Last year the highest net sales average ever was
recorded by the tea industry. Yet plantation companies are not
getting the required benefits due to the Economic Service Charge
(ESC) and Value Added Tax (VAT) introduced this year. What are
your thoughts on this?
Itís not only ESC and VAT but there is a need to
look at what the plantation industry supports. It supports a
very large number of workers and their families. There is a
social responsibility that the plantations offer to society at
large because plantation companies bear that burden. Itís not
only the wages and employment that they offer but infrastructure
facilities on estates as well.
Last year was one of the best years since 1997.
It was also the best year for tea prices but plantations have
not been able to take advantage of the boom in prices. The main
issue was wages where we anticipated a 22% increase. The
plantation worker does require to be paid more than Rs. 180
because they deserve a much higher level of remuneration but all
these cost millions of rupees. There has to be conditions where
the plantation sector can reap some benefits as well.
When the government imposes ESC, and VAT is
exempt for tea and rubber, there are additional costs being
incurred by us. The VAT exemption is going to cost Rs. 24
million per annum while the ESC will cost Rs. 11 billion rupees
per annum This will add to a situation where the plantations are
unable to reinvest in development and sustain themselves on an
The problem is that the government does not seem
to be able to understand the difficulties in a large industry
like this. Dialogue between the plantation companies and the
government is no longer evident. Prior to nationalisation the
plantation industry was always consulted before the budget. In
1975 when all the companies were nationalised, it became
unnecessary to consult the plantations. Thatís really the crux
of the matter. Once the plantation industry re-established
itself as a private sector entity then it became necessary for
the government to consult and look into the problems of the
My grouse is that this has not happened. The
plantation industry contributes 14% to 15% in foreign exchange
to the economy. So why not support us?
Do you feel that the tax levels were
disincentives for production as opposed to improving and
When you introduce taxes, which are going to
affect profits, then the profits that companies make are going
to be negative. When that happens there is no money being
diverted into development, such as replanting tea or rubber
plants or acquiring new machinery for factories. What has been
happening in the last five years is that plantation companies
have had their backs to the wall and they are not spending on
development activities that in the long term will yield a higher
return. Whoís going to spend Rs. 1 million on replanting tea or
rubber only to expect a return in 15 years? The government needs
to look at a scheme of assisting plantation companies to get
subsidies in replanting and infilling tea.
The input VAT is not reclaimable by us because
we are exempt from it. When tea is exported, the exporter gets
his refund. All the exporter has to do is to buy the tea at a
certain price ó he knows his margin and when he buys it at a
profit ó itís already calculated. The VAT is the icing on the
cake for him. But for the producer who bears so much there
doesnít seem to be anything, there is some disparity, which
should be addressed. The VAT exemption is going to push us back
further. It will cost Rs. 24 million a year.
Plantation companies were not replanting at
expected scales and this has had a direct effect on production
in general. Does your company face this problem and what are you
doing to offset this?
No they are not. A recent Tea Research Institute
(TRI) report showed that very little is being replanted. In the
1950ís, the government formulated a need for replanting and
there was a subsidy scheme the government introduced at that
time. The idea was when you plant 2% a year, by year 2000 you
will have 100% of the tea replanted. It never really *works like
that because subsidies were withdrawn and 2% is not very
practical in the current context 1% is practical but 2% is a
high target to go for. Itís what the government should aim at.
Has privatisation and the consequent changes in
the size and scale of operations contributed to the increase in
levels of productivity and competitiveness of tea plantations?
Is this the way forward for the plantation sector in the long
Definitely. Prior to nationalisation there was
an improvement in productivity Sri Lankaís productivity, which
was 1,100 kg per hectare, has now risen to about 1,600. This is
partly due to a large number of smallholders planting tea in the
low country. Even the labour productivity is much higher. In our
own plantations, after nationalisation, the plucking intakes ó
that is the number of kilos a plucker will take a day was around
8-9 kg. Now itís about 17-18 kg so it has virtually doubled.
We always look at the productivity of the tea
bush, of the soil or of some machine but very rarely do we look
at the productivity of the human being. I think we have come -to
a stage where we need to look at our employees and how much more
productive they can be ó that might make the difference between
success and failure.
Persistent and steep decline in the prices of
plantation produce, within the context of globalization ó be it
tea or rubber ó remains a key challenge. How does a plantation
company like yours counter this scenario?
