The Sunday TimesBusiness

Day, Month 1996



Prices going up and up

Prices are rising and prices will continue to rise. The point to point price increase in August was 19 per cent. The annual rate of inflation is likely to reach 15 per cent. These are the depressing realities of the economy at present. What they indicate very clearly is that prices cannot be kept down as our fundamental economic factors are not sound.

The reasons for the most recent price increases are related to an increase in fuel prices. But the underlying reason for the price increase is not merely an increase in international prices of petroleum products but the fundamental weaknesses in our government finances. The government requires increased revenue and the weakening economic conditions have resulted in a depreciation of our currency. These two factors have accentuated the external shock. Even if we did not have a price increase in fuel abroad, we would surely have had a price increase in fuel domestically owing to the depreciation of the currency and the need for increased revenue.

The price increase in petroleum and gasolene products will not have a direct impact on the Colombo Consumers' Price Index. That index hardly captures price increases of this sort. Yet the indirect impact will be captured in due course with prices of other commodities rising as a result of the fuel price increase. Already there are signs of an increase in the price of basic food commodities produced in the country owing to increases in transport costs. However since food prices have increased sharply in recent months, the question that arises is whether consumers would be in a position to tolerate any further increase. Would consumers be able to pay higher prices? Will they cut consumption as their incomes may be insufficient to absorb higher prices in basic commodities? If this were to happen then there may be a dampening of the expected price increases, but this would be achieved at a great sacrifice of basic living standards.

At times of price increases of this sort governments are tempted to resort to artificial means of administratively controlling prices. Such attempts are short lived in their impacts and ultimately the price escalation continues. There is very little prospect of containing inflation unless and until our public expenditure is brought in line with government revenue. And that has very little prospect as long as we are continuing an expensive battle and increasing expenditures on defence. An expenditure of about Rs. 50 billion is enormous in relation to our revenue. Put briefly, the price increases are another way the people are bearing the cost of the war. In one way or another the people have to bear the cost of the war and however much the government might like to hide this cost, it is only a short time before the economic realities catch up.

For many years now governments have attempted to make the Budget an exercise in granting concessions in order to make budget speeches sweet music to the public. The bitter parts of public finances are effected early through price increases such as the fuel price increases announced last week. But the credibility of budgets has been eroded owing to this reason as well as the fact that budget outturns are so different from the announced budgets. Expenditure over-runs are considerable and revenue shortfalls are significant. The analysis of budgets therefore is of little significance. It is the final outcomes of public finances which are very relevant.

In short, governments do not tell the public the real facts. They hide them till the facts are made clear by the unfolding economic realities. Public finances would therefore continue to be distorted and people's perspective of economic issues would continue to be distorted as well. Unfortunately such distortations are not in any sense good for decision making for economic development in the long run. It is much better to unfold the economic realities and ask the people to make the sacrifices required in the short run in order to make the long run economic performances better. Unfortunately the approaches of governments to the fundamental economic problem arising out of the war are to sacrifice long term economic development as well. The only hope is that the war would end soon and the economy would be able to gain a much needed higher momentum soon.

Duty free products leave local fridges in cold

The local refrigerator manufacturing industry is in a crisis due to the continued leakage of duty free products to the country which have gone unchecked despite repeated warnings, industry sources say.

In the beginning of this year, Regnis Lanka revealed in their annual report that of the total of 27,593 refrigerators imported to the country, over 57 per cent came via the duty free market.

However most of these products are actually re-sold to those who are not entitled to duty free allowances, thereby undercutting local industries, such as Singer Sri Lanka and Associated Electricals.

Associated Electricals who make Sisil branded refrigerators have also resorted to importing Indian made refrigerators to hang on to their market share as the local product, though very high in quality, is unable to compete on price.

In addition, local producers are also under threat from no - frost refrigerators which are gaining increasing consumer acceptance.

At least one local manufacturer is planning to begin production of no-frost fridges in the near future.

Last week, a proposal to ban the sale of refrigerators at duty free outlets was shot down by government as it was felt that, it would prevent hardworking Sri Lankan expatriates who remit nearly Rs.40 bn in foreign currency to the country each year from acquiring a refrigerator.

However industry sources say only a small percentage of refrigerators are actually used by Middle East returnees.

Industry sources put the figure under 3 per cent. The rest are believed to be re-sold to others, with the majority being channelled via broker dealer rings that work with groups of Middle East returnees, by 'purchasing' their allowances.

Last year the government lifted a 5 per cent excise on white goods such as refrigerators.

But there is still a 35 per cent import duty on imported finished products, plus a turnover tax based on an assumed profit margin.

Meanwhile local manufacturers have to pay duties ranging from 10 to 20 per cent on imported components plus a 20 per cent manufacturing tax on the finished goods.

All this pushes up the cost of the finished product, thereby giving an added incentive to "leak" the product.

