Whither the plantation industry: Way forward?

Following is the address delivered by Mahendra Amarasuriya at the 158th Annual General Meeting of the Planters’ Association (PA). Amarasuriya is the former Chairman of Commercial Bank of Ceylon PLC and Planters Association of Ceylon and former Deputy Chairman Hayleys PLC and Talawakele Plantations PLC

The PA is one of the oldest institutions in Sri Lanka. It has represented the plantation industry for more than 150 years. During the British Raj, it was one of the most influential and dynamic institutions, greatly influencing the social, political, and economic activities in the country. In those days members of the PA were appointed to the legislative assembly and were able to directly influence political decisions.

With the State-imposed land reforms in the country in the ’70s, all plantation company lands were vested in the State and the activities of the PA were curtailed. If not for the dedicated efforts of a few senior planters like the late Sepala Illangakoon and others, it could have died a natural death.

In the ’90s, the nationalisation process was reversed to a great extent by the Government going ahead by allocating by a public tender newly-formed plantation companies to the private sector for management. Many companies which had managed plantations earlier and new entrants tendered for the 22 companies on offer.

The PA activities were revived and it now plays an important supporting role to the industry.

According to your Annual Report, the total extent of the major crops handled under the management of the PA membership is as follows [approx]:

Tea: 91,000 ha

Rubber: 49,000 ha

Coconut and other products: 40,000 ha

In percentage terms tea accounts for 51%, rubber 27%, and coconut and other crops 22%. In tea this represents 41% and rubber 38% of the estimated national extent of Rs. 127,000 ha.

When considering the PA, the importance of the above crops to the members is perhaps in the reverse order to what is depicted above.

Coconut

Only two plantation companies have substantial extents of coconut. Coconut however is socially, economically, and politically very sensitive. Despite the strong anti-coconut lobby on the basis that although coconut is a vegetable oil it contains saturated fats and can contribute to enhance cholesterol levels in the blood, coconut consumption by Sri Lankans has not declined.

On the one hand there is a natural population increase and thus greater consumption; on the other hand, new housing and construction results in uprooting many coconut trees without any replacement of the trees thus removed.

The only organised attempt at new planting of coconut on a substantial scale has taken place due to the initiative of the DC Millers Associations, through a new company, Mahaweli Coconut Plantations, which has planted 1,500 acres under drip irrigation on Mahaweli land. Originally the intention was to have the entire extent under drip irrigation and they got a special subsidy from the Government for investing in drip irrigation equipment.

As the plants matured, drip irrigation was insufficient to provide a minimum of 60 litres of water a tree per day, which according to them was the requirement of a mature plant. Then they resorted to flood irrigation as water was freely available. During the last year they harvested three million nuts, which may not be that substantial at 2,000 nuts per acres. However, they anticipate harvesting five to six million nuts this year, which will increase the yield to 3,000 to 4,000 nuts per acre. This new plantation will provide three million new nuts.

Source of coconuts for the DC industry will therefore increase and also the total production in the country. I feel that a proper cost benefit analysis should be done to consider extension of such plantations as the capital expenditure on drip irrigation is substantial and in this particular plantation such costs were subsidised by the State. Furthermore, additional suitable extents of lands may not be available in the Mahaweli area.

Coconut crops generally depend on rainfall, which affects the next year’s crop. Of course without regular fertiliser application the full potential cannot be realised and levels of fertiliser applied will also depend on the price.

Export crops

Of the export crops like cinnamon, cloves, nutmeg, pepper, arecanut, cocoa, coffee and oil palm, perhaps cinnamon is the most important in relation to export earnings. An interesting development is the branding of Ceylon Cinnamon as a unique product. The uniqueness of Ceylon Cinnamon had not been exploited adequately earlier.

The EDB must be congratulated for establishing the brand’s uniqueness. Sri Lanka being the largest exporter of cinnamon in the world should be able to market cinnamon as a product rather than a commodity.

I am not aware as to whether the shortage of cinnamon peelers is still a constraint in the industry. I am aware of various mechanical devices being invented for peeling the bark and some producers are using these devices to overcome the shortage of peelers. I am not aware as to how effective the mechanical peeling is. However now that we are endeavouring to a export branded product, quality control is of the utmost importance

Oil palm

Oil palm appeared to be a good alternative to rubber as in Malaysia, Thailand, and Indonesia, when it was introduced to Sri Lanka. Quoting from your Chairman’s address at the last AGM, “It is unfortunate that the vast tracts of uncultivated land required to cultivate oil palm and justify the construction of a mill are not readily available in this country…”

Originally I believe oil palm was introduced as a replacement crop when rubber was in the doldrums. In recent years there has been resurgence in the rubber market and perhaps oil palm cultivation has receded to the background.

As far as the other crops are concerned, I will refer to the time later in my address in relation to the need for diversification of crops. It is however, interesting to note the export value of the spices sector at Rs. 20.25 b is higher than the export earnings of rubber and coconut respectively.

Rubber

Rubber has enjoyed a boom during the last few years. In 2011 all grades reached record levels but began to decline in the fourth quarter. Latex crepe, which recorded an unprecedented peak of Rs. 627 in the first half, tumbled to Rs. 417 by the fourth quarter.

Good weather and better fertiliser application by producers increased production to 158 m kgs, probably the highest recorded in Sri Lanka in recent times. When considering the fact that Sri Lanka’s rubber production was less than 100 m kgs and the average yield marginally over 1,000 kg/ha in 2003/04, it is a very significant increase directly related to better prices.

The national average yield was 1,552 kgs/ha in 2011, which is a tremendous increase. The corporate sector however fell behind with an average of 888 kgs. In comparison the Indian national yield was 1,885 kg/ha. India and Vietnam are projecting to reach 2,250 to 2,500 kgs/ha by 2021. Should not our corporate plantation sector study this issue in depth and come up with short-term and long-term solutions?

Historically there have been booms every 20 to 30 years. Unfortunately most booms are followed by busts. Fortunately local consumption has continued to increase, consuming over 70% of local production. Local demand will undoubtedly continue to increase.

We must appreciate the Government’s efforts to expand production to Monaragala and even to some north east locations. Growth maybe slower in such dry areas, but the greater number of tapping days available will compensate for the longer gestation period.

We still continue to export rubber as a commodity, except special products like latex crepe and pale crepe. There were some efforts made to manufacture a special technically-specified grade for the US market. I am not aware as to what happened to these initiatives. As long as we export commodities, we will be subject to the vagaries of the commodity market. Instead if we can export a special product to satisfy customer’s particular needs, we will be able to stabilise prices.

Tea

The tea plantation industry is facing yet another crisis. As mentioned in your Secretary General’s report, “Need for long-term planting to meet future challenges, climate change, shortage of workers, rising interest rates resulting in high cost of funds, and poor yields are some of the areas that need the attention of the research institutes with the necessary encouragement of the Government, which cannot ignore an industry that contributed Rs. 346.8 b to export earnings in 2011.”

These factors apply even more emphatically to the tea plantation industry, which earns around Rs. 170 b in export earnings, more so because tea is planted on the most fertile lands in the country. Basically the only answer is to increase productivity of all resources utilised by the industry.

Human resources

It is one of the most large scale labour intensive agricultural crops. I am not being critical and I appreciate political social and economic pressures that would have been applied during the last negotiation for wage increases, but a 27% increase is obviously totally unsustainable without a corresponding productivity increase.

The first collective agreement of 1998 revised the wage package to Rs. 101. Now the wage package is Rs. 515 per day, an increase of around 500%. Tea prices have undoubtedly increased, but not in the same proportion nor stabilised at profitable levels. It appears to be a never-ending battle to achieve economic viability.

The question is, how do we achieve an increase in human productivity? Dr. Dan Seevaratnam has stated that the human resource is the greatest wealth in the plantations. There are many challenges regarding the human resources. One of the most important is the retention of workers; the other is to increase their productivity.

Most children of plantation workers do not want to succeed their parents; they are better educated and aspire for white collar workers. Others even prefer manual work in a city rather than engage in a rigorous field job.

More plantation companies have endeavoured to improve the status of the workers by using a more dignified nomenclature to describe their workers such a ‘tapping technician’ instead of ‘tapper’ and ‘plucking assistant’ instead of ‘plucker’ and so on. What impact this has had is probably best known to the industry. It should however be extended to all levels of workers.

Regarding human productivity, there are many challenges. Firstly, until the crop yields are increased, one cannot expect workers to harvest more than what is potentially available in the fields. For instance, when Indian rubber tappers have fields yielding over 1,500 kgs/ha to tap, their productivity will exceed that of Sri Lankan tappers, who tap fields yielding around 900 kgs/ha in our plantation companies. The same prevails in the tea plantations with yields around 1,200 kgs to 1,300kg/ha. A need to replant vigorously is the obvious solution, but not easily achievable as indicated later.

Various types of mechanical tea plucking machines have been experimented with, giving mixed results, and at present do not appear to be a suitable alternative. However if the labour shortage becomes acute, the plantations will be compelled to rely on mechanical harvesting, maybe at the expense of quality.

