With reference to the article by Lalin De Silva titled, ‘Tea crisis: A response to Planters’ Association’, which appeared in Mirror Business of 6th July, the Planters’ Association (PA) of Ceylon wishes to provide an accurate picture with regard to a number of issues raised in the article.
The article surprisingly refers to the “million dollar question on whether Sri Lanka has benefitted from privatization” of plantations, to which the answer should be abundantly clear to any rational individual, particularly looking at the present plight of non-privatized estates. At the time of privatization in 1992, the Government Treasury had to subsidise the two State Plantation Agencies – Janatha Estate Development Board (JEDB) Sri Lanka State Plantation Corporation (SLSPC) – to the tune of Rs. 5 billion a year.
To put things in perspective, this amounts to more than the entire amount spent by the Sri Lankan government on school text books, school uniforms and its Triposha programme in 2011 (which collectively amounted to Rs. 4.994 billion), according to the 2012 Annual Report of the Ministry of Finance and Planning. However, considering the ‘present value’ of the Rs. 5 billion subsidy provided to the JEDB and SLSPC then in today’s context, the amount would be substantially larger.
If this in itself does not justify the privatization of estates, the annual losses of the SLSPC and the JEDB at Rs. 1.5 billion per year according to the Piyadigama Report lends further credence. In addition, by 1990s, a Rs. 4 billion debt incurred by the JEDB/SLSPC was converted to equity. However, the final debt of JEDB/SLSPC was Rs. 3.3 billion according to the Plantation Restructuring Unit of the Ministry of Finance (1991).
Has the country benefited?
Since privatization, from 1993 to 2012 alone, the total capital expenditure of the Regional Plantation Companies (RPCs) amounted to Rs. 55.4 billion, dividends paid to Sri Lankan shareholders Rs. 6.8 billion, lease rental paid to the Government Rs. 6.5 billion and Income Tax paid to the State Rs. 1.3 billion. Any intelligent reader can therefore decide whether Sri Lanka has benefited from the privatization of the estates.
De Silva’s article indicates at the outset that there are many “watchdogs” and “no one should fool around with state property”. The Planters’ Association fully agrees with the sentiment and if that be the case, invites the writer to far more closely observe the performance of the 36 non-privatised estates managed by the state. The ‘Watchdogs’ should be howling as by 2013 “the capital required to settle the statutory liabilities of EPF/ETF and gratuity of 3 State Plantation Corporations was Rs. 3 billion” according to the Ministry of State Resources and Enterprise Development.
The article claims that “PA served the industry well during the pre-nationalised period prior to 1975”. This is indeed a flawed statement and does grave injustice by ignoring the unmatchable service rendered by the Planters’ Association (PA) post 1975 (in the highly turbulent period in which plantations were nationalized) through the likes of the late Sepala Ilangakoon, under much tougher and challenging conditions than the pre 1975 era.
The article is very reluctant to “compare statistics” and states that “the plantation industry does not have established and accepted standards to interpret” which one would not expect from a ‘veteran Planter’ as RPCs can easily be compared with the non-privatized state plantations which got the benefit of the brightest of government brains, all government and state machinery support, political clout and the dispensation that accompanied it since 1992. The RPCs’ extent of Tea Hectarage in bearing from 1992 reduced to 82 percent by 2012 (from 84,778 Ha to 69,747 Ha), workers reduced to 59 percent (from 327,123 workers to 193,412 workers) but the total made tea production increased 12 percent (80.2 million kilos in 1990 to 90 million kilos), demonstrating greater efficiency and robust performance on the part of the RPCs.
Superior performance of RPCs
Meanwhile the non-privatized JEDB and SLSPC Tea crops declined to 64 percent in JEDB (3.4 million kilos to 2.2 million kilos) and to 70 percent in SLSPC (3 million to 2.1 million) in the same period. In 2012, RPCs made Rs. 7.20 profit per kilo of made Tea on average while the JEDB made a loss of Rs. 96.92 per kilo, SLSPC Rs. 59.76 per kilo and Elkaduwa Plantations Rs. 126.87 loss per kilo according to the Ministry of Plantation Industries’ Statistical Booklet 2012. Despite the writer’s assertion to the contrary, these performance indicators would give an idea even to an average layman of the superior performance of the RPCs. The article has further queried as to why no RPCs have offered to hand back the estates. Decisions of this nature will have to be taken by the shareholders.
