No quick fixes for industry dynamics, but will bring transparency and fair play: Navin
26 Nov 2015 - {{hitsCtrl.values.hits}}
By Shabiya Ali Ahlam
Sri Lanka was once proud of its high-performing tea, rubber and coconut sectors, but lack of emphasis and proper direction over the years have resulted in these areas to witness dampened progress.
Having inherited a space that requires rigorous work and bold decisions to ensure its revival, Plantation Industries Minister Navin Dissanayake is in the midst of conceptualizing strategies to put things right.
Promising the plantation sector will be developed in a transparent manner with the engagement of all its stakeholders, Dissanayake is confident he can “turnaround” the industry.
Mirror Business sat down with the minister for an in-depth interview where he shared his vision, plans and strategies to promote the plantation sector to the next level.
Following are the excerpts:
What was the status of the plantation sector when you took over?
It’s been nearly two months. When I took over, the global prices were very low - it was Rs.368/kg in the auction and as of this week, it is standing at Rs.406/kg. There seems to be an upward trend. Everything is reflected on the prices, based on the supply and demand. For low grown, there was a crisis earlier but it is easing off since the smallholders are getting a better price.
For high gowns with winter coming in, we seem to be on an upward trend as well. We have got permission from the Cabinet to buy tea from the auctions. We haven’t exercised that option yet, but if we feel that the prices are likely to experience a significant dip, then we will intervene to stabilize.
It must be stressed that currently the global tea industry is going through many fluctuations, particularly due to the situation in the Middle East. The demand side is significantly affected. It is really to do with the global situation and not to do with the domestic issues.
Long term, there are domestic issues such as the cost of production, which we must cut down. The yield and labour are two other issues that must be addressed. The wages paid are not linked to productivity and we feel the long-term solution is to link the two factors for the betterment of the industry.
What is your vision for the plantation sector?
I was the Deputy Minister during Prime Minister Ranil Wickramasinghe’s first government in 2001. I held that post for two years, so I have a fair amount of knowledge on what is happening and what should be done. My vision is to make the three sectors - tea, rubber, and coconut - to be highly competitive, sustainable and long-term productive crops for the country.
For that we have to take the ideas of the stakeholders and also deregulate as much as possible.
Rubber and coconut have a lot of potential for value addition.
For tea, we must make a long-term market-oriented plan, wherefore the next decade we will have solid markets that will open new vistas of opportunities for local investors and producers.
According to you, what led to the sector’s current fall?
Global factors have contributed to the fall quite a bit. When you take rubber, we don’t produce enough for value addition. Most of it is brought. The issue is that the global prices are low, so the producers are not getting any return for their productivity.
Same goes for tea. Tea is in a depressed situation due to the turmoil in the Middle East, the sanctions on Iran, the Russian rouble collapsing. It is for this purpose that the Prime Minister has established an inter-ministerial committee to enter new markets.
We are now bullish on Iran as the sanctions will be lifted by December. The new alignment with Russia and with developments in the Middle East will ease the situation.
Of the new markets we are looking at, China is one we are closely eying. India and Pakistan are two others. Under the free trade agreement (FTA) with India, we have allowance to export 10,000 metric tons and we have not made use of this.
Traditional markets such as the UK have collapsed. Despite having had a strong presence in that country, the CTC teas have taken over. We need to start fresh and explore Europe and even Latin America, where there is a trend towards tea. This is an area that we will be focusing on during our campaign for pure Ceylon tea.
How about coconut?
I am very bullish on coconut because the prices are good. There is value-addition potential for products such as energy drinks. From coconut water to husk, everything can be used.
We want to facilitate that process of investment into the country. Even within Sri Lanka, coconut virgin oil had a tremendous trend over the last one year and there is significant interest to enter this space.
However, in the coconut sector, a number of competing fractions are there. The ministry is looking to regulate and have a balance where everyone is given a fair share. We have only a certain amount of coconut shells coming every year and for that amount, there is a lot of competition. There has to be a fair mechanism where the producers, desiccated mill owners, coconut growers and exporters can have a fair share of the produce.
What hurdles do you observe in driving your strategies forward?
