By the Chairman of the Planters’ Association of Ceylon, Mr. Sunil Poholiyadde

For 170 years, Sri Lanka’s plantation industry has stood the test of time. Despite continuous upheavals, it has managed to adapt and endure. Over this period, the ownership structure of the industry underwent significant changes—from 124 years of British colonial ownership to the post-independence era (1948-1975, 27 years), where growing nationalist sentiments led to changes in land ownership policies, and then to nationalization (1975-1992, 17 years), under the State Plantation Corporation and the Janatha Estate Development Board.

Finally, following system-wide failures under state management, the industry transitioned to the current era of privatized management, in 1992. Despite these significant shifts, Sri Lanka has managed to maintain an unmatched reputation for quality in its tea, rubber, and other plantation exports. Despite the enduring legacy, the industry now stands at a critical juncture.

In the past, our plantation industry was largely unchallenged globally and the largest contributor to the Sri Lankan economy. However, today there are numerous other competitors on the global stage, and local industries domestically, that have challenged our industry.

Existential Challenges to the Plantation Sector

Sustaining the plantation sector has become as a result an increasingly complex task, requiring correcting several embedded issues from past management structures. Conflicts between private and public sector administration have added further complications.

The industry now faces competition from multiple sectors, both domestically and globally. From competition for labor within the island to the rise of large-scale tea production across Asia and Africa, the premium that Sri Lanka's plantation exports once commanded is now under constant pressure.

While, the plantation sector is often compared to many other industries, there is a critical difference: while many other sectors imports most of its raw materials, plantations produce their raw materials locally, importing only necessary inputs. This makes the plantation industry unique and highlights its contribution to the national economy.

Meanwhile, a series of ill-conceived policy decisions, coupled with prolonged wage disputes, low productivity in the backdrop of continuous labor outmigration from the estates and the nation itself, pose challenges that demand urgent and strategic action.

Climate change, which is widely recognized as having a direct impact on plantations, is occurring globally, and affecting Sri Lanka’s agricultural sector. Given that plantation crops are closely tied to specific geographical and climatic conditions, changes brought by climate disruptions pose severe challenges to the  industry's sustainability.

Amongst the several debacles, mostly due to poorly understood and economically unviable decisions was the banning of specific agro-chemicals, followed by an abrupt shift towards 100% organic farming without a proper economic evaluation. These decisions have severely impacted the commercial viability of the plantation sector, as sustaining agriculture without proper chemicals and adequate fertilizer is impossible.

Another key setback was the ban on oil palm cultivation, despite increasing rainfall patterns in low-grown areas that make these regions ideal for oil palm than rubber. The private sector had already identified this shift and, in the early 2000s, commenced planting oil palm as the next commercially viable crop. The initial target was 20,000 hectares, but the government halted expansion after 11,000 hectares had been planted. As a result, the industry now faces a situation where high rainfall makes rubber cultivation unfeasible, yet oil palm expansion cannot proceed due to the imposed ban.

RPCs remain invested in the progress and development of Sri Lanka’s plantation sector

Addressing these issues in a systematic manner is vital not only for survival of the plantation sector but also for ensuring its growth and ability to contribute meaningfully to Sri Lanka's economy in the challenging years ahead. To face global challenges and meet current requirements, the Regional Plantation Companies (RPCs) have taken several proactive initiatives.

These include securing international certifications, which enhances the competitiveness of Sri Lanka's plantation products in international markets. Environmental protection efforts have also been a priority, with RPCs investing in sustainable practices such as biodiversity conservation, reducing carbon emissions, and implementing measures to preserve natural ecosystems. Replanting efforts across all major crops since privatization have been extensive, aimed at ensuring sustainability and long-term productivity of tea, rubber, and other cash crops.

Significant investments have also been made in upgrading plant and machinery to enhance operational efficiency. Additionally, RPCs have embraced green energy solutions, such as solar power, and have adopted zero-carbon initiatives to align with global environmental goals, thereby contributing to the sustainable future of the plantation sector.

One of the most pressing issues facing the plantation industry has been wage negotiations, which remained at an impasse for several years until the most recent breakthrough. At the time of privatization, a collective agreement was established for wage revisions every two years, which continued until its sudden unilateral termination by Trade Unions in 2021.

Thereafter, an impractical proposal was made on 1st of May, to force a 70% increase in wages. Such an increase was entirely unaffordable and would undoubtedly have bankrupted the entire plantation industry. Already Sri Lanka struggles to compete, while offering the highest wages in the global tea sector, as well as under the Wages Board's mandatory minimum wage structure. Ultimately, all parties recognized the severity of the issue, leading to a settlement at a 30% increase, reaching Rs. 1,350, with an added productivity incentive for the next three years.

While even this revised figure presents major challenges for the industry, we have agreed to move forward, despite anticipating difficulties in absorbing these costs in the first two years. Only in the third year can the industry expect to break even and potentially make modest profits, provided productivity also rises, and there are no further disruptions from government policy or external factors such as climate change.

