President Mahinda Rajapaksa has ordered the immediate reactivation of the Tea, Rubber and Coconut Stabilization Fund defunct for nearly years as the pricking of the global commodity price bubble has sent the prices of the country’s major cash crops plunging after two or more boom years.

As export warehouses filled up with unsold tea and several bought leaf factories were back to the wall, Central Bank Governor Ajith Nivard Cabraal said yesterday that this decision had been taken at a meeting chaired by the president with stakeholders in all segments of the tea industry represented

``The Central Bank administered Stabilization Fund was discontinued in early 2005,’’ Cabraal said.

He said that it was not funded by cess funds. The government put up the needed cash which reverted to the Treasury when the fund ceased to be active. An urgent meeting will be summoned for Tuesday at the Central Bank to implement the president’s decision.

``Many factories are insisting on fine plucking of two leaves and a bud and will not take what they describe as `coarse’ leaf,’’ a visiting superintendent overlooking private proprietory plantations said.

``On Thursday my field officer said that gunny bags of green leaf was on the roadside as collection lorries from the factories refused to accept the leaf.’’

Prices of low grown tea have been particularly affected and these teas, usually taken by Russian and Middle Eastern buyers, had been piling up unsold clogging export warehouses in Colombo.

Smallholders today are the country’s major tea producer with their crop running well ahead of that of the regional plantation companies. Bought leaf factories take smallholder leaf for manufacture and sale at the Colombo Tea Auction.

"The system runs on a lot of credit with factories, often funded by brokers in turn funded by banks, advancing cash to growers to meet immediate needs ahead of their leaf cheques at the end of the month," an industry source explained.

"Today the credit has dried up and many factories are not paying advances or calculating them on low green leaf prices."

Not only tea prices, but also rubber and coconut prices have dropped from peaks achieved in recent years and a coconut which not so long ago fetched a Rs.30 was finding difficulty to be marketed even at Rs.15.

The bounce in rubber which topped Rs.300 a kg is down to levels of Rs.200.

At a news conference last week, Sri Lanka Tea Board Chairman Lalith Hettiarachy said that they are advising tea growers to fine pluck so that factories will manufacture only good grades of tea.

"The two-leafs and a bud demand is going to the other extreme," the visiting superintendent said. "Fine plucking reduces production by 30% and this will make many smallholders stopping fertilizing their land despite the subsidy that is now granted. All this will have a knock-on effect."

Cabraal told reporters at a meeting at the Central Bank on Friday that tea prices had boomed for over two years and producers and processors should be cushioned by the profits they made in the good times if they had been sufficiently prudent.

Hettiarchchy said that growers and processors can use this period for non-production related work on their land and factory maintenance that would reduce the volume of tea piling up in Colombo.

Cabraal also noted that a de-valuation of 15% to 20% in Russia (``which is big for them’’), a major buyer of Ceylon tea, was also aggravating the problem. But he was hopeful that with the winter setting in demand would rise.

``Prices are one thing in the context of the commodity bubble collapsing, but we should be able to sell the tea we produce,’’ he said.

The desiccated coconut market has tumbled to Rs.130 from a high of Rs.157 not very long ago affecting farmgate prices of coconut.