There is no statute that 2 percent should be replanted with vegetatively propagated (VP) Tea each year, as clearly indicated in the PA’s previous response to the writer. The PA would be pleased to have a copy of the Gazette published in the early 1960s referred to by the writer, if he has one. The ‘Indenture of Lease’ which the RPCs have signed has no condition anywhere regarding replanting. However, since privatization from 1992 to 2012 period alone, the RPCs have replanted 21,237 Ha out of the available 36,347 Ha in VP Tea. This is 58 percent of the existing VP extent.
It should be noted that many points indicate that a ‘statute’ to replant 2 percent in VP, referred to by the writer did not exist, since if so how can it be that since the mid 1950s when VP was first introduced, for a period of 32 years (1960 – 1992) only 30 percent of the JEDB/ SLSPC hectarage was in VP Tea according to the Ministry of Plantations Statistical Book (1991)? The article also claims that certain Rupee companies followed this requirement to the letter. However, according to the “Report of the Commission of Inquiry on Agency Houses and Brokering Firms” (1974), the “All Island Rate of Replanting” was 0.53 percent in 1965, 0.60 percent in 1966, 0.88 percent in 1967, 0.88 percent in 1968, 1.09 percent in 1969 and 1.05 percent in 1970.
If as the writer claimed before 1975 no plantations deviated from “the law” then how can it be that only 12.4 percent of JEDB and 8 percent of SLSPC fields were in the yield per hectare (YPH) category of 1,600 to 1,799 kilos, 4 percent of JEDB and 3 percent of SLSPC estates were in 1,800 to 1,999 kilos YPH category and only 2.5 percent of JEDB and 2 percent of SLSPC were in YPH category over 2000 kilos at the time of privatization in 1992? If the facts are so, what justification is there for “someone to check” whether 2 percent was replanted after privatization in 1992 when the annual rate of replanting by the RPCs within the 20 years has already contributed to 58 percent of the existing replanted area?
The shareholders of RPCs through their representatives on the Boards are fully aware that according to the Tea Research Institute’s calculations, it would take 25 years to recover the investment of replanting but according to the current rates it will now take 35 years. The Boards of the RPCs review capital expenditure very rigorously during Board Meetings and intelligent decisions are taken regarding Capital Investments by them.
Why guaranteed green leaf price?
The article also claims that “smallholders who produce 70 percent of the crop have managed to survive because they know the value of replanting”. Then with what logic has the government given the smallholders a guaranteed green leaf price of Rs. 80/- per kilo? The Tea smallholders have replanted only 25 percent of the existing VP hectarage (25,707 Ha out of 104,843 Ha) for the period of 1992 to 2012 while RPCs have replanted 58 percent of their existing VP during the same period (21,237 Ha out of 36,347 Ha).
Although the author has claimed that only a ‘few’ RPCs have gone in for value addition, over 90 percent of the RPCs have by now gone into value addition of their primary commodity. The author also claims that he is surprised now to learn that there is no minimum requirement or compulsion to replant tea in ‘Management Contracts’ signed by the RPCs. In the first instance, there are no ‘Management Contracts’. The RPCs signed only an ‘Indenture of Lease’, a copy of which we will be pleased to provide to the writer. The writer is at liberty to question the Plantation Restructuring Unit about the non-existent ‘Management Contracts’. The state of the losses incurred and the debts incurred by the non-privatized estates as explained earlier in this article clearly suffices to answer the question whether the so called ‘Management Contracts’ looked after the interests of the citizens of Sri Lanka or RPCs when the performance of RPCs and non-privatized estates are compared.
The article claims to have “factually produced causal factors of the weak financial performances of the RPCs” and also claims of giving a “helping hand to wake up and speed up for survival”. However, unfortunately, since the article is based on incorrect information as clearly indicated above, it does not provide a single practical solution to the plantation industry’s present woes and regrettably it appears to be critical of the RPCs with no valid justification. While the Association welcomes constructive criticism, it urges any commentators to be responsible in their comments and base their conclusions on fact, not on mere idle speculation.
The writer has concluded quoting Sir Albert Einstein regarding insanity. It is also appropriate to note however that it was Charles Edward Montague who said that “War hath no fury like a non-combatant”.
(The writer is the Chairman of Planters’ Association of Ceylon)
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