Plantation sector and foreign exchange crisis

by Dr. C. S. Weeraratna

csweera@sltnet.lk

It is common knowledge that there is a massive dollar crisis in Sri Lanka, causing a scarcity of many essentials such as fuel, LP gas etc. Governments, instead of implementing any effective plans, obtained loans from foreign sources to solve the foreign exchange crisis. As a result, we have a massive foreign debt burden of about US$ 52 Billion. The cost of debt servicing alone is about US $ 6 billion per year. Our foreign reserve which was around US $ 7 to 8 Billion is now down to well below US $ 1 Billion, If there are no dollars available in the banks in the country, it could result in an acute shortage of medicines and other essential items. Galle Face “Gota go home” and other such protests become the inevitable outcome.

According to Central Bank Annual reports the Trade Deficit ( TD), in Sri Lanka, during 2016-2021 as indicated in Table 1, has remained at high levels, The country has been taking loans to overcome TD but we cannot continue to do so. No country will continue to provide loans to a bankrupt economy. It is necessary that at least now we have an effective plan to reduce the trade deficit by increasing exports and reducing imports as much as possible. If Sri Lanka maintained a sound trade balance, which the present and previous governments should have done, the present exchange rate would not have gone down as we experience at present. If not for the factors such as remittances of migrant workers, tourists’ earnings etc. the exchange rate would be worse. See table 1.

The dire need to increase our export earnings to meet the severe financial crisis we are facing today has been emphasized by many. As indicated in Table 1, export income since 2016 has not increased by any substantial amount in spite of an Export Development Board and numerous other authorities. Increasing export income is of paramount importance to improve our economy. But what are we going to export? .

The contribution of the Plantation sector to export income is substantial. Around 800,000 ha are cultivated with plantation crops tea, rubber, coconut etc. and this sector, in the last few years earned nearly US$ 2.2 billion annually. However, as indicated in table 2, production of these major export crops do not show any substantial increase during the last five years and the contribution from this sector has remained at nearly 20% of the export income. Hence, strategies need to be implemented to increase the productivity of the plantation sector and hence FE earnings. There are many state sector organizations to implement such strategies. See table 2

As shown in Table 2 tea production has been fluctuating around 300 million kg per year during the last six years, in spite of several institutions such as Tea Board, Tea Research Institute and Tea Smallholders Development Authority assigned to the tea sector. The average tea yields are considerably lower than the potential yields. In the smallholder tea sector the average yield is around 1800 kg/ha and in the estate sector it is about 1200 kg/ha. The tea industry, which supports hundreds of thousands of people, also suffered from the controversial utterly foolish decision to ban agrochemicals as a health measure. Though later reversed, the ban has affected the tea sector to a great extent. In 2017 the export income from tea sector was 1.5 billion US$. During the following years it has decreased and in 2020 the corresponding value was 1.2 billion. Lengthy power cuts, fuel shortages too caused the industry to “near total breakdown”, Better management practices in the short term would increase the quantity and quality of the tea produced making it possible to increase FE earnings substantially from the current value.

Rubber is another important export crop. In 2017, it earned nearly US$ 39 million in foreign exchange but has decreased during the following three years. Based on Central Bank annual reports, the total Rubber production in 2017 was 152.9 million kg and by 2019 it has plummeted to 74.8 million kg. The corresponding average yields are 1561 kg/ha and 665 kg/ha respectively. These data related to rubber production by the Regional Plantation Companies and Small holder sector indicate that the productivity of the SH sector has decreased substantially compared to the RPC sector during the period 2010-2017, which may be attributed to poor management in this sector compared to that of the RPC sector. The recently-established Sri Lanka Rubber Secretariat of the Ministry of Plantation Industries came out with the Sri Lanka Rubber Industry Master Plan 2017 – 2026, A National Agenda for Rubber Industry Development of Sri Lanka. This master plan has 24 unrealistic projects which would require investments of approximately U$ 500 million (nearly Rs. 100 billion).

These figures indicate that the Sri Lankan rubber sector is ailing in spite of Rubber Development Dept and Rubber Research Institute assigned to promote rubber production in the country. With the current higher rubber prices it would be possible to earn more FE by increasing rubber production by implementing better management practices which would produce results in the short term. During the last few years the rubber sector has been affected by many factors one of which may be ineffective management.

Coconut production too has declined during the last five years as shown in Table 2. The total extent under coconut in Sri Lanka is around 400,000 ha and about 325,000 ha are small holdings. Annual production of coconut has been fluctuating around 3,000 million nuts, (app. 6000 nuts/ha. If the production of the existing coconut lands is increased by 1000 nuts/ha/year by better management, and applying organic and inorganic fertilizers the total production can be increased by a substantial number within a year which will increase the export income from coconut.

This appalling situation in the plantation sector can be attributed to many factors. If the productivity of this sector is raised, by implementing better management practices it would be possible to increase foreign exchange earnings from this sector. Most of these practices would produce results in the short term.

There are 24 agro ecological zones, each characterised by specific climate and soils. This makes it possible the cultivation of different types of exportable crops such as spice crops, tuberous crops, horticultural (fruit crops) and floricultural crops, medicinal herbs.

Sri Lanka is famous for spices. The most sought-after spice crops are cinnamon, pepper, cloves, cardamoms, nutmeg mace and vanilla which grow in abundance mainly in the wet and intermediate zone. In 2020, the county earned nearly US$ 200 million by exporting spice crops.

Cinnamon is the most important spice. In 2019, it earned around 160 million US$ in FE. The production of cinnamon has been fluctuating around 20,000 t per year during the last few years. Sri Lanka received its first ever Geographical Indication (GI) certification when the European Union (EU) Commission on 02 February,2022 granted GI status to Ceylon Cinnamon and this would make a higher demand for Sri Lanka cinnamon.

Pepper is the second important commodity among spices. It is grown in the wet and intermediate zones mostly as a mixed crop. The Sri Lankan Pepper has higher piperine content which gives it a superior quality and pungency. Annual Production of pepper too has remained stagnant at around 20,000 kg.

Other spices such as cloves, cardamom, nutmeg and mace have the potential to earn a substantial amount of FE. With the increase of international demand for natural products, and the island’s focus on enhancing and evolving its value added range, spices and the essential oils extracted from these crops will continue to earn more FE.

Dehydrated food is another agricultural product which has a potential to earn much wanted FE. During some months there is a glut of fruits and exporting dehydrated/canned fruits would bring in an appreciable amount of FE.

In any programme/plan to increase foreign exchange earnings from the agricultural sector, agro-industries have to be given much emphasis. A large number of crops cultivated in Sri Lanka have considerable potential in various agro-industries. However only rubber, coconut and a few fruit crops are used in industries. Crops such as cassava, horticultural and floricultural crops, medicinal herbs, cane, bamboo, sunflower, castor , Ayurvedic herbs, etc., have a considerable industrial/export potential but are not cultivated to any appreciable extent. Development of agro-industries will also increase export income and will have a tremendous impact on the economy of the country and also provide employment opportunities among rural people. Private sector can be involved in such projects for which appropriate technical assistance need to be given by the relevant public organizations. Although there are many organisations such as the Ministry of Industry and Commerce, Export Development Board, Industrial Development Board, etc., there appears to be no proper long-term plan to develop agro-industries. There are only some ad-hoc projects. The Ministry of Industry and Agriculture should implement an effective Agro-Industrial Development Programme, which undoubtedly would help increase our exports, improve employment opportunities and incomes in the rural areas.