22nd June 1997


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Scarcity of labour looms overs estates

By Asantha Sirimanne

Acute labour shortages are predicted in the plantations sector in the next decade, unless corrective action is taken to retain existing labour and introduce new technology and capital to make the best use of remaining human resources.

“As it is, the low countries, Sabaragamuwa and some parts of Uva is short of labour,” former Planters Association Chief and Hayleys Group Deputy Chairman Mahendra Amarasuriya said.

He was speaking at a discussion on the future of the plantation industry organized by the Sri Lanka Association of Economists.

Though some plantations were facing a labour shortage others had excess labour but trade unions were blocking the transfer of labour among different areas. At one time unions even prevented the movement of labour among nearby estates, Mr. Amarasuriya said.

SLAE Chairman Dr. Nimal Sanderatne said the Sri Lankan experience could be characterized as one of killing the goose that laid the golden eggs.

Plantations which had a high level of productivity had deteriorated under state ownership to the extent that vast sums of tax payers’ money had to be pumped in to keep the plantations going, while productivity in other countries rose, Dr. Sanderatne said.

In recent years small holders had overtaken the large plantations. According to Central Bank data, in 1996, 57 per cent of total production had come from small holders who accounted for 44 per cent of the mature tea lands.

Hayleys had two privatized plantations companies in the group.

“Unfortunately due to seventeen years of bad management when the companies were privatized we inherited the highest cost, least productive, tea plantations in the world,” Mr. Amarasuriya said.

In 1992, a hectare of plantation land had produced 1268 kg of tea while in South India 2442 kg were produced and in Kenya 2300.

The topsoil in some estates had been washed away needing five to six years of work to rebuild it.

Intake per plucker was 13.52 kg in Sri Lanka whereas it was 24.22 in South India (where agro-climatic conditions were very similar to Sri Lanka) and 26.22 in Kenya.

Mr. Amarasuriya said Talawakele plantations, now with the Hayleys Group, had a target of obtaining 2000 kg of tea per hactare.

As much as 60 per cent of the production cost was labour. There were also ghost names on the payroll when private managers took over, Mr. Amarasuriya said.

By eliminating such practices and retirement the cadres in some estates had been progressively brought down from about 3.7 workers per hectare to 2.7.

But by 2010 except in Nuwara Eliya all other districts were predicted to face a shortage of labour.

Mr. Amarasuriya said the younger generation tended to move away from plantation work, resulting in a shortage at some plantations.

To overcome this the social status and dignity of plantations workers had to be upgraded. Workers also needed better housing and recreational facilities.

To make better use of existing human resource better technology and inputs were needed. This was capital intensive.

Plantations companies also had to become involved in marketing tea to obtain the best prices Mr. Amarasuriya said. At present there were a large number of links leading up to the ultimate consumer and most of the profits were made at these points.

Plantations companies also needed to move away from traditional thinking and into other areas of business.

One strategy was to use lesser amounts of land to yield higher amounts of tea and use the rest of the land to produce other crops. Tea plantations which were mostly in the wet zone contained some of the best agricultural land in the country, Mr. Amarasuriya said.

Land could also be used for unrelated purposes such as hotels and golf courses or industries to give a better return.

“We can use it for better purpose,” Mr. Amarasuriya pointed out. “That is what the private sector should do and not persist with the idea of going on with the same type of cultivation"

Rupee's sharp fall unlikely

There is little likelihood of a sharp fall of the value of the Sri Lankan rupee, an international investment house has said.

“The Sri Lanka rupee depreciated by 4.7 per cent verses the US dollar in 1996, and has depreciated by another 3 per cent in 1997,” Lehman Brothers Asian Weekly Focus said recently. Lehman Brothers is represented in Sri Lanka by C. T. Smith Securities.

But in trade weighted terms, the real exchange rate appreciated by 6.6 per cent in 1996.

“Given that the real exchange rate actually appreciated, there has been some fear that the rupee could correct sharply,” Lehman Brother commented.

“We believe that is unlikely to happen.”

The report said it was difficult to make a case that exports were badly hurt by the strong rupee, but exports were hurt more by supply side bottlenecks.

Both import and export growth was predicted to increase in 1997. In 1996 exports grew by 16.3 per cent in rupee terms and imports 10 per cent, with a slowing economy and low capital imports. This helped bring down the trade deficit to 9.5 per cent of GDP.

The first quarter data showed that industrial exports had risen by 9.9 per cent and garments by 20.5 per cent. However depressed global demand was likely to check export growth. Import growth should also pick up with economic growth gaining momentum.

But improvements in the services and capital account should see a balance of payments surplus for 1997, Lehman Brothers said.

“Now with inflation trending down, an expected improvement in the overall balance of payments and the US dollar losing ground, the rupee is likely to be quite lethargic,” the report said.

By end 1997, the rupee was expected to depreciate by only 2 to 3 per cent against the dollar.

Vanik to raise Rs. 150mn

Vanik Incorporation has once again come out with a public issue of unsecured debentures, with a coupon 200 basis points lower than its previous issue.

The company hopes to raise Rs 150 mn by the issue of 1.5 mn Rs 100 debentures. There is also an option for Vanik to issue a further Rs 100 mn debentures if the issue is oversubscribed.

