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.

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 2015.

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$ 2.9.

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.

Highly unfavourable

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 March, 2015.

"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 said.

"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," he said.

"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.

Statutory needs

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 said.