Business Times

Plantation sector doing well – officials, firms say

By Natasha Gunaratne

Plantation companies and small holder sectors are performing well, according to the Chairman of the Sri Lanka Tea Board (SLTB) Lalith Hettiarachchi.

“The tea sector has recovered in the sense that demand has always been good. Whether in a recession or in a boom, people drink tea,” Mr. Hettiarachchi told the Business Times this week. “Over the past two months in January and February 2010, we had good prices and production was also reasonably high although we were a little worried that the quantity going into the acution was a little higher than usual.” He explained that from the second week of January, the volumes coming to the auction was more than 7 million kg and at times, 7.5 million kg or more which could have brought down prices. “It didn’t and prices remained stable.”

Mr. Hettiarachchi said that the problems faced by the industry such as the liquidity crunch in the latter months of 2008, brought by petroleum prices declining, have stabilized.

The buying capacity of Sri Lanka’s largest export markets, the Middle East and Russia and others, has also stabilized, he said. In terms of the global outlook for the industry, the Food and Agriculture Organization (FAO) has predicted that tea prices will remain stable at current levels.

However, Mr. Hettiarachchi said demand is around 1% less than supply so there is a tendency for prices to come down. He added that there is a move by the FAO to promote tea consumption more in tea growing countries. Sri Lanka has reasonable levels of consumption, around 1.4 kg per capita whereas Kenya is about 0.5 kg per capita. India and China have consumption rates of around 0.6 kg and 0.7 kg per capita which have to be improved. Mr. Hettiarachchi said that already, India has indicated that their tea consumption is rising which means their exports will be reduced.

Mr. Hettiarachchi said the SLTB is not too concerned about consumption in Sri Lanka because levels are good. “We produce 300 million kg of tea per year. The average is around 300 million kg although in 2008, we had 318 million kg. This came down in 2009 where we produced 294 kg.” He further explained that from every lot offered at auction, around 4 kg are siphoned off for sampling. Not all of that is consumed for sampling so around half that amount goes into the local market. “Usually, around 5% to 6% of total production goes for local consumption.” He also said that promoting Sri Lankan tea abroad and expanding global promotional activities will depend on how much funds the industry will receive from the Treasury.

“Our promotional expenses have been limited over the years. We get around Rs.150 million to Rs.200 million for promotional exercises which includes maintaining our promotional staff, incentive payments and participating in trade fairs.”

Mr. Hettiarachchi explained that in 2009, they had to stop participating in certain important trade fairs. “Exporters went and participated on their own without any subsidies.” He said this decline in funds for the industry has been brought to the attention of the Treasury but that the government may have other priorities. “We have to review our participation in trade fairs and cut down.” Pravir Samarasinghe, CEO Richard Peiris Group said their plantation sector has done very well during the last quarter ending 31st December 2009.

“Our plantations have done quite well on top of strong rubber, tea and palm oil prices. This is notwithstanding the unprecedented 42% wage increase which had a huge dent on the profitability of our plantations,” he noted.

He also said that for the nine months ended 31st December 2009, Rs. 444 million gratuity provisions were accounted for in this sector. “If not for the impact from this provision in these plantations, Kegalle, Maskeliya and Namunukula would have done even better,” he added.

The head of one of the leading tea companies in Sri Lanka told the Business Times that tea does not take that much of a hit during a crisis because people don’t stop drinking it. The trend is that when there is an economic crunch, people switch from more expensive beverages such as fruit juices to tea which is much cheaper. “There wasn’t much negative growth,” he said.

Companies that reported losses have attributed it to the financial crisis and the huge wage increase that was given workers in the Plantation Collective Agreement. He said that fortunately, markets have been better this year and the industry is looking forward to a better year. With the present trend in tea and rubber prices, the industry should do well as long as costs are kept under control. He added that his company is embarking on several marketing initiatives.

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