“We are confident that we can raise the full amount,” Vanik’s Senior Vice President Sisira Jayasinghe said.

“The interest rate is very attractive.”

He did not confirm the view held by some market analysts that Vanik already had buyers lined up for the whole issue.

The three-year debentures have a coupon of 18 per cent paid half yearly, giving a compound effective yield of 18.81 per cent.

In Vanik’s previous issue which also collected Rs 150 mn the debentures paid a coupon of 20 per cent each quarter.

With the twelve month T - Bill rate being less than 13 per cent, and two and 4 year government bonds yielding even less, the premium being paid by Vanik is attractive, analysts say, provided investors are comfortable with the company’s risk profile.

With Vanik’s first quarter performance being hardly a matter for celebration, would many investors run to put their money in the company ?

“We want investors to take a longer term view,” explains Mr. Jayasinghe. “All merchant banks are going through a bad time, but we have made investments which will give attractive returns once the economy picks up.”

Mind Your Business

Back to the god that failed

Most predictions for the tourist industry are positive this year, so different from 1996 when two bomb blasts wrecked all hopes of a revival in the sector.

Emboldened by the number of tourist arrivals in the first five months of the year, one blue chip group in the industry which decided earlier there would be no new investments in tourism related projects, has reversed that policy now.

They are busy these days prospecting sites for their next big hotel project. The question is should it be in Negombo, Hikkaduwa or Beruwela?

Labour troubles

There were many disgruntled voices over the recent reshuffle, but perhaps the most disappointed were officials in the Labour Ministry.

Even so, the new man there has taken it in his stride, acknowledging the good work of his predecessor.

But he too has his own plans. And chief among them is a proposal to set up Sri Lankan missions in most middle eastern countries to help our workers there.

But, the foreign office is frowning upon the logistical aspects of the proposal, we hear.....

If paper, why not glass

Local exercise book manufacturers last week heaved a sigh of relief when they heard import duties on books were doubled.

Taking a cue from this, several local glassware producers have also appealed to the government to impose high taxes on glassware imports.

Their aim? To stop imports from several South East Asian countries flooding our markets at unbelievably low prices.

Banking on hopes

Shares of a bank, which had seen courtroom and boardroom battles in its short history, are now being bought by a once-in-power politico and his friends banking source say.

An important authority is said to be asking for the services of their funds.

Is this an attempt to throw the chairman out again and bring back the earlier deputy from abroad, and also an in-law of the top management to a high position, pundits ask.

Vege, fruit exporters seek relief

By Mel Gunasekera

Increasing government levies on fruit and vegetable exports are stifling the growth of the market at a time when our exports are facing severe competition from India, Pakistan and Thailand, leading exporters have warned.

“The latest in the line of tariffs is the proposed cess charge for agri exports, including fruit and vegetables” said Viran Perera President of the Sri Lanka Fruit and Vegetable Producers, Processors and Exporters Association.

“What we are labouring to point out is the policy adopted by those in seats of power to cut open the goose that lays the golden egg. If we go on like this our export market will perish faster than our products.”

In sharp contrast the government was bending over backwards to accommodate demands of foreign investors who were coming into the country for short or long term investment .

Mr. Perera was speaking at a seminar on “Investment opportunities in Agri Business - Maximising potential” held this week.

Port charges were raised including the much resisted Terminal Handling Charge (THC). Exporters were also required to pay overtime costs for customs officers at the airport in case the shipment has to be air freighted.

“Why should we pay the customs officers overtime when they are performing their services in the line of duty”? One exporter asked.

Replying to the fears expressed by the fruit and vegetable exporters, Trade Minister Kingsley Wickramaratne said the government was prepared to remove the existing tariff barriers including the cess charge but first the farmers must increase production.

Our local farmers budget their annual income on one harvest usually 400 kgs per acre. But farmers in other countries produce 800 kgs or more with the same acreage. They think that they need large acres of land to produce more, but this is not so, he claimed.

Quality packaging is also another important factor. Though the Gulf market is the largest buyer, we may lose it if our produce is spoilt due to poor packaging, added the Minister. The Minister said he would take up the THC issue with the ports ministry

Shipping sources on the other hand have stated that they had to introduce THC on exports because the Sri Lanka Ports Authority (SLPA) decided to increase their port tariffs with effect from June 8.

At present Sri Lanka is estimated to produce about 800,000 mt of fruits and vegetables. Of this 50% is consumed locally and only about 9000 mt are exported.

The balance is believed to perish!.

The Gulf market is the largest buyer, followed by the Maldives, UK and the Netherlands Today, the agri business was being transformed in to a completely different market with exotic foods such as broccoli, asparagus and baby corn being consumed.

Customers’ demands have changed and they are more price conscious and sophisticated. If Sri Lanka is to survive, new investment is needed to increase production, reduce post harvest losses, establish cold storage countrywide introduce modern methods of transport, improve packaging and establish new markets, exporters say.

Many exporters are already facing bad debts of a few million dollars and if these matters are not looked into seriously, we may have to change our slogan “Export or Perish” to “Export and “Perish” members of the Association said.

“We bring to Sri Lnaka precious foreign exchange which help the government to fight wars. Import goods etc. but we have to encounter several stumbling-blocks right at our doorstep even before we export our produce,” they added.

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