I am not aware as to whether any electromechanical tapping techniques have being tried out by the Rubber Research Institute experimentally or in commercial applications. Presently, with good prices and good wage incentives, sufficient pluckers may be attracted to plantations. However, should the prices decline, there could be pressure on the ability to employ sufficient pluckers to meet the requirements.

As mentioned above, incentive wage packages have been used extensively for all crops with good results, but may not be applicable throughout the year.

Land productivity

Especially the tea plantations in Sri Lanka occupy the most fertile lands in the country, but fertility may have declined over the years. Since the management was taken over by the plantation companies, a more scientific method of fertiliser application on a replacement basis has been almost universally adopted, with soil and foliar analysis to decide on replacement basis rather than routine fertiliser application.

More than 10 years ago I can recall trials being carried out on drip irrigation of tea, which can be combined with fertiliser application then referred to as fertigation to facilitate optimum use of both water and soil requirements of the plants. However, I am not aware of any large-scale commercial use of drip irrigation.

The logical means of increasing productivity of plantations is replanting both in tea and rubber, where as the plantation companies have recorded average yields of only around 1,300kg/ha for tea and 900kg/ha for rubber. These yields perhaps can be doubled by replanting. However, the crux of the matter is whether it is viable to be carried out in plantations at present as the return on investments may not justify such an exercise. The gestation period for a new plantation of tea is around four years including rehabilitation of the land and in rubber it could be five to seven years. The investment required cannot be justified on the basis of present cash flows for tea. In rubber, however, it may perhaps be viable with the high prices prevailing and the fact that old rubber trees are marketable for various timber products or used as essential firewood.

There is a definite need for support from the Government for a concerted re-plantation program and every effort should be made as in the past to persuade the Government to subsidise the tea and rubber plantations in the corporate sector. It is my view that the plantation industry must compute objectively the cost of replanting that can be sustained and is viable and request the balance expenditure required from the Government to complete such a program. This would be a huge outlay on the part of the Government but considering the fact that unless replanting is carried out in a vigorous manner the industry will be unviable, the authorities concerned may be convinced of the dire need to support such a program.

Factory development

Considerable investments have been made in upgrading factories, but more effort must be made to automate every possible factory process in order to reduce labour employment with a view to reduce the cost of production. Many factories are following the 5S procedures and even embarking upon HACIP certification, but there is still room for further development

Research institutes

The reputation Sri Lanka had for excellence in both tea and rubber does not appear to be prevailing any longer due to a number of reasons. Due to Government control and bureaucracy, the outputs from the research institutes do not appear to meet the needs of the industry. Due to a variety of reasons, there are many vacancies in the heads of divisions of most of the research institutes and as such research work has been not directed to meet the needs of the industry.

Privatisation of these institutions may be the best answer, but it is not politically feasible. One alternative is perhaps for companies to fund special research projects directed towards meeting their particular needs and done in collaboration with the research institutes.

Tea hub vs Pure Ceylon Tea

The controversy regarding the need to import teas from other sources in order to blend with Pure Ceylon Tea and market in price competition with other teas in the market has been strongly advocated by the Ceylon Tea Traders Association (CCTA) and the Tea Exporters Association (TEA). The advocates of this strategy claim that this is the best way to market tea in the global tea market where competition from multinationals, which blend their tea in other destinations, is the solution for increasing tea exports from the country.

This controversy was also prevalent more than 10 years ago when I happened to be the Chairman of the Planters’ Association. We were able to resist the proponents of blending Ceylon Tea with cheaper teas for marketing at that time. Once again this demand has come to the forefront, may be due the marshalling of several diverse forces.

As late as 30 July 2011 the Island Financial Review reported under the subject ‘Tea Hub: Stalemate,’ and quoted the Minister of Plantation Industries: “a. The Ministry has not taken a decision; b. The decision will be only in consultation with the President; c. Unable to compromise smallholders.”

In the newspaper report it is stated that 70% of the national production came from tea smallholders who own less than half an acre. He has also stated: “Let me also make it very clear that I will not take any decision detrimental to the local industry by sacrificing their interest for a speculative objective of increasing foreign exchange earnings. Another point to remember is that there are 400,000 smallholder families accounting for 75% of production. This kind of huge population cannot be sacrificed for the sake of possible increases in foreign exchange earnings.” It therefore appears that any such decision will be given only after much deliberation.

On the other hand, the Secretary to the Treasury appears to be very much in favour of marketing Pure Ceylon Tea and has many times quoted the success story of ‘Dilmah,’ which has been the result of almost 25 years of effort by a pioneer, Merrill J. Fernando.

