Chairman’s address at the PA AGM on 20.9.2019

Our Chief Guest, Dr Hans Wijeyasuriya, other members at the head table, Secretary to the Ministry of Plantation Industries, Chairmen of all Stake holder Institutions and Associations, Chairmen of all Regional Plantation Companies, Managing Directors, Chief Executive Officers and all other distinguished members, 

I consider it a privilege and a honour to address you all, completing my 3rd consecutive year holding office. The year under review has been yet another challenging period since the industry is once again going through an extremely difficult period, with all commodities suffering with low prices. It was the same when I took over office in the year 2016, but the tea prices increased to Rs.600/-in the year 2017, has now returned to the same as in 2016.

 During this period, we have gone through two worker wage negotiations with increases  granted of almost 17% in each wage increase. This has had a major impact to the cost of production, since almost  60% -70% of the cost is on worker wages. Commodity prices although recording temporary increases in between, have fallen back today almost to levels, which prevailed 03 year ago. These factors have now created a crisis situation in the industry.    

A pertinent issue to be mentioned where the wages are concerned, is the Agreement we reached 02 years ago, introducing a productivity  based wage and having had to give up the productivity part in the last wage negotiations concluded in January this year, due to severe agitation from the trade unions and finally granting a 40% increase on the basic wage.

It is my view this model if continued, would make the Plantation Industry unsustainable, as commodity prices would not keep improving as we experienced in the past.

Therefore, it is time we change the model, either into a revenue sharing or a productivity based package. In order to make this change, we need the support of all stake holders. We also take the opportunity to thank  the Chairman of the EFC for his tireless efforts and contributions  towards the wage negotiations.

Tea

As you are aware the tea industry has had to face numerous issues during the period under review. We still face the consequences of the ban on glyphosate without a substitute. Many major importing countries have imposed stringent restrictions on the MRL levels and also we have lost  market share which we  had, especially  Japan being no longer within our 10 top export destinations. We do appreciare the initiatives taken by the Tea Board to take drastic action against adulteration which is causing  damage to  the image of ceylon tea.

The country has also suffered due to the sanctions imposed on some of the countries importing Ceylon tea. This too has had an impact on the volumes traded and reductions in prices. Russia being another major destination for Ceylon tea, has now increased their purchases from India which has resulted a decline in the tea exported to that destination as well.

Therefore, it is important that we promote Ceylon tea in other destinations as well, which programme has already begun by the Tea Board. You may recall the comparison between the price of tea and the wage, 20 years ago when the tea prices have been double the wage of a worker. Today it is the other way around, where the daily wage of a worker is double the price of a kilogram of tea. Therefore, it should be clearly understood by all concerned that the current model which has lasted over 100 years needs to be changed, if the industry is to be sustained. 

As you are aware, at the time of the wage negotiations, there is tremendous pressure from all trade unions, which are politically affiliated for substantial increases, due to the increase in the cost of living. The companies too recognized this and were compelled to grant an increase in wages.  Decisions  made considering the commodity prices at the time of the negotiations, especially tea, where the majority of employees are involved. This is a classic example where during the last negotiations, the price of tea was almost over Rs.600/- per kg. In January 2019, the price has currently reduced to almost Rs.400/- to Rs.450/-. Even if you were to consider the impact of the price drop of Rs.150/- over the 09 months and the average quantity of tea to be produced by one RPC of 10 Mn kgs. would have a loss of revenue of over 1.5 Bn. You all will agree that a reduction in the expenditure of 1.5 Bn would be almost impossible, since over 70% of this cost will be wages.

Therefore I would propose that in future when such negotiations are made, the Government would consider, along with the Tea Board, a minimum price at the tea auctions and no sooner it drops below for the Tea Board to intervene and commence to buy from the auction, in order to ensure that the producers are able to survive.

A major constraint is also the diminishing work force and the inadequate labour even to harvest the tea which is standing right now. There is no option in this aspect but to commence mechanization especially in harvesting which would also give a cost reduction.  Also, in any future replanting, we need to concentrate on undertaking planting in a manner suitable for mechanized plucking. 

Rubber

The rubber industry has had an extremely tough period with the price remaining below Rs.300/- for over five years. Further the production too has declined drastically. Erratic rainfall patterns have resulted in reduced days of tapping in recent months.  

The main reason for the rubber extents to be reduced is the land acquisition since urbanization and industrialization take place mainly in the low country rubber growing areas. The companies too have lost vast areas of productive lands due to such acquisitions.