For example, a double door refrigerator costing slightly under Rs. 30,000 when fully duty paid is sold by some dealers at around Rs. 23,000.

While lowering duties may help industry, sources say it would not stop the illegal trade.

One suggestion is to 'mark' the duty free product, so that it could not be sold in the open market.

For example, duty free liquor are labeled as such and cannot be openly re-sold. However, industry officials doubt whether major overseas manufacturers could be persuaded to engrave the metal or plastic parts in the moulding process itself with a duty free label.

Another solution is to operate a permit scheme on a somewhat similar lines to the system said to be operating in the Phillipines, which also has a large expatriate worker population.

Industry sources however say, until the sale of white goods is banned or some other solution is found to protect the local industries from unfair competition, an in-depth investigation should be launched by Sri Lanka customs to find out exactly who are behind the illegal broker/dealer rings.

The government itself would benefit from such an exercise. The government is estimated to lose over Rs. 600 m. annually from leakages.

Making the best of rubber

By L.M.K. Tillekeratne
Director, Rubber Research Institute of Sri Lanka

In 1976, India was the fifth largest natural rubber producer in the world next to Sri Lanka, producing 148,000 MT of rubber per annum. But, with the implementation of its vast new planting programmes during the last two decades India has now been placed at the 4th position among the rubber producing countries. ln 1995 India's total raw natural rubber production was 499,000 MT while the total production in Sri Lanka in 1995 was only 106,000 MT.

The rubber planting in Kerala State, which is the largest rubber producing state in India, commenced in 1902. During the past three decades, the state has recorded a growth rate of 10,000 ha. per year. At present 86% of total rubber extent in India is in Kerala. This accounts for 94% of the total rubber production in the country. Around 11% of the total geographical area in the Kerala state is under rubber. The climatic conditions and terrain conductors in most parts of this state are quite similar to those in Sri Lanka. ln Kerala too, rubber is grown at elevations close to 300 m. above sea level while in hilly areas, rubber is grown at slopes of 45¡ 60¡. Hence, the rubber plantations in Kerala can be regarded as the ideal model to represent the rubber growing environment of the major rubber growing districts in Sri Lanka. Kerala too is endowed with monsoonal rainfall similar to Sri Lanka with an annual precipitation of more than 300 cm; and two pockets of high rainfall without prolonged dry spells in general. As rubber growing districts in the wet zone of Sri Lanka, soils in these areas are characterised by water logging conditions, excessive wetness, excessive drainage and high acidity in isolated patches.


At present the productivity of rubber land in this state averages 1440 kg/ha per year which is the highest recorded anywhere in the world today. The productivity of rubber land in Sri Lanka is around 880 Kg/ha/year. The relatively high yields recorded in India can be due to many reasons some of which are;

1. In most of Kerala, the existing rubber plantations are either 1st or 2nd generation.

2. The farmers of the Kerala state follow the latest managerial practices developed all over the world.

3. Implementation of new technology in plantations is very fast.

When rubber is planted in newly cleared virgin jungle areas, all the nutrients including the micro nutrients required for the growth and productivity of rubber trees are available in the soil. Hence, rubber plantations in Kerala state are expected to perform better than the 4th generation of rubber planted in most of the estates in Sri Lanka.

Although Hevea tree produces more organic litter to the soil and recycle most of the nutrients taken up from the soil; than in the case of any other plantation crop like tea or coconut, there is a possibility for the soil to show a nutrient imbalance when the plantation exists for over 8 or 10 decades. This situation is more severe in state owned rubber estates in Sri Lanka, where before privatisation no manuring has been done for the matured rubber plantation for several years. This is clearly reflected in the estate productivity figure which is below the small holders productivity figure of 940 kg/ha/year. But in Kerala, most of the rubber lands are in newly cleared jungle areas where nutrient availability is optimum.

However, where the second factor is concerned, there is ample scope for plantations in Sri Lanka to show improvement in productivity of rubber lands by following the cost effective agricultural practices adopted in other natural rubber producing countries. It has been clearly observed that in most of the rubber estates in Sri Lanka, the following important agricultural practices are neglected almost totally:

Maintenance of recommended stand per hectare.

Selection of top quality planting material for planting.

Use of rain guards to minimize rain interference on harvesting.

Intercropping and cover crop management to enrich the soil.

The main feature observed in Kerala rubber plantation which accounts for the very high productivity recorded, is the maintenance of the recommended stand of 400 450 trees/ha.

In Sri Lanka average stand recorded in estates is far below the expected level. This is one of the main points our estates should take into consideration if they are to increase the productivity of rubber lands to above 1000 Kg/ha/year.

In selecting the planting material for plantations in the field, lndians take much more interest than Sri Lankans. From a seed garden only the fastest germinating healthy plants are taken for bud grafting while the slow germinators and defective plantlets are rejected. But in Sri Lankan plant nurseries most of the germinated seeds, if not all, are bud grafted and the successful ones are selected for planting even in the 2nd or 3rd attempt.

