true values of the producers and their products.it is economically variable improves the quantity of life of farmers.some sustainability practice are already implemented at a broad scale like the best plucking frequency.Smallholding : The term smallholding is defined as a farm ranging between less than 20 hectares of Land(Sri Lanka 2010 and2014. the term also refers to a small- scale farm in the research).Tea production : Refers o the weighed tea produced by the smallholder tea farmers.Growth : It refers to a positive change or an increase in size or volume often over a period of time.Challenges : This refers to the difficulties that are encountered in the process of performing a duty.1.10Limitations of the StudyThe study focused its investigation on the smallholders participating in tea production in Sri Lanka . The research specifically targeted the smallholders that were sampled for the study.these were the smallholders that supply tea leaves to import.The research was limited by the willingness of the participants to freely engage in the study and provide detailed personalized information. Even in situations were they did agree to provide the information.CHAPTER 2: LITERATURE REVIEWThis chapter discusses the reviewed literature relevant to smallholder tea production. The reviewed literature is sourced from various studies that have been conducted on smallholder production tea production in Sri Lanka.2.1Concept of smallholder tea production Tea is produced in several countries across the world, the status and health of the tea sector for some countries has major macro-economic implications(Report of the Presidential Commission on the tea industry and trade, 1995). Tea production for countries such as Sri Lanka,China, Kenya and Vietnam, In Sri Lanka, which is the one of the world’s leading tea exporter, with more than 400,000smallholders, the sub sector contitutes about 64% of total area under tea and 76% of total production.(Tea Small Holdings Development Authority- 2017)The main challenges in the smallholder tea sub sector include: low farm gate prices; poor extension services; limited marketing channels; poor access to credit and low level of farmers’ organization (TSDA). The Tea Small Holdings Development Authority (TSHDA) was established in 1977 to promote and develop the tea smallholdings in Sri Lanka. The Purpose of the established foundation is to develop tea small holdings, raise Production of tea, increase Productivity, promoting of tea leaves and finding a way to the prosperity of the tea Small holders. Its functions include extension interventions; land development interventions; and social development interventions. Specifically these are:to improve the productivity and quality of tea grown by the smallholders.provide fertilizer on credit with easy payment terms, assist smallholders in obtaining quality planting material through tea nurseries .Tea smallholdings Development societies started from year 1989 are a group of statutory foundations(Tea Board – 1995) Under this general public system furnished with eight regional associations and the all island society Organization, Under the program to register small holding tea land launched in joint effort of Sri Lanka Tea Board. In Sri Lanka. Within the tea sector in Sri Lanka the smallholders’ sub-sector is an important segment world-wide. 2.2 Government aid and policy directions towards smallholder Tea industryThe demand for Sri Lankan tea has increased; motivating the private sector can meet the supply for them.The government intervention to auctions of teas from the Sri Lanka tea board was an excellent work to build confidence of the buyers(Sri Lanka Tea Board).Sri Lanka tried to bind the monetary policy from 2007 to face the recession but the sterilization in outflow of the Central bank high interest rates helped to decrease in the inflation and contributed to loosen the monetary policy(Central bank 2nd quarter Mid Report- 2017).Loosening the fiscal policy can increase the credit demand of private sector and can invest on credits, saying that having an exit policy to government will contribute to the growth of private sector(Mohamad – 2004)Sri Lanka has pointed out that this concern rationalized the diverse government policies on tax and subsidies, public research and extension and government investment in infrastructure development. The country relies heavily on agriculture as a primary source of economic surplus. The government of Sri Lanka has followed wide range of policies on agriculture from the independence in 1948 (Wadasinghe-1995). This part of the paper discusses various government policies for tea industry.Taxes and SubsidiesLike any other agricultural commodity, government taxes tea industry directly and indirectly. Taxation on the tea industry was designed to reallocate gross revenue within the country on the basis of government social priorities. The tax scheme imposed on tea industry was developed prior to the nationalization when the tea lands were predominantly owned by a non-national private sector. High level of negative protection or taxation averaging more than 20 % is reported for tea.World Bank has reported above 50 % tax rate Sri Lanka tea industry for late 1970’s and averaged 35% for the decade (World Development Report, 1986). Tea export taxes were abolished in 1992 to make Sri Lanka tea more competitive in the global markets (Sri Lanka Tea Board, 1994).Today, the only remaining commodity tax on tea producers pay for the government’s financing of beneficial activities for the industry; research and development, tea promotion and subsidies.Marketing and PricingTea is being sold for years through the Colombo auctions. Tea producers, by law, are supposed to sell their product at the auction through the brokers, as government believes that there could be loss of income at long run in the absence of present system. Tea brokers charge 1% charge for their service. High transaction cost of participating for auction is prohibitive for small buyers. Further, few large multinationals control the market through local agents.