Business


22nd February 1998

Plus

Home Page Front Page OP/ED News Sports


Crowing about something

The Sri Lanka poultry market is set on a high growth path despite the setbacks it received in 1996, an equity research house said.

"We expect annual average growth rate of 11.5 per cent from now until year 2000," Jardine Fleming Research Analyst Rajev Dharmendra says.

Poultry consumption had grown by over 23 per cent annually over the five years up to 1995.

In 1996 with rumours of a poultry disease circulating in the market, consumers opted to buy branded chicken from large players such as Bairaha and Prima, instead of chicken from large players, Jardine Fleming says.A Chick..Chick..Here

However small farmers have earlier accused the Ceylon Grain Elevators Group which markets the Prima brand of introducing its dressed chicken initially at a low price and increasing the price of CGE feed to hasten the end of thousands of small farmers.

In 1996 feed prices had risen steeply, with international prices of wheat, corn and soya rising to historic highs. The power crisis also affected the poultry industry.

CGE is estimated to have 60 per cent of the feed industry. Gold Coin another producer is said to have 16 per cent, while Nutrena backed by Cargills of USA and Bairaha is estimated to have 13 per cent.

In 1997 raw material prices fell in international markets, but feed prices remained high.

In 1997 the poultry industry had turned around and chicken prices rose by 27 per cent.

Jardine Fleming says per capita chicken consumption has doubled since 1992 to an estimated 2.86 kg in 1997.

But Sri Lanka still continues to be low compared to Malaysia (28 kg), Singapore (27.6 kg), indicating a potential for growth.

Jardine Fleming say the East Asian 'bird flu' is not a major concern.

The day old chick (DOC) market is dominated by Three Acre Farms Limited (TAFL) which is estimated to have 30 per cent of the market after TAFL acquired Christombu farms. Bairaha Farms is estimated to have 17 per cent and National Livestock Development farms a further 8 per cent. Others such as Shetna and Hijra a further 8 per cent.

The DOC market is estimated to be 48.5 mn chicks a year of which 43.8 mn are broiler chicks and 4.6 mn layers.

The dressed chicken market estimated at 52.8 mn is dominated by small farmers accounting for 68 per cent even now, says Jardine Fleming. The balance 32 per cent is controlled by four large chicken processors who also operate buy back schemes, under which they supply outgrowers and with DOC and feed.

Bairaha Farms is estimated to control 30 per cent and Ceylon Agro Industries (CAIL) 24 per cent. CAIL is owned by Prima of Singapore and is a sister company of CGE.

The egg market is served by a large number of small farmers who are estimated to produce around 693 mn eggs.


From greed is good to green is good

Attempts are being made to link environmental performance with profitability. This is the subject of an article written by Leyla Boulton in the London 'Financial Times.' The writer begins the article by saying "Greed-is-good caught the flavour of the 1980s; green-is-good is arguably the 1990s equivalent.

It is argued, says the writer, that good green behaviour may help a company's image and sales, pre-empt new environmental regulations, boost staff morale and save money. It could also, in time, attract better terms from investors and lenders thus helping to reduce a company's cost of capital. Boulton cites the example of how a recent study showed a rough correlation between Standard and Poor's 500 companies ability to cut polluting discharges and indicators such as return on assets and sales.

The writer quotes Jonathan Colchester, a portfolio manager for the private clients business of Credit Suisse as saying, "While not supported by hard statistics, the idea that such companies will ultimately perform better seems to have a certain logic about it".

Boulton points out that the absence of standard measuring tools has meant that investors have been unable to compare companies' environmental performance as they are able to do in regard to return on investment and profit margins. It is difficult, therefore, to measure what constitutes environmental performance in order to establish a link between greens and profitability.

But the writer says, investors, consumers and even companies themselves are searching for better green tools to measure performance and exposure to environmental risk.

It will be necessary to evolve common benchmarking measures because until then companies will be doomed to "comparing themselves to their own performance" the writer quotes Anita Roddick, the founder of the Body Shop as saying.

There has, however, been a very recent attempt at evolving such a benchmark. Business and Environment, a non-prfofit organisation has ranked Britain's 100 biggest quoted companies into five levels of achievement according to "whether they have the building blocks" such as a main board member with responsibility for environment, or an environmental procurement policy - for managing their impact on the environment.

But, sys Boulton, the method chosen for the survey is obviously flawed. The top quintile is dominated by companies which, by virtue of their sector, are significant polluters such as ICI, the chemical giant, and National Power, the electricity generator.

At the same time, half the companies in the bottom quintile are insurance companies or banks which, says the writer, because of the nature of their activities may have given environmental matters little consideration.

Some FTSE -100 companies have refused to take part in the survey owing to these criticisms. One of the companies, a big insurer has asked "how can you put oil companies at the top and us near the bottom when our potential to pollute is so much less:" In response to such objections Business in the Environment plans next year to assess companies' performance within specific sectors.

This could entail, says the writer, measuring companies consumption of natural resources or, where relevant, their polluting discharges.

There are also other efforts to develop more precise tools which could impact directly on a company's financial standing. Last year London University's Imperial College and National Provident Institution, a London Insurer, produced an indicator enabling companies to measure emissions of carbon dioxide, the main greenhouse gas linked to climate change.

