Tea industry: Mechanisation the way forward - Past Chairman, Planters’ Association | Sunday Observer

Tea industry: Mechanisation the way forward - Past Chairman, Planters’ Association

11 October, 2020
There was an improvement in tea auction prices during the latter part of the financial year .
There was an improvement in tea auction prices during the latter part of the financial year .

As a result of the efforts of the government and the stakeholders, the plantation sector was the only industry which contributed to the foreign exchange earnings of the country during the initial phase of the pandemic, said Planters’ Association of Ceylon past Chairman Sunil Poholiyadde at the Annual General Meeting of the Association at the BMICH recently.

He said during this time there were several measures which they were compelled to take to ensure continuity. One of the most remarkable was the conversion of tea auctions from the outcry system carried out for over a century into an e-auction which has since become part of the new normal.

Rubber auctions were also hampered by the pandemic, but they too quickly resumed the traditional auction with a break of only six weeks. We need to thank the Colombo Rubber Traders’ Association for the initiative taken by them.

The Chairman made a brief summary on the performance of individual crops.

Tea

Where the tea industry is concerned, we continued to see a dip in prices which commenced with the glyphosate issue in 2015. With other countries becoming increasingly stringent on certain MRL (Minimum Residual Level) issues, we have - to a great extent - lost ground in strong and valuable markets, especially in Japan, which in turn has had a negative impact at the auctions.



Sunil Poholiyadde

However, during the latter part of the financial year, there was an improvement in tea auction prices, mainly connected to the disruptions caused by Covid-19, where the production of many countries was restricted.

Demand for tea has also increased – particularly during the initial phases of the pandemic, partially as a result of the fact that tea is a beverage which has been found to contain properties that science has found to be beneficial to boosting the immune system, which may help prevent the spread of Covid-19.

Where production is concerned, the tea industry in Sri Lanka went through a difficult period with the continuation of the drought conditions. This past year, our industry recorded one of the worst such droughts in the past two decades. This too had the effect of boosting the price – given the resulting supply-demand dynamics.

However, the market has since declined by almost Rs. 100, as compared to prices prevailing in and around April-May. This drop was most acutely felt in the high-grown tea segment, where RPCs account for the majority of production, while the low grown leafy teas have appreciated in price. Even today, there is a difference of almost Rs. 100 in the price between the high-grown western teas against the low-grown leafy teas.

Although there is a lot of misconceptions and misinformation circulating on the topic of replanting, with regard to the RPCs, we are proud to say that since privatisation, it has been RPCs which have replanted 60% of VP tea standing, at more than twice the rate of replanting undertaken during the same period by tea smallholders. It is also vital to note that this has been accomplished by RPCs without any of the assistance in terms of grants, and lower costs which are available to smallholders.

RPCs have also been responsible for the replanting of an entire generation of rubber, 20 hectares of fuel wood, oil palm and other export generating economic crops.

Another critical issue where tea is concerned relates to the severe shortage of workers. Today our workforce has reduced by almost 50% in the high-grown tea sector since many of the younger generation do not want to be workers on a plantation. Therefore, the only way forward would be for the pursuit of greater mechanisation which would also help to increase productivity.

Rubber

The national production of rubber keeps declining, mainly due to the poor prices which have continued for over the past eight years. You may recall that the prices of natural rubber in and around 2012 increased to almost Rs. 600. Unfortunately, these high prices only prevailed for about two years, and thereafter, declined to almost Rs. 200, which had the effect of making the industry uneconomical.

These dynamics forced many smallholders to stay out of production.However, since the RPCs have a permanent labour cadre, they were forced to offer work and harvest latex in order to keep the workers employed even though the cost of production is much higher than the sales average at auction.

There were three wage negotiations. At each instance, the wages increased despite prices remaining essentially static over this period.

Oil palm

The oil palm industry commenced in this country over 50 years ago. Given the success of these projects, the plantation companies working in close consultation with the Government had chosen oil palm as a third mainstream plantation crop to pursue for diversification.

These strategies were consolidated with acceptance by the Government of the need to increase sustainable oil palm cultivation up to 20,000 hectares.

Unfortunately, after having completed almost 11,000 hectares of this expansion, there is now a ban on any further planting or replanting of oil palm. This is again due to numerous misconceptions regarding environmental hazards.

