Financial Times

Plantations: Facing up to falling prices

By Dr L M K Tillekeratne Former Director, Rubber Research Institute

With the financial turmoil from November in the US, the price of all commodities including agricultural products such as tea, rubber, coconut etc began declining fast in the international market. The economy of Sri Lanka, whose gross national income depends to a great extent on the earnings from the export of tea, rubber, coconut and even minor export commodities such as cinnamon and pepper, has been affected badly from these price drops. The price of fresh bought tea leaves has dropped from Rs 82 a kg to Rs 17 per kg in some areas, while the price of rubber fell from the level of Rs 330 per kg to about Rs 75 a kg at the moment. Coconut prices also fell badly due to the lowering of tariffs on palm oil imports. As a result, the price of copra came down by mid-2008, thereby lowering the farm-gate wholesale price of coconuts from Rs 30 per nut level to Rs 12 - 13 in the south.

In the rubber sector, the forecast earlier of the International Rubber Study Group (IRSG) was that the demand for natural rubber in the world market should rise further at least until 2015 and hence, the price of NR should also further increase. Based on the steady increasing demand for NR over the production capacity available in producing countries, the shortfall in production predicted was about 3.5 million metric tons by 2013.

But as a result of this unexpected economic crisis the situation has now completely changed and the motor car sales of major car manufacturers in the USA such as Chrysler and General Motors have come down by about 25% within the last few weeks. New car registration in Europe and in USA during the last month has also been dropped by 26%. According to international economic reports, cars delivered overland from various car manufacturers are now lying at entry points to EU countries, without entry permits from the country that ordered them before the currency crises.

Hence, the global consumption of rubber for tyre and other rubber vehicle component manufacture has reduced drastically and the traditional buyers of Sri Lankan rubber are now not buying anything until this situation improves. Some have even cancelled the forward orders they placed during the last six months owing to this reason.

It has been reported that the deficit in the budget of the US government is over $14 trillion, about 20% of which is foreign debts mainly by Iraq and the balance the deficit created by the randomly-issued housing and other loans by banks to people in the USA.

Full effect
According to financial experts, developing countries like Sri Lanka will feel the full effect of this international financial crisis, only in a few more months. But once we start feeling it, the full recovery from it will take a longer time than developed countries. Hence, it is not wise for us to expect price recovery for our main commodities in the near future. But, they should recover by May/June in 2009 to a great extent and fully in about four to five years.

Therefore it is absolutely important to maintain our plantations well even with difficulties and they should not be neglected as we did when the rubber prices were low, before 2003. If not, when the prices of commodities bounce back in a couple of years, we have no products to export to reap the benefits of the improved prices. If someone waits for the prices to improve to commence rehabilitation work, that is foolish. Because, rehabilitation of plantations neglected for months and years is extremely cumbersome and expensive too. By the time they start gaining higher yields after adopting correct planting practices for couple of months, prices may go down again due to other reasons. Hence, even with difficulties applying manure at least at the concessionary dosages recommended by the research institutes for such situations and carrying out weeding and other management practices at the lowest cost is the best for a patriotic plantation company to follow.

Situation in the coconut sector at the moment is very sad. While the prime coconut plantations in the coconut triangle are affected by the mite attack, plantations in the south, in Matara and Hambantota areas, are severely affected by the leaf rot and Weligama wilt diseases. Proper remedial measures have not been taken so far to combat these deadly diseases which are killing mature plantation, and these diseases are now spreading very fast in Hambantota. As it has been now identified that the wilt disease is caused by a virus, it is not possible to treat and cure already affected trees. The only way to save the plantation in the effected areas is by preventing the spread of the disease to unaffected palms.
Other recommendations of the pathologists to minimize the spread of the disease is to nourish existing plantation with the four major plant nutrients, nitrogen (N), potash (K), Phosphorous (P) and Magnesium (Mg).

But over the last couple of months, the price of the two imported nutrients N and K have gone up to over Rs 100 a kg compared to around Rs 20 paid for them earlier. Farmers are ready to manure their plantations even at these high prices for fertilizer, if farmgate nut prices had remained at above the Rs 25 level. The wrong action taken by the authorities a couple of months ago to lower the duty on palm oil imports, have completely ruined the market for copra which is the only export commodity produced in the south. Hence, the wholesale nut prices have dropped down to below Rs 13 at present.

Further, when the nut prices were prevailing above Rs 25, the plucking charges rapidly went up there by increasing the plucking cost of a nut to about Rs 2.50 to 3.00 and the labour wages for other maintenance work also by about 35%. But, as it usually happens in Sri Lanka, even if the nut prices dropped further to Rs 10, none of these increased labour costs will come down even by a cent.
Who would be affected from a foolish recommendation given to the Finance Ministry by a government authority to lower the retail price of coconuts in the local market, by importing palm oil at a lower tariff? Again, it is the poor consumer. Even at present, the farmgate wholesale price paid to the grower by the middle man is Rs 13. But the retail nut price anywhere in the country today is above Rs 25. My prediction is that, with all these natural calamities experienced by the coconut industry and as a result of not manuring farm lands due to the low nut price paid to them by the middle men, the nut production will go down to very low levels soon and as a result the price of a coconut in the open market will go above Rs 50 by the Sinhalese New Year and we may even have to import coconuts to cater to the domestic need. Even now, the farmers believe that this artificial price drop of copra is created by the oil millers making use of the low duty on palm oil imports when the nut price in the open market was above Rs 30.
The main source of protein for poor Sri Lankans that prevents malnutrition is coconut. If that is going to be out of reach of the poor man, what will be the plight of our future generation? Can't the authorities who gave this wrong advice to the Finance Ministry do something to lower this huge gap between the farmgate price of coconuts and the price of a nut in the open market?

Productive trees
Even in the rubber plantations, action must be taken by the authorities to prevent felling productive rubber trees for firewood and for MDF board manufacture as it was done by some plantation management companies when the rubber prices were low before 2003. Action must be taken to maintain rubber estates, may be without tapping until the situation improves in 18 to 21 months. Fertilizer application if affordable should be done at the basic minimum fertilizer requirements rate recommended by the RRI for situations like now. Though expensive, replanting should also be continued by making use of the subsidy given by the government.

This is the best time to test the use of Gliricidia leaves and other sources of bio fertilizer such as animal and poultry waste for crops like rubber and coconut plantations, recommended by the Coconut Cultivation Board. Gliricidia can be grown in the plantations as well in between tree rows without applying any fertilizer.

Further to get the benefit from falling steel, cement and barbed wires prices, all civil construction must be completed now utilizing money reserves if they have and by utilizing the idle labour. If not, more money has to be spent for such work after the global economic recovery in a year or two. Costs of production of all commodities must be brought down to a bare minimum in all plantations by following tight resource conservation measures. Only then will the country reap the benefits of the increased commodity prices in the international market after the recovery from the financial crises prevailing in the whole world.

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