Our company like others are price takers ó we
donít drive the market to that degree, but Sri Lankan tea
fetches some of the highest prices in the world. Thatís because
of our reputation for quality and for on time delivery. In spite
of all the hazards that we have faced like the JVP riots, the
auctions were always held on time. No auction was ever disrupted
so the delivery to the buyer was always prompt. There is
confidence in the tea trade around the world in Sri Lankan teas.
In the last financial year, Kenya took over in
tea exports but until that time Sri Lanka was number one. Iím
sure we will, be equal with them or ahead of them in the coming
years. As a major player in the production of tea, we command a
sizeable volume to keep our prices up as well. Iím optimistic
that prices will be very much better because demand has kept
pace with production.
The industry feels that unless they resort to
mechanisation, they cannot compete in world markets. But
mechanisation is bound to affect employment ó existing and
potential. Where do we find the balance.?
We find that mechanisation is becoming an
imperative - not because itís going to save costs but because we
find we are short of workers. Since we are short of workers, we
need mechanical implements that will do the job of workers. In
the low country for instance, workers are in very short supply.
So we are compelled to mechanise. Itís a happy arrangement
because we are not throwing people out of employment and
simultaneously we use mechanisation to make gains in both
productivity and in costs.
Productivity issues have emerged critical in the
face of competition from China and Kenya. What can Sri Lanka do
to increase productivity and be competitive in the global
We are competitive in the world market but if we
need to improve in productivity we will need to have a variety
of tea or what we call cultivars. This will bring our costs down
and make us competitive. We need to improve the planting
machinery and upgrade it so we can be competitive as far as
costs are concerned. It takes about five weeks for production of
tea to be converted to cash, which is a long period of time. We
will have Rs. 150 to 200 million worth of stock thatís produced
but unsold. Efficiency can be gained by improvement in plant and
machinery but also in improvement of our own auction process.
Our auction is very efficient but still itís
difficult to handle the large volumes that are coming in. There
needs to be modern technology used in the system to get the tea
from production to sales as fast as possible. That will improve
the cash flow, reduce the cost of borrowings and add to overall
One of the noteworthy features of the plantation
industry is the high level of unionisation seen in the industry.
How do plantation companies like yours deal with this?
Unionisation is something that has been there
for 100 years so I donít think it can be looked at as an
impediment. There was a need for workers to look at their rights
and there was somebody to safe guard them. I think it has come
full circle where we understand the unions and they understand
us. We have very good relations with the, trade unions and that
goes for all plantations. What we need to do now is to jointly
see what difficulties we have and sort them out.
An obvious priority is improving the
infrastructure to plantations, particularly in education and
training. Isnít the lack of these facilities a basic barrier to
With nationalisation all the plantation schools
were taken over by the government, so it is part and parcel of
the education department. Individually the planters assist
schools within their vicinity. They will for instance paint a
school or a classroom or get involved in other activities. We
donít get directly involved in education itself.
A critical issue is to bring the plantations to
the mainstream of economic development. This involves strategies
to provide basic needs to the workers. What do you think the
plantation sector needs to do to meet this vacuum?
Social conditions and education needs to
improve. Education is an area where you need much greater
assistance from governments and donors to help upgrade the
system. A lot of plantation workers are not educated
sufficiently, they drop out from school and that has to be
addressed. Living conditions need to improve and they need to be
educated to higher levels so that they integrate with the rest
of society. There seems to be some segregation.
There is a growing disinclination among the
younger generation of plantation workers in opting for
plantations as a career. How does the industry plan on
One of the drawbacks is the social stigma. Itís
a perception that needs to be changed and it canít happen
overnight. Some of the plantation companies have addressed this
issue by trying to rename workers, say Ďplucking techniciansí
instead of pluckers. But giving them a particular designation
doesnít become meaningful. The reason why some of the plantation
youth are not entering plantation work is the natural tendency
to go for white collar jobs and not get involved in manual
labour. There again itís because of the stigma that you are a
labourer. Once dignity of labour comes into plantations then
people will *accept any job.
Where would you like to see Sri Lankaís
plantation sector as a whole in the near future?
I would like to see Sri Lankan plantations
companies as a role model for the world, both in the human
resources field as well as the management and agricultural
fields. Plantation companies need to reach a state of
sustainability playing a role in corporate social
responsibility. Iíd also like to see not only the plantation
companies, but employees as well, achieving a level of
Courtesy: Plantation world