Smallholders and estates in Kerala have lot of faith in the high yielding clones recommended by the Rubber Research Institute of India. One draw back seen in Kerala State which might create a problem for them in the future is the wide scale planting of their best yielder RRII 105 clone by almost everybody. It is important to maintain a balanced planting programme with all the recommended clones planted uniformly in the country. In this regard Sri Lankans are ahead of them. The RRIC 100 population in Sri Lanka is already slightly in excess of the expected norm in the country and a policy decision has been taken by the Ministry of Plantation Industries to issue only RRIC 102 clone during the next two years to bring the ratio of the recommended clones for the small farmers to the expected level.

Aerial Spraying

The large rubber estates in lndia of extents over 2000 - 3000 ha have heli pads or a helicopter landing ground. This is for the purpose of landing helicopters used for compulsory spraying of fungicide twice a year just before the two monsoons, to control phytophthora and other leaf diseases. The cost of the same for every ha of rubber in India is over Rs.4000/-.

But in Sri Lanka, thanks to the disease tolerant clones recommended by the RRI, no chemicals or sulphur dust are sprayed in rubber plantations from the time of planting up to the uprooting stage, except in the nurseries.

Another important point noted in the visits to the estates is that all the Superintendents and Assistant Superintendents in rubber estates in India have post graduate qualifications in agriculture or minimum with a basic agricultural degree.

Rain Guards

In Kerala too, if not for the rain guards they will be able to collect only 45%-55% of the latex available in the trees just like in the case of Kalutara and Ratnapura districts of Sri Lanka. Most of the estates (on a complusory basis ) and majority of the smallholders who know the value of the rain guards use them on tapping fields. In Kerala, on the average 310 days of tapping are done every year and this is the main reason why their productivity is so high and the living conditions of smallholders are higher than in Sri Lanka.

The rain guards they use and the sealent used for the rain guards are identical to our recommendations and they have not experienced any bark rotting or fungal attacks on the barks caused by the rain guards. The scientists of Rubber Research Institute of India indicated to us that in India too some of the dud experts at the village level have had unfounded fears at the begining of the rain guard project.

They predicted that rain guards affect the bark due to moisture condensation. But now all of them are convinced that there is no way of survival for rubber plantations in Kerala without rain guards.

They have been able to use rain guards of the types used in Sri Lanka in their rubber estates for over 12 years without any problem.

In order to solve the polythene litter problems in estates at the time of removing old rainguards and to recover 10% of the cost of rain guards, they sell old polythene to polythene re recyclers. There is a cap shaped hard corrugated plastic based rain guard that is used in some of the rubber plantations there. But, officers of the Rubber Research Institute of India and the planters believe that the performance of the polythene skirt type rain guard is more suitable in Kerala for various reasons.

Factory Effluents

With regard to Effluent Treatment in rubber plantations, it must be clearly emphasised here that the method recently developed by the Rubber Research lnstitute of Sri Lanka to the satisfaction of the Central Environmental Authority is more efficient and more cost effective than the methods developed and used in Kerala. In some of the estates, effluents are just kept in many shallow tanks of area not less than 1000 1500 sq.ft. in each. The bad smell emitted from these pits is unbearable. But fortunately most of the factories are situated far away from human settlements and water ways. The treatment method followed in some of the estates, employs two 15 HP motor driven stirrers to operate round the clock, allowing cooling times of one hour interval per shift.

Tapper shortage

Plantations in Kerala too are experiencing the problem of tapper shortage. At present the task given for a tapper is 300 trees which is closer to the task given here. But so far there is no efficient tapping systems developed or used by the Indian plantation other than the system adopted here. However, privately managed estates are looking into the possibilities of increasing the productive period of a rubber tree by introducing control upward tapping system, (CUT system) with monthly application of 2.5% ethrel. Other than this ethrel stimulation to extract more latex from the tree is not recommended or practised anywhere.

Rubber Wood

Treated rubber wood industry is also a fast growing industry in lndia. The present price of an old rubber tree in India (similar to trees uprooted from our rubber estates is over Rs.l900/ . The quality of furniture produced from the treated wood in India is also of very high standard. Hence, the state government of Kerala as well as the privately managed companies are now giving a lot of emphasis to the treated rubber wood industry in order to gain higher foreign exchange to the country while protecting its environment by growing sufficient wood for house hold purposes for which valuable forest trees have been used early.


From these points it is very clear that in order to increase the productivity of rubber lands in Sri Lanka, our private Management Companies as well as the smallholders must make use of the high technology developed and introduced by the Rubber Research Institute of Sri Lanka. They must also try to make use of the uprooted trees for making value added products out of chemically treated rubber wood rather than selling this useful commodity for firewood. This is the only way that we can make the rubber plantation in Sri Lanka an environmentaly beneficial, socially acceptable and economically viable agricultural crop to the nation.

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