Tea remains the cornerstone of Sri Lanka's plantation industry and has delivered a stable performance despite significant challenges. However, recent data shows a contraction of 5.3% in exports for August 2024, signaling difficulties in maintaining output. Initially, the target for 2024 was to produce 300 million kilograms of tea, but this now seems unlikely, with projections suggesting production might not even reach 250 million kilograms. A declining workforce and low productivity levels have contributed to this shortfall. Despite these challenges, the industry is implementing measures to stabilize output and regain lost momentum.

Unfavorable climate conditions and diseases, such as Circular Spot Leaf Disease, have led to a significant decline in rubber production, rendering some traditional growing areas economically unsustainable. To ensure the sector’s sustainability, strategic replanting and the identification of more suitable cultivation areas are essential.

Meanwhile, oil palm cultivation, valued for its adaptability to current climatic conditions and low labor requirements, has driven agricultural prosperity in Malaysia and Indonesia. Sri Lanka can similarly benefit, especially in low-grown areas with increased rainfall that are unsuitable for rubber but ideal for oil palm. Initially, 20,000 hectares were designated for oil palm cultivation, but expansion was halted after 11,000 hectares were planted due to opposition. With sustainable cultivation practices in place, resuming the expansion of oil palm is crucial for boosting the profitability of Sri Lanka's plantation sector.

Diversifying into high-value secondary crops such as spices and fruits have seen success in expanding exports, helping to mitigate the risks associated with over-reliance on primary crops like tea and rubber.

Other initiatives aimed at diversification, including forestry and hydropower have also shown great success. RPCs have made significant investments and progress in commercial timber cultivation. However, following another ban on harvesting commercial timber above 5,000 feet elevation, RPCs have been cut off from their own sustainable sources of fuelwood. Without an effective policy on sustainable commercial forestry, the absence of proper regulation is likely to gradually lead to a reduction in forest cover. It is therefore crucial to responsibly harvest such timber while converting these extents into natural forests to ensure long-term ecological stability and sustainable forest management.

The industry has also ventured into horticulture and, more recently, a large-scale push for solar power alongside modernization of factories. Since 1992, extensive replanting efforts have been made, particularly in rubber and oil palm, with 11,000 hectares of oil palm planted along with the establishment of an AEN mill. Many companies have also pursued diversification into other crops and value addition initiatives.

Long-term Solutions urgently required

The tea workforce has reduced by over 50% since the time of privatization, creating a significant labor shortage that impacts both field and factory operations. The only viable way to sustain production and ensure the long-term future of the plantation is through the adoption of new technology.

To mitigate the labor shortage, the industry must become more receptive to mechanization and automation in both field and factory work. There are already technologies available to mechanize much of the field work, from harvesting and pruning to aerial spraying using drones. Automation of factories, including conveyorized production lines, is also helping to fill the labor gap and maintain competitiveness in the market.

Holistic adoption of these technologies is essential to derive full benefits and move towards a sustainable future. The handmade product, which is often valued as a niche, should be produced selectively, while most commercial manufacturing should be driven by mechanical processes. Encouragingly, the industry has already advanced in mechanizing activities like harvesting and pruning, and in deploying drones for aerial tasks.

It's also crucial to recognize the economic constraints faced by plantation companies, as they primarily operate as growers. With labor costs comprising over 60% of total production costs, and plantations being price takers in the heavily regulated auction system, producers face considerable risk. While exporters buy with a profit margin, producers are exposed to fluctuating auction prices, which underscores the need for a mechanism to protect them, given their pivotal role in the supply chain.

The main method of sale remains the auction, which imposes considerable regulatory requirements on those seeking to sell directly. Given these challenges, safeguarding the producer's interests is vital to maintaining the long-term sustainability of the tea sector.

Building a Sustainable and Competitive Future

The future of Sri Lanka's plantation industry lies in its ability to adapt to evolving challenges while building on its strengths. Embracing technology and innovation is pivotal for competitiveness. Mechanization of field and factory operations is essential, especially given the declining labor force.

Precision agriculture represents a significant opportunity for optimizing farming practices, enhancing yields, and attracting investment. Sustainability must also be prioritized—by adopting responsible water management, minimizing chemical use, and reforestation, plantations can become resilient to climate change.

Policy stability is crucial for building a competitive future. Unpredictable government interventions deter investment and hinder progress. A stable, data-based regulatory environment will allow for strategic planning and long-term growth.

The spirit and covenants of privatization initially provided RPCs with the freedom to experiment and innovate solutions suited to their individual requirements. However, subsequent state interventions have obstructed this original vision for the industry. By reverting to and fully adhering to the spirit and principles of privatization, many of the issues currently faced by the industry can be resolved, while also giving investors the confidence they need to take further measures to drive the industry forward.

By embracing change, prioritizing worker welfare, adopting innovation, and ensuring policy consistency, Sri Lanka's plantation industry can recapture its position as a global leader. The challenges are significant, but with a shared vision and collective action, a thriving and sustainable future is within reach.