Responding to a recent spate of ill-formed criticisms leveled against Sri Lanka’s Regional Plantation Companies (RPCs), the Planters’ Association of Ceylon (PA) issued an official statement raising its serious concerns at the complete lack of evidence-based analysis advanced by commentators in the media spotlight.
“At the outset we would like to clearly state that the Planters’ Association is welcoming of all sincere and constructive criticism and we are open to engaging with all stakeholders in order to preserve and develop our industry. However such discussions must be based on facts, evidence and the ground-reality if we are to reach rational conclusions.
“It is unfortunate therefore that many of the critics that are provided a platform to voice their disdain for our industry tend to completely ignore even the most basic facts.”
“We do not know if this behavior stems from a lack of competence or some other ulterior motives however we must always remember that the livelihoods of millions of Sri Lankans hang in the balance and so the least these critics could do is use reliable data to back up their assumptions”, PA Media Convener, Roshan Rajadurai cautioned.
As a primary example, he cited recent statements to media by Agricultural Consultantto the Ministry of Plantation Industries, Jivaka Atapattu who made the puzzling claim that the shift in balance of tea production from the time of privatization away from RPCs towards tea smallholders (TSH),who now account for approximately 74% of total production,was indicative of mismanagement on the part of RPCs.
“We were stunned by how out of touch with reality this analysis was, especially for a person who has experience in our industry; albeit experience nearly two decades past.” Rather, it is a direct result of continuous government policy which was fully intended to result in an increase to the extent of land cultivated by the smallholder sector and far in excess of the lands allocated for RPCs.
“During the era of State management of Plantations, the Government allocated an annual subsidy of Rs. 5 billion purely for the benefit of the JEDB and SPCs. These subsidies were later diverted towards the smallholders immediately after privatization since the RPCs thereafter freed the State of its financial burden following the 1992 privatization,” Rajadurai elaborated.
Prior to nationalization in 1975, Tea smallholders cultivated close to44,744 Hec or 18.1% of tea land where British and Ceylonese companies collectively oversaw 125,728Hec or 52% of tea lands. Since nationalization totally overhauled the structure of ownership in the tea industry, the distribution of lands shifted drastically.
Reasons behind structural changes in tea production
Conversely, tea smallholders today cultivate a significantly larger extent of land, approximately 121,267 Hecas compared to the 71,757 Hecof Tea land currently managed by the RPCs. Further, it is considered common knowledge within the industry that the extent of TSH plantations is substantially under-reported due to the prevalence of numerous un-registered plantations, with the last census being carried out in 2005.
“The smallholder sector has received continuous assistance and support in the form of direct and indirect subsidies on planting, re-planting and fertilizers etc., in order to expand their production.
This combined with the substantially larger extents of land under smallholder management - which now accounts for 60% of all Tea land - are the reasons as to why smallholders account for the majority of production.
“This fact ought to be plainly obvious, even to people outside the industry.
The fact that a person advising our line ministry on policy matters could be ignorant of these simple ground realities is therefore a matter of serious concern for the Planters Association and for all industry stakeholders,” Rajadurai contended.
Unfounded allegations of mismanagement
Turning his analysis to allegations of mismanagement and inefficiency on the part of RPCs, Rajadurai challenged critics to support their arguments with evidence instead of resorting to vague and sweeping anecdotal criticisms while totally ignoring key performance indicators that completely debunk such criticisms; such as the relationship between subsidies and performance and costs of labour vs overall cost of production.
Under state management, the annual loss of JEDB/SLSPC averaged Rs. 1.5 billion a year, equal to Rs 13 billion in current terms. Similarly, the JEDB/SLSPC were collectively granted annual subsidies of Rs. 5 billion which would today be worth Rs. 40 billion. Despite such substantial assistance, the state companies were still Rs. 4 billion in debt by 1990 and a further 3 billion by 1992.
Similarly, average daily labour wages prior to 1992 stood at 66% of the value of High Grown kilo of Tea, as compared with a 2016 ratio of 162%. If pre-1992 ratios are extrapolated under ‘ceteris paribus’ conditions, the comparative labour wage should be Rs.297/-, where the minimum wage currently stands at Rs. 730.
Meanwhile, the average Cost of Production (COP) as a ratio of the daily wage rate under state management was as high as 140% even without any of the taxes, leases or rates currently paid by RPCs.
Under RPC management, this ratio is reduced to 73%, clearly vindicating the efficiency gains made across the production process under RPC management.
If extrapolated to pre-RPC COP ratios the current COP ought to stand at Rs. 868. Instead through sound management practices, the RPCs have been able to reduce the COP down to Rs 450 in 2016, below even the current national COP of Rs. 478.
“I challenge any of our critics to explain how they can make the laughable claim that RPC inefficiency is dragging the industry down when our costs of production are better than those seen under state management and current national averages. Even with a price advantage of 160% of the labour wage rate, where the labour to GSA rate was 66% and having received all the state support they needed, the state managed plantation sector still made losses. If we were allowed the same advantages as those prevailed under state management, there is no question that the plantation sector would be among Sri Lanka's most profitable enterprises.
“Therefore, in order to get a realistic understanding of the true impact of privatization, one need only look at the current performance of the 27 state managed estates of the JEDB, SLSPC and Elkaduwa which together have statutory liabilities in excess of Rs. 2.7 billion by 2013. At the very least therefore, we consider it extremely ironic for our critics to imply that state management was better and any discerning reader should carefully look at the facts presented to come to a rational conclusion,” Rajadurai warned.
Tea prices in 2014 January stood at Rs. 453/- for High Grown teas and have since continued to drop down to Rs. 388/- per kilo by 2015 incurring a revenue loss of around Rs. 65/- per kilo of Tea. In Dec 2016, the tea prices were Rs.449/- incurring a revenue loss of around Rs. 100/- per kilo of Tea. Likewise, the Rubber price of Rs. 377/- till end 2013 has dropped to Rs. 252/- by 2015 incurring a revenue loss of around Rs. 125/- per kilo of RSS1 Rubber. In Dec 2016, the Rubber prices dropped to Rs.240/- incurring a revenue loss of around Rs. 165/- per kilo of RSS1 Rubber.
From 1993 to 2015 alone, RPC capital expenditure amounted to Rs. 55.4 billion while payments to the Government accounted for a further Rs. 15.5 billion as compared with the pre-privatization era when the State incurred an annual loss of Rs. 1.5 billion in addition to a further Rs. 5 billion in subsidies.
From 1978 to 1991, USD 275 million (Rs. 35 billion) was invested in Plantations through World Bank, ADB and other Agencies.Though the RPCs to date loss is at Rs. 5 billion, investments are over Rs. 55 billion, clearly demonstrating a strong profit to investment ratio.
0 comments: