The plantation sector comprising Tea, Rubber, Coconut and Oil palm, a vital factor in the economy of Sri Lanka, is known to be influenced by many extraneous factors such as global economy, weather, demand/supply, key players, workforce agitation, cost of inputs, crude oil price etc over most of which the plantation management has very little control. Yet, the industry continued it expansion in 2006 though inconsistently, with positive growth rates in rubber, coconut and palm oil (see box 1). Fluctuating weather pattern had been a major contributory factor for the inconsistency in 2006. Water, whether too little or too much, is a constraint to crop production.
Tea, known to be very sensitive to moisture stress recorded a marginal decline in production by around 1.4 percent to reach 164.5 mn kg in the first half of 2006, and by the end of the year, a decline of 2.0 percent achieving a total production of 310.8 mn kg, which is a three year low and marginally below the record level of 317 Mn kg achieved in 2005.
Tea industry, however enjoyed its best ever year in terms of record export earnings and volume, being the largest exporter in 2006 though crop production was down marginally. Exports amounting to 327.3 million kilos in 2006 was the highest ever and reflect a 6% or 18.7 million kilos increase over 2005 level. Export earnings too were a record with Rs. 91.6 billion, up by over Rs. 10 billion from Rs. 81.4 billion in 2005.
Tea prices also increased significantly due to a shortfall in global supply with drop in production reported by key players, Kenya and India. The average FOB value of exports was up by Rs. 22.35 pe kilo to Rs. 279.92, which showed a further gain of Rs. 40.40 per kg or 14.7% fetching Rs. 314.24 per kg in January 2007.
Although tea production is projected to increase by around 2.2 percent to 322 million kilos in 2007, tea exports and production started with a negative performance, exports in January 2007 down by 3.4 million kilos and tea production down by about 14.4 percent.
However, one of the challenges the industry presently faces is the slow rate of recovery after the plantation workers trade union agitation, which commenced in November last year with a “go slow”. Tea being a perennial tree crop with long recovery period, disruption of harvesting has had its adverse effects on the physiological performance of the plants and it will be sometime before normalcy returns and the tea industry stabilizes. Closely connected with the problem of poor recovery is the increasing concern over frequent droughts especially in the low and mid elevations and Uva. This is of particular relevance to young fields where the economic damage could be devastating. Despite being a perennial field problem, very little has been done to alleviate this. Several avenues are open for exploration notably, Development of, drought resistant clones, field technologies to minimize moisture loss from soil/plants, low-cost sprinklers, sub-soil and drip irrigation systems, technologies for enhanced recovery after drought etc.
The current short fall in volumes available for sale therefore tends to create an exaggerated market boom which is very volatile. The impact of El-Nino phenomenon which is on, although mild, is expected to continue until mid 2007 is also of concern. The “boom and bust” cycles and the “over supply and under supply” cycles in plantation crop market will also continue. Also, the COP in Sri Lanka continues to be higher than its competitors with the value of around Rs. 195 /- per kilo as against Rs. 60/- per kilo in Vietnam. Is not the industry concerned about this ?
Worker out-migration, another challenge, is continuing to cause a serious man power crisis in plantations, which could be threatening the very existence of the plantation sector. Gone are the days of smooth influx of one generation automatically moving to fill vacancies to take over job functions from elders in a close-shop context of self containment. Plantations experience about 10% to 20% reduction in the work force, annually.A further catastrophe: planters leaving the profession. With out-migration of labour and departing planters, the plantation industry will continue to be in crisis. This, therefore, deserves urgent and careful attention before it attains a point of no-return.
The world bank in a recent report has identified some deficiencies in the present plantation system in Sri Lanka, although the industry does not fully endorse the WB’s views. The Regional Plantation Companies ( RPC) manage around 30 to 35% of the tea extent and the balance area, 65 to 70% are with tea smallholders who it is believed are equally affected by some of the deficiencies identified in such studies.
Although it is not the intention of this article to get into a dispute over this, poverty is multidimensional in nature and is a national issue and therefore poverty in plantations should not be taken in isolation. Nevertheless, income-poverty in plantations may have been overestimated as the sample survey by questionnaire has its’ flaws notably when seeking information on gross income from plantation workers who are normally suspicious of such surveys, The state ( GOSL) has its obligation and should therefore provide support to alleviate at least some of the identified deficiencies which may be beyond the scope of plantation management. The private sector is always motivated by higher margins of profit and if this is not forthcoming they tend to lose interest in such subjects. The evils of the present plantation system has its origin in the colonial initiatives. Mainstreaming the sector would therefore be the long term solution.
NR production, encouraged by the continuous high prices of NR and favourable weather continues to show spectacular growth. It grew by around 12 percent in the first quarter and by 7.9 percent in the first half of 2006.