We need to mention that some of these areas and the estates of high productivity have been acquired haphazardly and, in some instances,  some of the Plantation extents which have been taken over, comprised of immature rubber areas, where tapping has not even been commenced, where the share holders have spent enormous amounts in replanting.

This sad state of affairs needs to be stopped and more confidence placed on the investors that these lands cannot be acquired at least until their investments are recovered.

I strongly believe, that there should be a land policy for all crops, where an assurance is given that these lands will not be acquired for any purpose once developed.

For rubber it is important, that we move to the nontraditional areas and the companies be given an opportunity to invest in lieu of the lands lost.

As per the Master Plan, the country needs to produce at least 100 Million tons of rubber by the year 2020. We need to ensure that this volume is supplied since 80% of the production is value added within the country for export. 

I am glad that the Government has commenced a programme to invest and develop the rubber sector in Sri Lanka with the assistance of the Chinese Government.

Oil Palm

You are probably aware of the current issues in oil palm cultivation, where the Planting Programmes are constantly interrupted due to contradicting instructions conveyed by different Government Institutions. When the project was embarked  20,000 hectares has been approved of which only 11,000 hectares has been planted up to now. 

With the ongoing programme,  the investing companies  imported seed material and there are almost Rs.500 Mn worth of plants  lying in our nurseries which finally will  have to be written off at the expense of  share holders’ funds, unless this issue is sorted out since the planting has to be completed with the North/East monsoon.  Further I also need to mention that the   issues cited in other countries would not totally apply to Sri Lanka, since we are only diversifying from one crop to another, that too mainly due to  climate change. In countries such as Indonesia, Oil Palm plantations are being established in virgin soils which has previously been under forest cover, whereas ours is only confined to crop diversification.

We have continuously met representatives of all Authorities in this regard, for seeking solutions, but unfortunately it has not been successful. I wonder whether we would finally be left with no alternative but to commence legal action to continue with the planting of oil palm.

I also need to mention that the water consumption  for oil palm, as compared to the rubber per hectare does not have much of an impact, since the Oil Palm stand is only about 25% of the Rrubber stand per hectare. Therefore, although the per tree consumption is greater, water consumption per hectare remains the same.

While we are having all these restrictions, we are well informed that our neighbour India has already launched a project to plant 02 Mn hectares of oil palm which no doubt would have a boom to their economy.

In conclusion, I would say that most of the above,  I have mentioned, is the current status of the industry. As the way-forward, we need to strategise  in order to sustain this vital industry. Basically we should realize what we lack is policy and implementation.

It is  high time that we have a policy for land utilization where we could identify the areas that each crop could be planted and ensure that there would not be any disturbances created at least within the crop’s life span, after having invested in developing this land. This would create much more confidence in the investors that they could obtain the return on ther investments.

Where operations are concerned, in all crops, one of the critical major constraints is the lack of labour for blue colar employment. In my view, we need to commence mechanization in a meaningful manner with specific targets to be achieved. I appeal to the respective Research Institutions to commence all possible R & D work in a much more aggressive manner and make their recommendations to the Industry, may be Tea Rubber or any other crop.

Mechanization for all these crops, especially tea and  oil palm is already in place in the rest of the world and we too should have our mindset right for implementation without finding excuses for not doing so.

It is my view specially in the tea,  all stake holders should get together and come into concensus on long outstanding issues, such as, the limitations in the importation of Tea, Commencing a Dollar Auction, which would facilitate producers  to have access to cheaper funding which should benefit all stake holders.

The ‘Offer for Sale’ document clearly spells out the covenants of privatization of the Regional Plantation Companies.

There have been in stances where the spirit of privatization has not been maintained which has led to restrictions on the rights of the investors.  

Ours is an Industry that has shown resilience and overcome adversities in the past and we are confident of overcoming such draw backs in the future as well.   

Unfortunately, most people very conveniently forget the role played by the private sector in taking over the management of estates which was a burden on the coffers of the State at the time of privatization.”

Some of you, who have been involved  in the privatization process since 1992 may recall that the original understanding has been for a 99 year lease but subsequently reduced to 53 years of which the balance remaining is less than 30 years which is less than one life span of each crop.

Since privatization up to 2016, the companies have invested over Rs. 60 Bn in Capital Expenditure, having confidence in the Industry and we appeal to the Government seriously to

consider the extention of the current lease which should no doubt bring more confidence for the companies to continue in their investment programmes.

I would now conclude, wishing all of you a bright future.

Released on October 2019