Plantations, a pillar of economic growth



By Roshan Madawela

Plantations have long been a powerhouse of the Sri Lankan economy. Now, with the introduction of a new national policy framework some renewed investor confidence has emerged in recent weeks.

Tribute to a founding father

May was the month that marked the 125th death anniversary of James Taylor, widely acclaimed as the Father of the Tea Industry in Ceylon. Taylor was born in Scotland in 1825 and moved to Sri Lanka in 1842 when he was 17 years old.

He stayed at Naranhena before being sent to Waloya estate where he settled into his log cabin. He spent most of his time and money constructing roads and clearing ground for coffee planning, distinguishing himself as a natural technician and pleasing his employers immediately. His experiments and innovations made a significant contribution to the modern-day industry. He designed the tea roller run by a water wheel which served as the first steeping stone in the industry. Tea’s produced by him earned the highest prices at the London Tea Acution in 1873.

Of the 19 acres of tea he planted in 1867, only five are still yielding crops. Remaining a bachelor throughout his life, he is known to have taken just one holiday in 40 years. On May 2nd 1882 he passed away in his Loolecondura Estate log cabin within two days of contracting dysentery. He died at the age of 57. However, his contributions live-on and his achievements have won him the Silver Tea Service award form the Planters Association. Visitors to Loolecondura Estate can still see the wheel and the chimney of his log cabin whilst his grinding stone, tobacco pipe, plate and the wheel of his rickshaw can be found at the Tea Museum in Hantana, Kandy.

Colombo Auction maintaining momentum

Returning to the present times, The Colombo Tea Auction saw a slight improvement in total tea volumes traded during May whilst the Ex-estate tea volumes remained around the 1Mkg mark. Prices held previous highs and in some cases gained further according to analysts at Bartleet Produce Marketing.

In the Tippy market, Iran and Dubai started the month as the frontline buyer playing an active role before easing up as the CIS took a more active role towards the month’s end. In the leafy segment, brand buying was a significant feature during mid-May whilst exporters representing Libya also featured prominently for a time. Otherwise, it was the usual players representing Dubai, Turkey and Syria who were making waves.

There was no widening of price parity as was observed during April as a result of the easing out of future supply concerns. Amongst the low grown teas, the same price levels were maintained for most varieties with the best teas picking up in most cases. With reference to the high grown crops, a marked upward priced movement could be noted with some varieties gaining significantly. Western High Grown teas rose by between Rs20-40 whilst all grades of Western Medium, Uva/Udupussallawa’s and CTC teas were up by between Rs10-20 per kg.

Fortunately, fears of adverse weather have now passed and the crop levels in the near future are steadily picking up to pre-industrial action levels. The main concern at this point might be quality as evidenced by the last sale of the month that witnessed buyers picking up on all decent lots that were available.

Plantation policy now in place

May witnessed the launch of a National Plantation Industry’s Policy (NPIP) at the Sri Lanka Foundation Institute. The policy framework that covers Tea, Rubber, Coconut, Cashew, Palmyra as well as oil palm was introduced by the Minister with a view to bringing greater stability to the sector. Agriculture grew 1.3 per cent in 2006 whilst the overall GDP growth was accounted to grow at 7.4 per cent.

The main thrust of the policy was described as increasing productivity and profitability of both the corporate and small-holder sector. Cashing-in on favorable global market trends by producing high quality teas is also a facet of the strategy. Currently, small-holders dominate the sector with a yield of around 2,450kg/ha as compared with 1275kg/ha in the corporate sector. Low productivity of aging bushes and inconsistent use of fertilizer might be some of the contributory factors for the discrepancy according to some analysts.

Senior officials responsible for the NPIP said it would propel Sri Lankan teas to the pinnacle of global tea over the next ten years with appropriate product and market integration. Other facets of the strategy will include building public-private partnerships, better research and development, increasing the size of the aging workforce, promoting better land use, facilitating quality certification of factories, crop diversification, and market intelligence.

The total tea production in the tea sector at present is Kg320 million for 222,000 hectares and its contribution to the GDP in 2005 was 1.2 per cent when average Colombo Auction Price stood at Rs.185.84 per kilo. Tea makes 70 per cent of agricultural exports according to data. Crops for the first four months of the year are down by 21.7Mkg or 20 per cent as compared with the corresponding period in 2006.

Industry players, not impressed

However, the Colombo Tea Trader Association was not altogether impressed with the new initiatives as several bones of contention were still being debated. Foremost amongst these is the government plan to a further increase the export cess by Rs2. In a statement the CTTA said that “the tea industry is overwhelmingly opposed to this maneuver, as the imposition of any additional cess would have a distinctly negative
impact on the industry”. The industry has long claimed that the government was acting in bad faith, against the principals of the export cess, and misusing the revenues which are supposed to be used for the benefit of the industry.