But, eventually achieved an annual growth of 4.6 percent, recording a total production of 109 mn kg and maintaining its 9th position in global rubber production. The drop in production seen in the second half of the year is attributable to unfavourable weather experienced in the last quarter of the year, despite the use of rain guarding devices by some growers. The effectiveness of such currently available devices is therefore still debatable. Loss in crop during the peak production period due to fluctuating weather pattern seems to be the major contributory factor for domestic rubber market volatility, besides work force agitation, global market / economy etc.
Domestic rubber market continued to be volatile following the same trend seen in the global scenario, although it continued to achieve spectacular growth over the last few years ( see box 02). Crepe rubber also showed similar trend, with prices remaining around Rs. 250/- .
Domestic NR output is forecasted to increase by 5.5 percent to reach a total production of 115 mn kg in 2007, which portably will elevate Sri Lanka to the 8th position in Global rubber production. NR prices are also expected to remain in the region of Rs. 225/- to 275/- and COP in the region of Rs. 85/- to 95/- per kilo with profits continuing surge to dizzy highs. .
There is therefore every reason to believe that the domestic rubber industry’s spectacular growth will continue in 2007 and beyond, although both global and domestic NR markets will also continue to remain volatile. Disruption of harvesting due to adverse weather conditions and the shortage of skilled rubber tappers will continue to remain a major problem.
Coconut production which is strongly influenced by weather (moisture) and material input notably fertilizers, increased by 9.6 percent to 1,287.3 million nuts in the first half of 2006. Lagged effect of favourable weather in 2005, and continued use of fetilizers in the region of 33,000 metric tonnes by the entire coconut industry may have been the major some contributory factors. Coconut mite infestation which had been a set-back for the growth of this industry, continues to be of concern. Production increased by around 10 percent to reach 2,770 million nuts by end of 2006 and it is forecasted to increase by a further 8.3 percent to reach around 3,000 million nuts in 2007.
Oil palm, a perennial tree crop that is native to Africa continues to be dominated by Indonesia, Malaysia and Nigeria, with their out put accounting for more than 80% of global production. Exports too continue to follow this pattern with buoyant demand in Asia, notably, India and China that is linked to growing economy and population.
A second palm oil processing plant has started operation in Sri Lanka as a joint venture between three Regional Plantation Companies. With new players entering into oil palm business, additionally more than 3000 hectares of land in the South-Western region of the country are in oil palm, now. This is expected to boost total production to over 10 million kilos per year initially, with Watawala which has been enjoying the pre-eminent position of operating the only palm oil processing facility in Sri Lanka, continuing to exploit their “leadership status” through experience in this area. Influenced by price variations in world markets, the trend in several countries had been to diversify to production of more profitable and stable crops which is believed to be a sound national plantation agricultural policy.
ADB’s support for the setting-up of the second palm oil processing plant is believed to be based on its policy of promoting diversification of Sri Lanka’s plantation agriculture which had been known to be inconsistent in it’s performance.
The plantation industry has its own cycle which is crop and sector-specific. Strategies adopted by producers depend mainly on the natural resource endowments, size of the domestic market and holding, status of technology employed and the extent and nature of institutional support mechanism implemented over time. Nevertheless, despite the many differences among the crop sectors, the common feature had been to capitalize on available opportunities for minimizing cost of production and exploring potential outlets for increasing the net income per unit area. This should therefore continue to receive the highest priority in development planning with equal emphasis on environmental and social considerations now popularly referred to as “ Green Growth” .
Sectors dependent on export oriented production and confronted with perennial market uncertainty should attempt either to retain or evolve integrated farming systems to maximize income per unit area whereas the sectors with a reasonable domestic markets should resort to expansion of area under cultivation to minimize dependence on imports. Domestic value added sub-sectors would also benefit by increased monocultural crop production.
R and D PRIORITIES
The R and D is the basis for technology innovation. Its priorities in the past had been crop production related issues followed by processing technologies and value addition as well as limited export promotion strategies. But now the issues of defining challenges and priorities in the context of growing market uncertainty and violent fluctuations require rethinking based on detailed crop and sector based analysis. Recasting of R and D challenges and priorities should consider;
(a) Whether emphasis should be on, Maximization of yield per unit area or Maximization of net income per unit area.
(b) Relative shock absorbing capacity to withstand frequent price fluctuation
Despite growing awareness in the past, it has been the value added sectors which lagged behind in terms of R and D initiatives and this needs strengthening. R and D approaches promoting less capital and energy intensive systems for crop processing assume a pivotal role in future so as to ensure higher farm gate price realization and sustainable systems of processing by small holders.
Efforts to harness inherent strengths in terms of financial, human and physical resources of individual crop research institutions through collaborative R and D initiatives under the auspices of a Plantation Crop Research and Development committee ( PCRDC) comprising of relevant stake holders are the need of the hour as this would strengthen the research out put capabilities of public sector institutions financed by private sector through a research cess.