It is believed that, as governments move to tax or limit companies' energy consumption, such an indicator will some day make useful reading in company accounts.

Boulton goes on to say that also recently Serm Rating Agency, a UK consultancy came up with a system for rating companies according to how well they manage environmental risks inherent in their types of business - for example damage to corporate reputation and clean-up costs from potential toxic spillages.

So far, says the writer, only one company, Eastern Electricity has agreed to be rated under this system.

Other companies are reported to be looking into the possibility of following suit, and despite the imperfections of some of the tools currently available, some companies welcome being able to make a start in measuring their green credentials.


Little stitchers warn of tight times

By Mel Gunasekera

The Textile Quota Board's (TQB) proposed allocation of quotas to the new 50 garment factories have come under intense fire from the small and medium apparel exporters.

About 350 small and medium factory owners allege that the TQB is dipping into the quota pool to provide quotas to the new 50 factories, thus preventing existing factories from having access to the excess quotas available.

Under the Multi Fibre Agreement, Sri Lanka's country quota increases by 6 per cent each year. Of the 6 per cent, 3 per cent has been allocated to the small and medium sector, the pioneers of the Sri Lankan apparel industry.

With the introduction of the new 50 factories, the 3 per cent allocation is to be withdrawn, apparel manufacturers allege.

The controversial pool quota usually consists of about 5,000 dozens of un-utilised quotas. Quotas are usually performance based and once a factory has utilised its quota, it is entitled to apply for quotas from the pool, subject to availability.

Last year, approximately 40 per cent of the quotas utilised, were allocated from the excess quota pool.

Approximately 2.2 mn dozens are to be allocated to the 50 new factories. Thirty seven of the new factories are to be set up in most difficult areas, and will be given a quota of 1.85 mn dozens. Thirteen are to be set up in difficult areas, and are to be allocated around 375,000 dozens, a government official said.

In addition to these 50 factories, 12 new factories were opened last year, and another 25 were given the green light to expand operations. To ensure their survival, around 1.5 mn quotas were reserved for these new factories this year.

Thus, the small and medium sector has expressed concern that they will be denied access to the quota pool, the official said.

However, since the new factories are due to commence operations during the latter part of this year, it is possible that they may receive only half of their quota allocation. "The small and medium sector has nothing to be alarmed about it for the moment", the official added.

Sri Lanka's apparel exports performed well last year. There was a substantial rise in some quota items mainly due to close monitoring of quota allocation by the TQB.

The aggressive policy of opening up under-utilized quotas had resulted in a near 100 per cent performance in some sectors, Chamber of Garment Exporters,President Cassian Fernando said

His association says the new 50 factories are to be set up on the lines of the controversial 200 Garment Factory Programme (GFP), which nearly ruined the industry during that period.

It was a well-known fact that the 200GFP operated on heavy financial commitment.

Some of these factories were foreclosed by the various banks, which looked for alternative investors to resurrect the factories. However, whether these factories performed or not, they were allocated their usual quotas.

The small and medium factories usually do not borrow in such a magnitude, so neither the banks nor the country would lose.

"There will not be any extra benefit by starting a similar program, only instability like before. It is not good for the garment industry. It is not prudent to bring uncertainty into the industry at this time," Mr. Fernando said.

Meanwhile, members of the 200GFP say the small and medium garment factories are acting in a very selfish manner.

They say the small and medium sector wants selective quotas to themselves. "Unlike them, we dont resent new people coming into the industry and we have no fear of them either," former Chairman National Apparel Exporters Association - 200 Garment Factory Programme, V. Inabaraj said.

He said his association has set up factories in rural areas as far as Batticaloa, Amaparai and Polonnaruwa.

Their members are also categorised into normal, difficult and most difficult areas.

Factories in a 'normal' area get around 10,000 quota dozens, but around 80 per cent of their production is believed to be non quota items.

Factories in 'difficult' areas are allocated 25,000 quota dozens, which makes up half their exports. 'Most difficult' areas get around 50,000 quota dozens, and 20 per cent of their production comprise non-quota items.

The Sunday Times Business understands, that the apparel manufacturers belonging to the three Free Trade Zone are also against the new 50 factories coming up, as they would erode their future quota share.

Meanwhile, the Buying Officers Association has highlighted the danger of the Asian crisis hitting the lucrative apparel industry.

At present, Sri Lanka has confirmed orders till the end of June this year. But things look bleak thereafter, as Thai and Indonesian garments are nearly 30 per cent cheaper than those made here.

Though non - quota exports have been growing most factories are still dependent on quota items, despite the phase out of quotas in 2005 hanging over their heads. In 1996, quota items accounted for 76 per cent of all apparel exports to the USA.

Observers say the industry needs aggressive marketing campaigns, high productivity and quick lead times if Sri Lanka is to survive beyond 2005.



Continue to Business page 3  *  IMF - fallacies in retrospect  *  Currency: China to push convertibility despite Asia crisis  *  British trade ties grow with ex-colony Hong Kong

Return to the Business contents page

Go to the Business Section Archive

| PLUS

| HOME PAGE | FRONT PAGE | EDITORIAL/OPINION | NEWS / COMMENT | TIMESPORTS

Please send your comments and suggestions on this web site to
info@suntimes.is.lk or to
webmaster@infolabs.is.lk