I cannot personally comprehend the purpose of reducing the quality of Pure Ceylon Tea in order to promote exports and also what benefit such a strategy would accrue to the plantation industry, which is a major stakeholder.

I can recall the formation of an umbrella body referred to as the Tea Association of Sri Lanka over 10 years ago to overlook the entire industry, which appears to have died an untimely death, perhaps pushed aside by the associations which generally call the tune in the tea export industry, the CCTA and the TEA.

Unfortunately, the tea producer is out of touch with the market with the tea exporters coming in between, unlike for instance in the garment industry, where although the producers are marketing their products to the consumers through intermediaries, they are far more in touch with the consumers and in a position to understand and meet their needs.

It is commonly stated that if you cannot fight them, you should join them; it may therefore be good to explore the possibility of plantation companies either investing in export companies by maybe a ‘share swap’ or purchasing export companies with direct investments as already done by certain plantation management companies very successfully.

The way forward

It is not for me, an outsider, to suggest to veterans in the plantation industry as to how they should move forward. All I can say is the oft-quoted ‘think outside the box’. However, let me put down some thoughts for your consideration.

The need to persuade the Government to invest in a subsidised replanting program. Since most effort made in this directions in recent times have not been successful, I suggest that the industry hires the services of a reputed institute like the Institute of Fundamental Studies to carry out an overall in-depth study of the industry to recommend short-term and long-term interventions. Dr. Saman Kelegama, I believe, is the ideal person to carry out such a study as he is very conversant with the plantation economy.

Incentivise the research institutes to perform more effectively, especially in the vital field of mechanical harvesting, increasing yields, and reducing gestation periods with faster growing clones.

Diversify cultivation of tea and rubber as much as possible by planting other crops like cinnamon, pepper, clove, nutmeg, arecanut, oil palm, etc., wherever agro climatic conditions are suitable.

Embark on tea tourism as the tourist industry has been given special emphasis by the Government.

Finally, I am making a revolutionary suggestion. That is to lease the cultivable land to the workers and be tea factory owners plus facilitators of good cultivation practices. This may be perceived as politically suicidal for any Government. It will also be resisted by all the trade unions as they will not be effective in their trade union activities when people are lease holders and cultivate their own lands. As you are well aware, this practice generally prevails in Kenya and is very successful.              

Footnotes

Since delivering this address at the PA AGM I received a letter dated 28 September 2012 addressed to me by Dr. I. Sarath B. Abeyasingha, the Director of the Tea Research Institute of Sri Lanka, under title ‘Research Institute takes flak at PA AGM’.

Quoting from his letter:

“As you may be aware, in Sri Lanka every one of the crop research institutes currently performs under severe constrains (i.e. both human and financial resources). In a situation where limited resources are available for research and development programs, well-focused and result-oriented programs are crucial in crop research institutes, where resources could be shared to address these concerns.”

He had forwarded to me a copy of the ‘Proceedings of the Fourth Symposium on Plantation Crop Research,’ which includes a collection of papers in various aspects of crop research, presented at this symposium.

I have not been able to go through the whole volume of research presented at the symposium. However, I would like to clarify my comments. I am aware of the extensive research done at our research institutes and accept their commitment to the plantation industry in Sri Lanka. I am also aware of the pioneering work done by TRI and the RRI in the days gone by when they were considered to be the most prestigious research institutes on tea and rubber. However, as a former plantation manager, I am of the view that it is the bottom line that matters.

When our productivity in terms of yield per hectare is below those of competing countries, we have not achieved the required benefits of the research. Many reasons can be given such as the senility of our tea plantations due to no replanting being undertaken in the recent times. We have to accept reality that the cost/benefit of replanting tea is negative. Therefore we have to find other means of either increasing productivity in the short term or going into possible alternative crops.

As far as rubber is concerned, a certain amount of replanting has taken place. Therefore, how can we justify an average yield of around 900kg per ha when our neighbours in Kerala with similar agro climatic conditions achieve yields over 1,500 kgs per ha? With regard to coconut, what success has Sri Lanka achieved in inter-planting coconut with other economic crops? I have seen many research papers regarding this matter, but hardly any success in the field.

There is something fundamentally wrong with the direction of our research. Either the research is too academic or research findings are not extended to the field by good extension services. The lack of resources is certainly a constraint and will continue to be one in the years to come. That is the reason why I suggested that specific project proposals should be submitted to the plantation companies for funding, which I feel will have a positive response from the stakeholders.