Plantation sector shows healthy earnings potential

The plantation sector on the Colombo bourse gained 42.7% since December 2007 to date recording 835.6 index points (since April 2007 it has increased by 99.1%) due to healthy earnings potential and the strong second half in 2007, according to a Lanka Securities (Pvt) Ltd report.

The report noted that most of the plantations reported fair return on investment compared to the high inflation in the country. Currently there are 18 plantation companies listed on the Colombo Stock Exchange while tea, rubber and oil palm are the main income generating crops of these companies. In order to reduce the risk relating to the dependency on the main crops, most of the companies have diversified into other sectors such as coconut, forestry, mini hydro power generation and tourism.

The local plantation industry enjoyed one of its best years in 2007, with substantial improvement in prices of Tea, Oil Palm and relatively high rubber prices.

The report said that the average tea prices increased 39.7% to a record high of Rs.279/kg in 2007 mainly due to supply side constraints (Kenya political violence soon after the election and changing global weather patterns resulted in a drop in global tea production). “In addition increasing purchasing power of Oil producing countries resulted in high demand for tea and in turn resulted in high prices (around 51.1% of Sri Lanka’s total tea exports were distributed among the top 20 oil producing nations including 16.6% to Russia),” the report said.