Economy

Mixed reactions to tea concessions

15 Nov 2012 - {{hitsCtrl.values.hits}}

Budget proposals concerning the tea sector have met with a mixed reception from industry stakeholders, who welcomed the direction of policies whilst questioning the relevance and adequacy of concessions and monetary allocations for subsidies.

The proposal calling for a reduction in income tax to 12% for exporters of organic tea was one such area of criticism.

“Frankly, we do not know who the government is targeting with this proposal because there is only an insignificant percentage of organic tea produced in Sri Lanka for the purpose of export. Therefore, this proposal is essentially a non-starter,” Tea Exporters Association (TEA) and HVA Foods Chairman Rohan Fernando said.

The TEA had submitted its own proposals for Budget 2013, chief amongst them being the association’s continued advocacy of its tea hub concept, which would have Sri Lanka establish itself as a centre for tea blending. However, according to Fernando, the TEA was not consulted during the formation of this year’s Budget.

“We maintained our request to allow the development of Sri Lanka as a tea hub. Unfortunately, the whole concept ended up being debated in a public forum without any analysis of the concepts being put forward and so, without weighing the opportunities and threats that such a system would present, our proposals were shot down.”

“This eventually led to a negative mindset amongst some stakeholders and some decision-makers in the Treasury and perhaps it was due to such issues that we were not consulted. We did not ask for concessions from the government but only policies that would enable the tea industry to grow instead of just survive,” Fernando said.

Fernando was making reference to proposals made last year by the TEA to lower the import duty on tea, thereby enabling the Sri Lankan industry to develop along the lines of a tea blending hub.

Whilst no official word on the proposals has been made, Secretary to the Treasury, Dr. P.B. Jayasundara appeared to hammer the final nail in the coffin of the tea hub concept at the last Colombo Tea Traders’ Association Annual General Meeting.

Calling for a three-fold increase in the price of Ceylon tea over time, Dr. Jayasundara stated that “the industry needs to develop on a different model altogether. However, it cannot be done by importing tea.”

Nevertheless, Fernando commended the government for taking steps to facilitate replanting programmes and promote a higher degree of mechanization in the industry. Budget proposals calling for the mobilization of long-term financing and lease extensions for plantation companies which follow best practices also met with approval from stakeholders including the Planters Association of Ceylon (PA).

“We are quite happy about funding proposals, which is an issue that we had been working on for some time before the Budget as well. There is an urgent need for replanting and many plantation companies, especially the four companies which deal with tea exclusively, require capital infusions.”

“The other issue that plantation companies have been facing of course is that 55-65% of our cost of production comes from wages and this is another reason that replanting itself is so expensive. Aside from the fact that replanting will require a gestation period of about five to six years before you can start to make any income from these plants, not even a return on investment, replanting costs are between Rs.2.75 million to 3 million per hectare and this is an expense which plantation companies simply cannot afford,” Planters Association Chairman Lalith Obeysekera said.

Meanwhile, with regard to concessions given to tea smallholders, the Chairman of the Sri Lanka Federation of Tea Smallholder Development Societies, Neville Ratnayake welcomed the proposals to allocate 25,000 acres of land to 12,500 youth from low income families.

“The average size of a smallholder plantation is just less than one acre and so we welcome this land allocation as two acres of land is certainly enough for these youth to make a healthy income off the land allocated to them.”

Approximately 60% of smallholdings are less than one acre in size, according to Ratnayake.A Rs.50,000 increase in replanting subsidies also met with approval from Ratnayake. However, he conceded that such a small increase would still not meet the targeted 2% of total land requiring replanting. The proposed increase will bring total replanting subsidy extended by the government to Rs.350,000 per hectare.

“Both these proposals are based on requests that we made and so it is an achievement for us that we have got these concessions. It’s still not enough to complete replanting programmes and if we don’t complete these programmes, there will be significant issues created. Nevertheless, this subsidy will help smallholders to manage some of the required replanting and that is a step in the right direction,” he stated.

Economy

Mixed reactions to tea concessions

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