PLANTERS’ ASSOCIATION REFUTES REPLANTING FAILURES CAUSED THE CURRENT TEA CRISIS

The recent article by Lalin I. De Silva captioned ‘Tea crisis: Who deceives whom?’ is rife with many inaccuracies and untruths.

This condescending diatribe obfuscates the very serious issues at hand and does irrevocable harm, injustice and nullifies to nothing, the valiant effort and the toil of our fellow planters, staff and the workers on the estates.

The reality and the impact of the pendulum like fluctuations in the global economy and the political environment with its attendant consequences should be taken into account when an analysis is done regarding the present unstable state of the industry. The unprecedented downward spiral of tea prices since April 2014 is an external and uncontrollable factor for the producers of tea and rubber as global commodity prices have taken one of the worst beatings in the living memory.

As a result, our national rubber production decreased 30 percent in 2014 compared to 2013 as many rubber smallholders abandoned tapping. This prompted the government to grant only to the smallholders, a guaranteed price of Rs.350 per kilo for RSS1 sheet rubber. Likewise, the tea prices too came down so low that the government gave a similar concession, again only to the smallholder producers a guaranteed price of Rs.80 per kilo of green leaf.

The High Grown Elevation Average, where a majority of Regional Plantation Company (RPC) estates are located, has come down to Rs.364 for May 2015. Unfortunately, the government in its inscrutable wisdom has seen it fit to discriminate against the RPC producers by not giving the same concession although the RPCs too are producers and sellers of the same type of tea, at the same Colombo auction.

The RPCs’ statutory and conventional responsibilities, commitments and liabilities towards their workers and dependents numbering close to one million are beyond any comparison to that of the smallholders. The article states that smallholders have “increased the yields by 200 percent and do not complain about the productivity of workers”. If that be the case, there is something very serious and anomalous in granting the very same smallholders, who are so highly productive, these guaranteed minimum price payments.

The current crisis is a systemic one and we cannot so blithely over simplify it by merely laying the blame on replanting.

Tea is a homogenous product and out of a global production of 4819 million kilos in 2013, our national production is only 340 million kilos, a mere 7 percent of the global production. We are not in a position to influence the global prices. Tea prices worldwide are governed by world supply push and demand pull dynamics along with other economic and geo-political situations prevailing in the markets and economies at a given time. We sell more than 95 percent of our product in the global market through local and international buyers at the Colombo auctions, purely depending on the global price levels prevailing at the time.

At the time of privatization in 1992, the daily wage of a worker was 92 percent of the relative value of a kilo of High Grown tea at the Colombo auctions. By the end of 2014 however, the worker wage has accelerated to 147 percent of the High Grown Average.

Irrespective of the price levels we receive at the Colombo tea auctions, the RPC workers have to be paid over US $ 5 daily without all the other financial and non-financial commitments which add to a further US $ 3 for only plucking an average of around 18 kilos of green leaf per day. Our competitors, who obtain close to our price levels in the world auction centres, pay their workers far less than Sri Lanka for a significantly higher daily output.

Our daily labour wage is the highest in the world tea economies while the land and labour productivity is the lowest. The traditional facilities, amenities and the services that are provided not only for our workers but also to their dependents are unmatched by any other tea economy. Even now, our daily labour wage of close to US $ 5 per day is far higher than that in North India (Assam). Assam tea workers receive only Indian Rs.115 per day. While in South India, they receive Indian Rs.195 per day for more than double our outputs.

Added to this imbroglio, there is very little pure ‘Ceylon tea’ in large retail organisation and supermarket consumer tea packs as those retailers work to strict budget restrictions. The purchasing manager will source the cheapest teas from any origin in order to keep within their tight category budget and invariably good quality Ceylon tea, which is at a higher price, is eliminated in this selection process.

Privatisation

The Treasury had to subsidize the government plantations to the tune of Rs.400 million every month, only for their operational activities. During 1992, the estates managed by the Janatha Estate Development Board (JEDB) and Sri Lanka State Plantations Corporation (SLSPC) were converted into 23 RPCs. Therefore, the article’s assertion that “all estates that were privatized were viable” is not factually correct and a reckless assertion. If “all estates were viable”, the government would have no compelling reason to privatize the estates. There is no contention that a most estates in JEDB and SLSPC were in good agricultural order at the time of privatization in 1992 but the claim that “all estates were viable except for a few not privatized” is without any rational basis.

The article has claimed “very generous foreign funding was available through the World Bank, Asian Development bank (ADB) and other multilateral agencies to revamp the plantations after nationalization.” According to the State Ministry of Plantation Industries, “during the period 1978 to 1991, over US $ 275 million was invested in the plantations through the two corporations”. This is close to about Rs.35 billion in current terms.

However in contrast, from 1993 to 2012 for a period of only 19 years, the RPCs’ capital expenditure investment alone was Rs.55.37 billion, which is far in excess to the investments made during the whole nationalized period, with all the generous foreign funding. Instead of sucking out money and being a troublesome burden to the Sri Lankan economy and its people, the RPCs have managed their industry very well without being a burden.

The article’s claim that “certain management companies did not infuse new capital” and “only interested in skimming the plantations by charging high management fees and paid no attention to replanting and development” is a complete fallacy. If one cares to study the annual reports and the balance sheets of the RPCs, which are Publicly Listed Companies in our stock market, there is more than ample evidence regarding the amount and the value of capital expenditure infused for development of plantations. Furthermore, a vast majority of the RPCs are not charging any management fees and therefore, the above statement has been made in total ignorance.

Cost of production

The article states that “it is clear that wage bills of most estates are inflated” and “wages make up approximately 60 percent of the COP”.

The absurd contention that wage bill is “inflated” is the result of a distempered imagination. Even in the 1990s, during the period of the state management when the daily labour wage was comparatively lower than present, the labour component in the cost of production (COP) was 59 percent according to the Ministry of Plantations Statistical Hand Book. Even in South India and North India, the labour wage component in the COP is also around 60 percent with a much lower daily labour wage and higher productivity.

Replanting

The article states that the cause of the current crisis is the low yield in the plantations as a result of not “replanting at the correct time”. If replanting can solve all our current problems, then the problem at hand would not be such a daunting challenge for the RPCs.

The article mentions of a “management contract” and “conditions in the agreement” and of “violating the conditions in management agreement”. The RPCs signed an “Indenture of Lease” which contained Obligations of the Lessee, Obligations of the Lessor, Rights of the Lessee, Rights of the Lessor, Termination. The RPCs have not violated any of the above and have stuck to the letter and the spirit of the ‘Indenture of Lease’. The article is referring to a non-existent and a wholly imaginary “management contract”.

The article has also claimed that it is “mandatory” in the “Management Contracts” to replant a minimum of 3 percent per annum. Having perused carefully our “Indenture of Lease”, the writer still cannot find this condition nor any other condition related to the general conductance of the agricultural or agronomic practices in the management of plantations. There is no “mandatory” requirement anywhere to replant a minimum of 3 percent per annum in our “Indenture of Lease”.

The 3 percent rate was a suggestion as result of a discussion with the TRI, RPCs and the Golden Share Holder in the 2012 period where the writer was present personally. Even in that forum, the TRI admitted that given the current costs and the expected returns, the replanting exercise is not economical and has no justification as an economic investment activity. In the absence of such “mandatory” conditions, we do not know how the article has come to the illogical conclusion that the “Golden Share Holder was unaware of what was happening in the RPCs”.

The article also states that the RPCs have “no valid excuse to neglect replanting”. The availability of capital and labour has to be taken into consideration carefully as it costs around Rs.4 million just to replant one hectare of Clonal Tea. According to the TRI calculations in “Cost of Tea Cultivation” (2002), it takes 25 years to recover the cost of the investment of replanting just one hectare of Clonal Tea.

The daily wage of a worker has been worked out for these calculations at 118 percent of the Colombo Gross Sale Average (Rs.130 GSA and Rs.153 wage rate). The current labour wage is as high as 177 percent of the GSA (GSA of Rs.390 and Rs.690 wage rate). At these calculations, it will take close to 38 years to merely recover the cost of the investment of one hectare of replanting.

The labour component for one hectare of replanting Clonal Tea is 4324 labour units, from uprooting to bringing into bearing. Already the RPCs find it extremely difficult to manage the existing extent in plucking in order to maintain the required plucking rounds. Taking away a further 4,300 workers from the already reduced work force will further compound the problem.

However, notwithstanding these limitations, constraints and difficulties, the RPCs have replanted their required extent very judiciously according to the situationspecific requirements and necessities of each individual estate and company. In a space of 20 years from 1992-2012, the RPCs have replanted 58 percent of the existing VP extent.

In this scenario, the writer cannot understand how and with what mathematical and solipsistic logic the article can claim to the erroneous conclusion that RPCs have “neglected replanting”.

The article states, “those who violated the conditions in the Management Agreement should be taken to task”. There are no ‘conditions’ in the Management Agreement for anyone to be taken to task.

The article mentions of a “marked variation between estates and smallholdings” and cites “Powsyland Estate, Agrapatana” that is currently yielding more than 3000 kilos YPH. It is not known by what stretch of fertile imagination that “Powsyland” Estate, Agrapatana is classified as a “smallholder” (less than 10 acres). “Powsyland” is a regular medium-sized estate near Sandringham Estate and Turbert Farm in Agrapatana.

During the time the writer served in the JEDB for from 1984-1991, “Powsyland” Estate used to achieve over 4000 kilos YPH according to the information given by the proprietors themselves. However, there are RPC estates too that have achieved yields of 3000 kilos YPH (New Peacock Estate), which the article has conveniently omitted to mention and some RPCs have even achieved yields over 2000 kilos YPH for the whole company (Kotagala Plantations).

The RPC productivity has increased compared to 1992 at the time of privatization. With only 59 percent of the workers, with only 82 percent of the extent compared with that at the time of the privatization, the RPCs have achieved 112 percent of the crop in 2012. Do these achievements reflect an RPC management “underperformance” from “under fertilized tea bushes that are fit only for firewood” as the article claims?

Surely, to a discerning, rational and an intelligent reader, it can be clearly seen that the main cause for the current crisis related to our industry is purely one that originates from low prices at the auctions. Had the same ratio of tea prices to daily labour wages been maintained as at 1992, the High Grown Sale Average in Colombo should be in the region of Rs.660 per kilo.

The article’s conclusion that the main problem for the tea crisis is a result of low yields is therefore misguided and is not supported by the actual facts on the ground. In ascribing the current crisis faced by the RPCs to low yields as a result of low replanting, the scribe has been carried away by the eloquence of his own logic and foisted some lofty conclusions without facts. The scribe of the article has also claimed to “know a little bit of the plantation history” and to this boast, the writer concurs fully and agrees wholeheartedly without any contest at all.

(Roshan Rajadurai is Chairman - The Planters’Association of Ceylon and Managing Director - Kelani Valley and

Talawakelle Plantations)