Additional complaints were also leveled at the government from a former head of Sri Lanka’s Shipping Council. The islands’ exporters are facing additional difficulties caused by delays in processing VAT refunds. The situation is forcing them to borrow at high costs and placing a strain on the daily working capital needs of smaller companies. The Inland Revenue Department is reported to have said they will clear the two-billion rupee backlog in October 2007.

Stocks slump, then impress

The markets as a whole were well down during May as a series of security related incidences knocked the stuffing out of investor confidence. The ASPI fell from 2787.30 to 2506.32 whilst the MPI drop from 3845.38 to 3543.83 during the month. However, the plantation stocks faired comparatively better. Whilst they started the month on the slide, week three witnessed a marked improvement and by the final week Plantation stocks were number two on the ‘top sector gainer’ list improving by 3.06 per cent whilst the overall market lost between 1 and 1.5 per cent (BMS Research).

Currencies sable

As forcasted by Bartleet Mecklai and Roy (BMR) analysts last month, the rupee maintained its value at between Rs110.80 and Rs111.00 for much of the month. Exporters can expect to see the currency trade at between Rs110.6 and 110.9 during June. The strengthening is due to Central Bank attempts to control inflation by mopping up funds and converting dollars into rupees according to BMR’s senior analysts.

INTERNATIONAL NEWS

Indian exports to Pakistan hit record levels

Riding on a 50 per cent hike in tea exports to Pakistan, a delegation of Indian growers, traders and exporters led by the Tea Board visited Lahore, Peshwar and Rawalpindi in May to further boost cross border trade and business. Marking the first such visit since 2004, the 12-member team included stakeholder from all parts of India as well as from Dubai.

In 2006 Pakistan imported 14.75Mkg of Indian tea as compared with 10.99Mkg in 2005. However, Pakistan is a 170Mkg tea market and imports around 100Mkg’s annually. Kenya accounts for some 85 per cent of the imports with India in second place. Smuggling is said to account for between 60 and 70Mkg. The Pakistan market is less inclined towards orthodox Sri Lankan teas and more fond of the CTC teas from south India according to the Pakistan Tea Board.

GL signs with Israeli counterpart

Minister of Export Development and International Trade visited his Israeli counterpart earlier this month as the two signed an agreement of economic cooperation. Last year saw Sri Lankan exports to Israel rise by 33.5 per cent whiles the latter’s exports to Sri Lanka also increased by 34 per cent. After diamonds and ready-made garments, tea was the next most popular export from Sri Lanka.

Potential for Polish exports

Sri Lanka’s Polish Embassy has claimed that there is a huge untapped potential market for greet tea in Poland that exporters should try to meet. The International Tea Committee indicates that Poland has been importing some 30000MT of tea for the past seven years. Whilst black tea accounts for some 95 per cent of the volume, green tea is said to be gaining ground as people start to discover the health benefits of the latter.
Sri Lankan customs data indicates that exports to Poland have steadily increased during 2000-05 from $12.77 million to $20 million. Tea accounts for around 60 per cent of the exports.

Around 88 per cent of the exported tea is in bulk form where Unilever and a number of Sri Lankan firms have blending and packing plants in Poland. The green teas are imported from China and Vietnam.



Tea can prevent arthritis, too

A researcher from the University of Michigan Health system has told attendees at Experimental Biology 2007 that Epigallocatechin-3-gallate (EGCG) extracted from green tea may inhibit the production of inflammatory molecules associated with joint damage in people with rheumatoid arthritis.

The latest finds are in addition to earlier research that suggests green tea can help lower risk from certain cancers, serve towards weight loss, boost the heart health and protect against Alzheimer’s.

Dubai’s one-stop-shop plans expansion

The Dubai Tea Trading Centre (DTTC) has announced plans to expand and accommodate an increase in activity. It is will consist of a new centralized tea storage, blending and packaging facility in order to increased workload. The facility will also include office space to conduct tea business and is planned to be fully operational by early 2008. Dubai’s total trade in the first two months of 2007 touched 18.3Mkg, up from 16.2Mkg last year. The DTTC started operations in March 2005 and had an immediate impact on the existing trade, functioning as a one-stop-shop that provides a variety of value added services to the trade in the country.

DTCC processes teas from 13 producing countries including Kenya, India, Sri Lanka, Indonesia, Malawi, Rwanda, Tanzania, Zimbabwe, Ethiopia, Vietnam, Nepal, China and Iran. It facilitates sales with buyers in the GCC countries, Iran, Iraq, Jordan and the CIS.

Stronger ties with the Maldives

A bilateral business council is expected to be formed between Sri Lanka and the Maldives in order to promote trade and investment. The Maldives is Sri Lanka’s third larges trade partner in south Asia. Currently, tea features as one of the top five exports into the Maldives.
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REFERENCES:Sunday Times, Sunday Observer, Ramani Kangaraarachchi, Colombo Tea Traders Association, LBO, Sunimal Fernando of the Sri Lanka Tea Board

Copyrights Reserved (RIU 2007).