The cost factors. The glyphosate ban will now be an additional factor as the Regional Plantation Companies and even the smallholders use this to kill weeds. There is no other alternative cheaper product.
So cost is the main challenge I have, where I would have to do a real management exercise with the plantation companies and stakeholders and drive it to them to contain the same.
India extends a subsidy on electricity for agriculture. We don’t do that. We don’t seem to have a macroeconomic policy of encouraging agricultural produce.
Sure we provide a subsidy in terms of fertilizer, but is that productive?
I personally don’t believe in subsidies, those that are ad hoc and not targeted properly. I feel that the main challenge for tea, rubber and coconut will be on cost-driven factors. There will be a process of rationalizing to either contain them or bring them down further.
Do you acknowledge the current subsidy programmes are ad hoc?
Yes. I think even the brought leaf subsidy for tea smallholders that guarantees Rs.80; there is a lot of evidence to say that it has not really worked. They didn’t ask for it, but we gave it to them. Clearly they have now got used to that system. The prices have dropped and the government finds it difficult to maintain it. They are now used to a cycle that is counterproductive.
We are of the view that such subsidy programmes, which do not add value to the industry, should not be maintained.
Although the shocks may be quite severe when we withdraw the same, it is the market that should dictate where the resources should go. Dilution of government resources to subsidy programmes should be looked at a macro policy level and directed in a proper manner.
The industry has criticized the plantation sector being highly controlled, especially tea, hampering progress. Would you agree?
It has to be a process of balance between regulation and deregulation. Deregulation should happen by making sure that investment comes in by cutting red tape.
But some areas need intervention, for example in refused tea. If the Tea Board does not intervene, there will be a huge amount of refused tea coming into the market.
As of now, the refuse tea problem is quite severe. I have given strict direction to the Tea Board together with the special taskforce and the police to regulate this market. We cannot have the pure Ceylon tea brand that has been built up over the years to be diluted by refused tea coming into the market.
So, will there be some liberalization in the future?
Yes. I want to move more towards that. I want to take out any regulations that will hamper investments into the industry.
The Ceylon tea brand is losing its presence in the global space, largely due to improper and delayed marketing, communication and promotions. When will the mega campaign actually kick off?
We signed the agreement with Phoenix Ogilvy earlier this month. This was long overdue. There was a three-year delay. The good thing about that is the funds have built up. We have about US $ 50 million, which we hope to utilize in a very transparent manner to the benefit of the industry.
All stakeholders are on the tea boards and they can give their inputs on how and where we should have the campaign. The reach of the campaign is also very important.
I want to have a broad-based discussion with all the stakeholders and have a properly targeted marketing plan for pure Ceylon tea.
Even the word Ceylon, the younger generation of tea drinkers doesn’t know where Ceylon is or what it is - so even that is questionable - the pure Ceylon tea concept.
I am open to any suggestions but finally the execution of the marketing plan has to be in place. We are in discussion with Ogilvy to fine tune the marketing plan to suite the requirements of the industry.
When will the global campaign be launched?
By January 2016 it is likely to kick off.
To some extent, the industry is also not in agreement with the government intervention with the auction, considering it to be detrimental to the sector. Will the ministry still go ahead with it?
I made that call together with the Prime Minister. We discussed it with all the stakeholders. Maybe one or two expressed their concerns. Everybody knows that something has to be done. There are no quick fixes. The only long-term solution is to make sure there is stability in international prices, which unfortunately a middle level player like Sri Lanka cannot do. But is seems that the shelf prices in international markets haven’t reduced, so there is something wrong somewhere. As of now, I don’t seem to be getting the answers as to where the problem actually is.
The intervention is something I feel is necessary. We have received the nod from the Cabinet for this, but we haven’t utilized that mandate yet. If the prices further reduce, then we will intervene.
This scenario was there in 2008 during the Iraq war. The Tea Board intervened at the auctions to stabilize the prices. Although the same factors may not be there in 2008, the principle is that when intervention takes place, there is some amount of success.
The rubber sector’s situation does not look too good. What is being done to revive this space? Is it even possible?
The situation is not as bad. The rubber prices seem to be seasonal and are fluctuating. We hope within the first quarter of 2016 the prices will pick up. Unlike in tea where the smallholders actually depend on the industry for income, demographics for rubber are a bit different.
