Financial Times

President seeks strategies to minimise impact on withdrawal of fertilizer subsidy

Private tea factories faced with closure
By Feizal Samath

Tea workers at an estate in the central hill region. The removal of the fertilizer subsidy has adversely affected the trade that could leave 300,000-odd smallholders in the lurch.

A week after tea plantation companies complained about the withdrawal of the fertilizer subsidy, owners of some 300 private tea factories declared that costs were rising so much that factories are faced with closure leaving 300,000-odd smallholders in the lurch.

“We are having a special meeting on May 8 where we hope to pass a resolution that we may have to close our factories due to high costs if the government doesn’t respond,” noted Edward Welikala from the Private Tea Factories Owners Association (PTFOA).

Association President Padma Nanayakkara, during a meeting between a group of association members and The Sunday Times FT, said: “We simply can’t manage. Costs have gone up due to various reasons with the withdrawal of the subsidy adding to our problems.”

But there may be some re-thinking on the subsidy issue. Some tea industry groups discussed the issue with President Mahinda Rajapaksa who ordered officials to work out ways of minimising the impact on the industry.

H. Wijeratne, Additional Secretary at the Plantations Ministry who was present at Tuesday’s meeting also attended by Treasury Secretary Dr P.B. Jayasundera, said the President wanted the Ministry to work out a mechanism where the impact of the withdrawal of the subsidy would be minimised. “The President was told that while rubber is doing well and profits from that crop can absorb the extra fertilizer cost, tea growers would be badly affected,” he said.

Coconut producers also raised alarm bells saying the subsidy that was withdrawn for tea, rubber, coconut and vegetables would kill an industry already struggling with uneconomic production costs. It is only rubber that is enjoying one of the better periods with a neat Rs 100 per kg profit that could cushion the blow from the subsidy issue.

But what has most irked the tea industry is the abuse of the tea cess raised by imposing taxes on the trade but lavishly spent by tea-connected government agencies.

The cess (tax or levy) on tea sales rose to Rs 4 from Rs 2.50 from the last April 17 auction after being delayed by a few weeks following issues raised by the trade.

The cess is being used to sustain the Tea Board, Tea Research Institute and the Tea Smallholdings Development Authority. The trade alleges that while the Authority is a white elephant, several political appointments have been made to the Tea Board raising costs.

“The TSHDA is a white elephant. It has 460 officers. It costs that office Rs 1.75 for each rupee that is paid as a subsidy to farmers,” Mr Welikala, who is also a private sector representative on the TSHDA board, said.

Citing a situation similar to what the travel trade is facing vis-à-vis the Tourist Board, another association member Nawaratna Pilapitiya said; “We are not at all happy at the way the cess money is being spent. It’s not serving smallholders; it’s not helping development.”

However, their immediate priority is to ask the government to restore the subsidy. “We have tried to get an appointment to meet the Plantations Minister Milroy Fernando to discuss this crisis but we simply can’t. He is too busy,” said a disappointed Mr Nanayakkara. The minister was unavailable for comment.

The association said the minister had in fact promised at a meeting with the tea trade a month ago that he won’t allow the proposed withdrawal of the fertilizer subsidy.

Pani Dias and Dr Sarath Samaraweera from the Tea Factories Association said their industry has struggled to survive over the past few years due to rising costs. They said a subsidy on installation of modern machinery was stopped, the VAT arbitrarily removed and the cess increased.

The government is virtually killing the “goose that lays the golden egg” by this high taxation policy, the association members said noting that the country earns Rs 60-75 billion in nett foreign exchange from unlike garments where most of the inputs are imported.

Fertilizer that cost Rs 1,065 earlier is now sold at Rs 1,780 per 50 kg bag, a 60 percent increase in the cost. The withdrawal of the fertilizer subsidy will result in reduced fertilizer use, reduce yields and affect quality. Tea production this year could fall from last year’s 310 million kilograms.

For tea smallholders, the hike in fertilizer prices means costs go up while profit margins come down. Adding to the costs are the fuel hike and a possible electricity tariff change.

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