On numerous occasions, our association has called on those who oppose oil palm cultivation on such grounds to produce the evidence on which they have made such claims so that we might be able to objectively consider the merits of such claims and take policy decisions that are first and foremost grounded in science. To this day such evidence has not been forthcoming. We can only conclude in this instance that absence of evidence does in fact constitute evidence of absence.

In fact, the companies have invested heavily in this crop and currently, there are currently there are plants worth almost Rs. 300 million in company nurseries for which seed materials were imported only after having sought out all relevant approvals from authorities.

Although the plants are now totally overgrown, it would be prudent if - at least at this juncture - a decision could be taken to allow the companies to at least plant what is already in the nurseries so as to recover even a fraction of the investments made into this crop.

It is also worthwhile considering the fact that due to climate change, most of the rubber growing areas are inundated with historic levels of high rainfall, which results in a drastic reduction in the number of tapping days possible for rubber.

Given these particular circumstances, and the fact that oil palm requires approximately 3,000 ml of rainfall per annum to reach optimal productivity, it is clear that many rubber growing areas are now much better suited for oil palm cultivation.

These are trends that will only continue to escalate. There is a huge scarcity of labour in the low country. Given that oil palm requires 50% less workers than a rubber plantation, this is clearly an ideal diversification.

From an economic perspective, cultivation of sustainable oil palm has already proved invaluable in conserving foreign exchange and minimizing outflows, given that Sri Lanka imported an estimated 150,732 metric tonnes of edible oil, at a value of Rs. 16.2 billion in 2019 alone.

In fact, plans to expand oil palm cultivation by 20,000 hectares was first arrived at based on consideration of the per capita consumption of edible oil in Sri Lanka and the need to promote import substation in this area.

Way forward

Since privatisation in 1992, the plantation worker wages renegotiated in a collective bargaining process to reach a Collective Agreement every two years. This has resulted in a gradual escalation in the wages.

Although the companies saw the necessity and advocated in favour of the establishment of a link between productivity and wages, such a solution had been considered unacceptable to the Trade Unions.

Despite this, we introduced a productivity-linked wage structure four years ago. Unfortunately in the last negotiations which took place in 2019 January, and following agitation from the Unions, the productivity link was removed while a 40% increase in the basic wages was granted. This wage applies for two years irrespective of productivity or price.

This wage model applies to all crops in the plantations despite the drastic differences in the revenue generating capacity of all of the other crops. As a result, where tea is concerned, the price of a kilo of tea which was double the wage in 1992 has increased to be 50% of the wage as at present. Where rubber is concerned, wages were fixed at a time when rubber was selling at Rs. 600, and they have remained at these levels even though the price of rubber has since collapsed down to Rs. 300.

Although the price has declined from Rs. 600 down to Rs. 300. This is quite evidently an unsustainable position.

Therefore, we firmly believe that this wage structure is totally outdated and must urgently be migrated into a productivity based model which is also linked to price.

This would enable productive workers to earn the maximum possible when there is an appreciation in the price while ensuring that they are duly rewarded for their productivity.

Today the smallholder sector accounts for 75% of the tea and almost 65% of rubber production. We believe the improvement in this sector is mainly due to this structure of payment where the smallholder is paid based on the selling average of the factory - which is to say: price - and the poundage they bring in which is productivity.

This has been a very successful model and so we believe that the way forward for the industry should be a wage structure that is firmly linked to productivity and price.

We also believe that there should be proper policy laid down by the Government based on the covenants of the privatisation agreements which includes permission for diversification and the institution of a land policy which specifically prevents lands which RPCs have invested substantially in from being acquired, as has unfortunately been the case over the recent past. Such measures would undoubtedly help to attract more investors and larger, long-term investments into the plantation sector as a whole.

Highlights

We were also compelled to deal with the sudden ban of glyphosate in 2015 which resulted in tea producers facing immense difficulty in managing their properties, and which also affected auction prices.

Following numerous deliberations, the PA has succeeded in getting a temporary lift of the ban until a proper alternative is made available and we are grateful for the cooperation extended to us by all stakeholders. Finally, it was the totally unexpected Covid-19 pandemic which I consider the ultimate test for deciding the survival of the fittest and I’m glad that the Planters’ Association has succeeded in proving themselves as being the fittest industry in the island – given the remarkable mobilisation by all stakeholders to ensure that we continued operating without any prolonged interruptions.

The lesson that we can all learn from this is that the unprecedented level of cooperation we achieved must serve as the benchmark for how we come together to resolve all other pressing challenges facing our industry today.

We must work together to achieve a sustainable future for our industry and all of who are connected to it.

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