Rubber holders seem to have estates as an offshoot of their income. Mostly the middle-class government servants and professionals seem to have small rubber estates, so there is a bit of change in that.
We will ensure that the rubber industry will go on, as it is one that has been there for a long time. I am trying to stabilize the prices, but it is difficult to do without government intervention.
I stress the opportunity for value addition in rubber is huge. We have formulated the rubber master plan 2015-2024, which has a number of activities planned. If we can implement this, I think the long-term sustainability of this industry can be looked into seriously.
The master plan envisages altogether nine goals, such as capturing 0.5 percent share of the global market on rubber production, gaining 1.5 percent share of the global natural rubber market and adding value to at least 85 percent of the rubber produced in the country, while the remaining 15 percent will be exported as specialty raw rubber under a Sri Lankan brand.
I have already appointed rubber specialist Lakna Paranavithana as an advisor to the ministry. That shows the seriousness I have on rubber. I am certain that if I have about three years in this ministry, I can turn this sector around.
The industry has said it has been ignored for a long time, a key reason for its current turmoil, according to its players. Why is this so?
I agree with that. Rubber has not had the same emphasis as tea. Coconut has been doing things on its own without any big vision. Rubber has not been given the due respect and attention it deserves.
The Cess imposed is deemed to be unfair, especially now when the situation is rather grim. Is the government looking to revise this?
No. We feel that the Cess has to be there for all three crops. This goes directly to the Treasury from where it is reimbursed to the ministry. At the moment, we have no plans to revise this, since that is what the ministry, relevant departments and institutes run on.
Although it might seem unfair when the prices are low, when the price goes up there is no increase of the Cess as well.
Would the government consider imposing a Cess rate proportionate to the prices?
No. That will make the exercise rather complex. Every three months we can’t be revising. When there is a cyclical movement of prices we can’t be changing.
The wage agreement is at a deadlock. It was proposed by the employers to extend the current agreement for one more year. What decision has been made in this regard?
There is a standoff now since the trade unions are asking to increase the wages to Rs.1000 from Rs.550. That is a 90 percent increase. There is a ballpark figure of about Rs.750 to Rs.800 that the companies can work on, but the trade unions are not in agreement. We feel that the wage increment should be linked to productivity. But as of now there is no agreement to that concept.
The future of the industry clearly lies with wage increases linked to productivity. Cost of production is very high in Sri Lanka compared to Kenya and Vietnam. Productivity must come in. As the minister in charge of the sector, I will espouse that view. It has to be a win-win for both sides.
At the moment the wage agreement is being negotiated at the Labour Ministry. I don’t expect a finality to be reached till March 2016.
What do you expect from the plantation sector players to help bring it to a better position?
One of the toughest situations I had to face earlier when I was the Deputy Minister was to bring the stakeholders together. I did that by forming the Tea Federation, which collapsed after I left. There doesn’t seem to be much bonding between the stakeholders of all the sectors. One of my roles will be to bring the stakeholders closer to have a better relationship and communication among them.
The plantation industry is not the same as it was 30 years ago, it is much diversified. We take up the role of a policymaker, regulator and facilitator, while bringing in proactive ideas.
If I am successful in a couple of the niche initiatives proposed, I can say I have succeeded to some extent. I cannot change the whole dynamics overnight. But I will bring to the table transparency, honesty and fair play between all the stakeholders so they will have a more conceptual approach.
Any message you would like to give out?
The dynamics of the industry has changed over the years. When my father was the Plantation and Industries Minister early in the 1990s, the smallholders didn’t have such a huge say. They were about 40 percent and now they are 73 percent. The day-to-day operations of the smallholders are also important for the government. While maintaining a balance between the macroeconomic policies, the microeconomic policies affecting the niche sectors will have to be seriously looked into.
Overall the macroeconomic policies of branding tea must have a global link to get better prices. A sustained marketing campaign will enhance the value of Sri Lankan tea and that is where we should go.
In coconut and rubber, there will have to be policy level approach to add value to these sectors.
Controversial decisions such as blending will also have to be looked into. There is a big cry for this; I hope to have a conceptual approach towards this. Let’s see how the industry takes it.
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