Fall in tea, rubber prices, a global trend - Planters' Association
The drastic fall in local tea and rubber prices - which has led to
major losses for regional plantation companies - is part of a broader
global trend of declining commodity prices, which is not expected to
reverse in the near future, a media release from the Planters'
Association of Ceylon said.
A tea plucker
The Association represents 22 regional plantation companies (RPCs)
collectively employing nearly 200,000 workers.
Prices are depressed at present due to external reasons and global
forecasts reflect a bleak future in the medium term for commodity prices
in general. In its 'Commodity Market Outlook' earlier this year, the
World Bank forecast a decline in all nine key commodity price indices in
The report said, "By 2016, a recovery in the prices of some
commodities will be under way, although the increases will be small
compared to the depths already reached." Indicating a prolonged slump.
The report indicates that prices of agricultural raw materials which
fell by more than 35% between early 2011 and the end of 2014 will
continue to contract this year.
Similar to other commodities, prices of tea and rubber have dropped
substantially in the world market. According to World Bank data, on
average the global price of tea in 2014 was only US$ 2.72 - which is
lower than in 2013 and 2012 - during which prices were US$ 2.86 and US$
Due to other reasons such as turmoil in key export markets including
Russia and the Middle East, the price of Ceylon Tea has dipped more
sharply. By the first week of April 2015 (on a 'to-date' basis) the
average price of tea was Rs. 66 (or 13.7%) less than it was a year
before at the Colombo Tea Auction.
The fall in price of rubber in the world market has been far more
dramatic. From US$ 3.38 a kilo in 2012, rubber (RSS3) fell by over 40%
to US$ 1.96 a kilo in 2014. In the local market too rubber (RSS3)
declined from Rs. 295 per kg in March 2014 to Rs. 217.50 per kg in
"The sharp decline in commodity prices have been highly unfavourable
to the Regional Plantation Companies (RPCs) not only directly, but
indirectly as well, since many of the major buyers of Ceylon Tea
including Russia and the Middle East are major exporters of commodities
themselves and the fall in commodity prices reduce their purchasing
ability," Chairman, Planters' Association of Ceylon, Roshan Rajadurai
"The situation has become more challenging as the fall in prices
comes at a time in which the key markets of Russia, Middle East and
Ukraine that account for over 70% of exports of Ceylon Tea, face turmoil
due to economic sanctions, currency depreciation and military conflict,"
"Buyers have thus switched to lower quality tea available at lower
prices and large quantities of tea remain unsold at the weekly Colombo
Tea Auctions. The RPCs are forced to increase borrowings to pay the
wages and other commitments to the workers and to keep the cash flow
intact," Rajadurai added.
Reducing costs through improved productivity is the only viable
solution. Due to massive losses in tea and rubber, with production costs
exceeding prices received at auctions, 19 RPCs collectively made a loss
of nearly Rs. 2,850 million on rubber and tea in 2014.
Late last year it was reported that even tea growers in South India
are facing a crisis situation amidst falling prices, despite wages of
pluckers being substantially less than in Sri Lanka and the commitment
of the companies to the welfare of their worker families also being
significantly less than in the case of Sri Lanka.
It was reported that the Indian Rubber Plantations were making a loss
for the first time in 80 years, reflecting that the global downturn in
commodity prices, in tea and rubber, has significantly impacted the
viability of not only plantations in Sri Lanka but those in the
neighbouring countries as well.
There are about 400,000 Tea Smallholders and about 200,000
smallholders in the rubber sector in Sri Lanka. Reflecting the severe
fall in commodity prices, the Government has introduced guaranteed
prices of Rs. 80 per kg for tea green leaf and Rs. 350 per kg for rubber
(RSS 1) for the smallholder sector, thus justifying and acknowledging
that the prices realised at the Colombo Auctions are not remunerative
and are below the cost of production, Rajadurai said.
"However, it is a matter of regret that the Regional Plantation
Companies, which are also producers of tea and rubber have been exempt
from these beneficial schemes while the commitments and liabilities of
the Regional Plantation Companies towards its workers and the resident
population in the plantations numbering close to one million is far in
excess and are incomparable to that of the smallholders," he said.
The Planters' Association (PA) Chairman said that Regional Plantation
Companies have to meet all statutory needs such as EPF, ETF, gratuity,
20 days paid holidays, paid sick leave, attendance bonus, maternity
benefits, statutory maternity leave, free maternal and childcare on
estates, allowances, free medicines, vaccinations, total custodian
childcare up to five years and guaranteed 300 days of work irrespective
of the level of production or the general trading conditions prevailing.
Health, sanitation, housing, water, social services, welfare, community
facilities and amenities are also provided free to the whole population
resident in the plantations, Rajadurai said.
"While the PA appreciates the magnanimity of the Government towards
the smallholders, likewise the Regional Plantation Companies which are
very significant in the whole supply chain of commodities from
production to sale should also be considered even-handedly," he said.
Any disruption or dislocation to the formal sector of the Plantation
Industry would have far reaching and long lasting adverse repercussions
because of the million or so people who are dependent on the industry
and are resident in the Regional Plantation Company estates," Rajadurai