(Central Bank of Sri Lanka-2016, Sri Lanka Tea Board-2016)The price paid for green leaf is critical on the production of small holder sector. The earnings of the small holders and their profit margins highly depend on the green leaf price that is the most important production incentive for the small holders. Government has introduced regulations since 1960’ (Mohamad, 2004) for setting prices for green leaf purchased from small holders.Under this regulation, green leaf processors are legally bound to pay certain percentage from the price realized for tea sold at the auction.Research, Extension and PromotionResearch and development need of the tea industry has identified long ago by setting up a 12 separate organization for research in 1927. The activities of the Tea Research Institute of Sri Lanka (TRI) are funded by mandatory contribution made by producers of the country. Tea research has provided information and ideas for the progress of the tea industry. Tea Export policiesThere are two different sectors in the tea industry, the plantation growers sector and the tea export sector. For political reasons, the government high ups require both these sectors to come up with a unified solution. The plantation sector is highly politicized, and approximately 70 % of the tea production is controlled by the smallholder farmers, depending on heavy subsidies in replanting, fertilizer and price guarantees. The government policy on the industry is primarily decided on the pacification of this sector, and all others are victims of unrealistic policies in a world driven by a market economy, based on supply and demand. The tea export sector is driven by private establishments without any handouts or subsidies from the government coffers and pay heavy taxes in terms, levies, service charges, and the revenue-based income to the IRD. 2.3 Economic Benefits on Sustainability of Smallholder Tea ProductionIn Sri Lanka, tea smallholders completely lack economic security. The smallholder tea sector provides an economically significant positive externality (or external economies) mostly to the tourism sector. The colonial heritage of tea and the unique taste of Tea provide additional incentives for tourists to choose Sri Lanka as a prime destination. The tea sector in turn can introduce pure Tea to tourists to initiate and develop a lasting desire for its tea. Tea lands can also be used for various other economic activities with external economies, such as dairy farming to supplement the income of the plantation and its workers. The tea sector also provides forward and backward linkages to a large number of other economic activities.2.4 The growth of the tea Industry and the role of smallholder tea industry and its contributionTea grows only in some parts of the world. Only about 50 countries grow tea, according to statistics published by the Food and Agriculture Organization of the United Nations (FAO) in 2017. However, 10 countries produce over 90% of world tea output, namely, China, India, Kenya, Sri Lanka, Vietnam and Turkey atc; Of these countries, In 1961, Sri Lanka produced a substantially larger amount of tea (206,000 metric tons) than China, which produced only 79,000 metric tons, and was only second to India. However, over the years, Sri Lanka’s growth was slow, and it fell back to the fourth position in global tea production. 2.4.1 The contribution of smallholder Tea industry to economic growthSri Lanka produced 307.7 kg million of black tea in 2017 and the production of the tea small holdings was 232.00 million kilos, about 75.4% of total nation black tea production(Small-holding Tea development authority).The maximum production so far reported in the tea small holding section is 328.96 million kilos, which was in year 2015 and the maximum output of the national tea production was 340.02 million kilos which was reported in year 2013. The tea production in year 2016 faced a special backdrop due to unfavourable weather conditions. A backdrop of 11% has been reported compared to year 2015 and the production of the tea small holdings was decreased by 9%.However, the contribution to the national production has been improved and it has come to a level of 72.07% as at year 2016.2:4:1:1 Main challenges facing Sri Lanka’s tea smallholder industrySri Lanka has the ability to maintain a healthy production level, though it may not be able to compete in terms of production quantity with other players, who are better endowed to increase production levels. Thus, major challenges facing Sri Lanka are keeping up a healthy production level, maintaining the high quality, and raising unit price while cutting costs of production. The above challenges can be met by taking a series of critical measures, which include developing natural resources and human capital needed for the industry, developing physical infrastructure, maintaining sound macroeconomic policies, adopting appropriate trade policies, enhancing competitiveness, fostering a unique brand, integrating deeper in the global value chain, and befitting from external economies while overcoming external economies.