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Sector report

Aug 15, 2011 2:44:57 PM - www.ft.lk

The tea sector has been benefited by both increase production and remunerative prices fetched due to a buoyant market in 2010. Production reached an all-time record of 329 million kgs, fetching an average auction price of Rs. 371.54 during the period under review. Exports reached 314.3 million kgs realising record revenue of US$ 1.375 billion.

“It is pertinent to mention that for the first time, the volume of bulk tea exports was a mere 100 million kgs or 32% with the balance 68% going out in value-added form,” noted Planters Association of Ceylon Chairman Lalith Obeyesekera. This is a significant achievement in pursuance of the Government’s policy of enhancing value addition, he added.
“The industry is thriving but in reality as far as the producers are concerned it is far removed from this assumption,” he expressed.
Cost of production has been rising at a faster pace than that of the increases in tea prices. This has been mainly due to the high cost of wages rising from the wage negotiation and the continued low productivity resulting in the balance sheet of only RPCs being in this array while those with rubber are bearing much better.
The situation has been further aggravated with the sharp decline in auction prices, partly due to the prevailing crisis in the Middle East. Quoting from the latest data released by the Sri Lanka Tea Board, he stated that prices in July signified a sharp drop. “Average price of high and mid grown tea is recorded to be Rs. 300 in July with low growns faring better at Rs.371.”
Minister Samarasinghe has activated an accelerated replanting programme with a view of increasing total country production within the next 10 years in keeping with the policies of the ‘Mahinda Chinthana,’ Obeyesekera said.
In this regard, a diagnostic survey undertaken by Tea Research Institute regarding the sustainability of the industry on replanting shows that with current prices in the Colombo auction and the high cost of production in Sri Lanka compared to competitors, coupled with low productivity, replanting is necessary to sustain the industry on the point of view of a national commitment but is not so economically viable.
At the recently-concluded IGGFAO conference held in Mombasa, Kenya, several presentations were made by Kenya and India on the various studies undertaken by them to mitigate the effects of climate change due to global warming, the Chairman added.
“We were happy to receive a note from our representative on the TRI board that a decision has been taken to conduct a collaborative research with the National Resource Management Centre with a view of identifying trends of climate changes over the past few decades in tea growing areas and to make suggestions for the years ahead. We are looking forward to the release of this document as it is of vital importance to the industry.”
On the local rubber front, prices have been, for the better part of last year, at levels never experienced before. The main driving forces behind the high prices have been the emerging economies of China and India, where car production has leapfrogged.
The shortages caused by changing weather patterns in other rubber producing countries have also worked in our benefit. The future of rubber for the rest of the year looks encouraging as well; but will depend on factors such as change in global weather patterns, recovery of Japan, price of crude oil which has direct impact ion recovering economies and the imminent tension spreading across Middle East, he said.
The sector has recorded impressive results, both production and price wise. “Production peaking at 153 million kgs and average price reaching Rs. 475 with special grades RSS1 and Crepe No.1 averaging Rs. 500 and Rs. 550 per kg respectively at Colombo auction,” Obeyesekera quoted.
“These remunerative prices served as a compensation factor for tea cum rubber RPCs to declare better results, leaving behind the only tea companies struggling. All factors indicate the continuation of these prices.”
The Minister’s rain guards for production with a 50% subsidy given to the rubber industry to encourage implementation have also proved to be successful. “Rubber growers are fortunate as they continue to receive the subsidy for replanting, which seems to go on at a pace, with new planting doubling to 1,537 hectares in 2010,” he said.
“Coconut production continues to decline for a variety of reasons,” Obeyesekera said. “This is mainly due to fragmentation and disposal of coconut lands for housing and other development and to a lesser extent due to a reduction in fertiliser application.”
This situation is despite the new legislation to curb this trend. Naturally the supply and demand situation has sent prices sky rocketing, thereby adversely affecting the domestic consumer.
“Copra, coconut oil and desiccated coconut continues to be exported, together with fresh nuts to a lesser extent. Oil palm on the other hand has made significant strides in the local market with substantial profits being generated due to the high world market price of this commodity,” he said.
“It’s unfortunate that the vast tracks of uncultivated land required to cultivate the crop and justify the construction of a mill are not readily available in the country, resulting in more than one RPC venturing overseas to increase their oil palm extent and benefiting from the returns.”
Other crops
Sri Lanka has been historically famous for its spices and the sector has done well under the period of review. Export of pepper, cloves, coffee, cashew, nutmeg and maize recorded substantial increases while cinnamon declined marginally but Sri Lanka continues to maintain its position as the world’s largest producer.
“It is appropriate to highlight the significance of the export value of the spice sector, which at Rs.20.25 billion outperforms the export value of rubber and coconut respectively,” Obeyesekera said.