Plantations in crisis; estates suffer Rs. 2.

85 b
losses in 2014
Producers gravely concerned of loss of Rs. 35 on rubber and Rs. 30 on tea per kg sold last year

Object 1

Pluckers at a tea estate

March 20, 2015

Plagued by plummeting tea prices, a rubber market at an all-time low and
high production costs, 19 Regional Plantation Companies (RPCs) collectively
made a staggering loss of nearly Rs. 2,850 million on rubber and tea in
2014.
By end of 2014, on average RPCs were making a loss of approximately Rs.
30 on each kilogramme of tea sold, with average cost of production at Rs.

455 with Net Sales

Average
at just Rs. 425.
In the case of rubber, the other main crop cultivated by most RPCs, the loss
on each kilogramme was even higher at Rs. 35, with average cost of
production at Rs. 327 but Net Sales Average at only Rs. 292.
The situation is now aggravated leading to further accumulation of losses
with the average tea prices declining sharply at the Colombo Tea Auction
within the first two months of 2015. Prices have slumped below
corresponding levels in 2014, despite the increased cost of production since
then.
The auction average at the Colombo Tea Auction for February 2015 was
only Rs. 418 a Rs. 64 reduction from Rs. 482 in February 2014 and even
below Rs. 423 which prevailed in February 2013. Some RPC estates are now
thus incurring a loss in the excess of Rs. 50 per kilogramme of tea sold.
Due to external factors, the market for tea is very challenging at present
and most worryingly, the situation appears to be a trend rather than a
phase of a cycle, Roshan Rajadurai, Chairman of the Planters Association
of Ceylon which represents the Regional Plantation Companies (RPCs)
said.
Tea is available the world over at Tea Producing Auction Centres at around
$ 2 a kilogramme and therefore tea traders tend to buy cheaper teas from
these origins because of the cash flow and liquidity problems they
themselves face. Our tea prices are in the range of $ 3 and above. In this
scenario, the immediate survival and by extension the sustenance of the
over one million population resident in our estates are facing a great
danger, as we are finding it extremely difficult to manage our day-to-day
operations and commitments.
All must support productivity improvements, without which the industrys
downhill spiral is irreversible and as we have always maintained, the future
sustenance and the survival of the industry to a great degree is in the
hands of the workers themselves. They can easily increase the daily output

and support cost reduction so that we can be competitive in the world

markets, as our costs are the highest in the world on account of our labour
productivity being the lowest in the world, he reiterated, pointing out that
according to the estimates of the RPCs, a one rupee increase in labour
wages will automatically increase the cost of production of tea by 52 cents
per kilogramme.
Therefore there is no choice left but for all the stakeholders to work in
unison to save the industry and the people involved, realising the current
external pressures and challenges.
With the demand hitting a historic low, buyers are now purchasing lower
quality tea at lower prices, thereby creating additional woes for the RPCs.
Large quantities of teas remain unsold at the weekly Colombo Tea Auctions
and the RPCs are forced to increase the borrowings in order to pay the
wages and other commitments to the workers and to keep the cash flow
intact due to delays in receiving incomes for shipments, Rajadurai further
noted.
Being mandated to provide 25 days of work to our workers, our cost of
production is significantly above the price (NSA) that we are receiving at
the moment for rubber, Lankem Tea and Rubber Plantations CEO Ranjit
Peries said. Based on forecasts, prices will not increase within this year.
The depressed auction prices of tea, due to external factors, are creating
much concerns for all stakeholders, a top official of one of Sri Lankas
foremost tea exporting companies said. Considering the gravity of the
situation, tea traders have even appealed to the Government for relief.
Overall slump in tea prices is due to many reasons, the main being the
current catastrophic situations in key markets of Russia, Middle East and
Ukraine that account for over 70% of exports of Ceylon Tea. The downturn
in the Middle East following drastic reduction in oil prices, a raging military
conflict in Ukraine and economic sanctions in Russia as well as the recent
depreciation of its currency, have created an almost impossible to recover
situation for Ceylon Tea. With the global rubber market in a slump and
prices not expected to recover soon, a double whammy situation has
emerged.
Rubber losses too have spiralled and some RPCs are now on average
incurring a loss of around Rs. 70 per kilogramme of rubber sold. Lesser
demand from China, a major buyer of natural rubber from Sri Lanka, due to

economic slowdown and reduction in price of synthetic rubber, a substitute,

following fall in petroleum prices are among the key factors making an
adverse impact on local rubber prices.
The issues in export markets add to the longstanding concerns regarding
high costs of production, particularly in tea, for which Sri Lanka has the
highest production costs in the world, while other factors including weather
are also not conducive at the moment hectares of tea fields were
damaged due to frost recently. In this scenario, the need for greater
productivity to reduce labour costs and thus total cost of production
appears to be the consensus among the RPCs.
In tea, the unit labour cost alone in Sri Lanka (which is approximately 67%
to 70% of the total) is higher than the entire unit cost of production of some
of its competitors. Substantially lower labour productivity, even after
making allowance for lower land productivity, continues to pose a major
issue. At approximately 18kg, the daily plucking average of a Sri Lankan
worker is less than half of that of a South Indian plucker (38kg) and is
slightly more than a third of that of a Kenyan plucker (48kg).
The RPCs thus urge all stakeholders to support improvements in
productivity, to ensure the survival of the plantation sector and its
approximately 200,000 direct employees and many more dependants.
Cabinet nod for Rs. 350 per kilo price for rubber
A Cabinet decision was taken to pay Rs. 350 per kilogram of natural raw rubber produced by
the rubber small holders in the country with effect from 15 March.
Cabinet Spokesman Rajitha Senaratne announced this at yesterdays Cabinet briefing.
The Cabinet of Ministers approved a proposal made by Minister of Plantation Industries
Lakshman Kiriella to implement the proposed scheme of paying Rs.350 per kilogram of
natural raw rubber produced by rubber small holders which is mentioned in the 100-day
program. Therefore,this will be in effect from 15 March, Senaratne added.
Posted by Thavam