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Bogawantalawa Plantation in Rs.1.2bn diversification

3 September 2015 03:39 am - 0     - {{hitsCtrl.values.hits}}

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By Chandeepa Wettasinghe
Regional Plantation Company (RPC) Bogawantalawa Estates PLC has initiated a seven-year Rs.1.2 billion diversification initiative in its lower elevation lands to spread out its risks and support future growth.

“Originally, we had a strategy in focusing on the entire tea chain, including marketing. Recently we got back a land leased to another party and we had some underutilized land in the lower elevations, so without putting all our eggs into one basket, we decided to go into agro forestry, oil palm, rubber and some tea,” Bogawantalawa Estates PLC Director/CEO Jayampathy Molligoda said.

He said that the land suitability report showed soil favourable towards eucalyptus and secondly, oil palm.

Of the total 1,200 hectares the company owns in lower elevations, around 250 hectares would go for agro forestry, 700 hectares of oil palm, 100 hectares of rubber and the rest tea.

Molligoda noted that while agro forestry planting has been done in available land as and when possible in the past 15 years, the fast-planting diversification programme began this year.

“The first two to three years we’ll use internal funds and a bond. For the rest we have other strategic partners lined up. When you compare, the IRR (internal rate of return) is around 8 percent for tea, 15 percent for oil palm and about 20 percent for agro forestry,” he said.

Since the tea and rubber auction prices have been at their lowest levels in years, companies that had diversified into oil palm and other crops had maintained profits.

While oil palm prices too dropped slightly owing to the global commodity crash, Molligoda said that it didn’t affect the local market significantly due to an import tariff of Rs.100 in edible oils.

“There’s demand for eucalyptus timber as railway sleepers and rafters for middle-class houses,” he spoke of the opportunities.

He added that the leftovers of agro forestry harvested for timber could be used as fertilizer to improve the topsoil in areas where 100-year-old tea bushes—the majority—are, and the company is conducting research into substituting fully artificial fertilizer.

The company has 3,500 hectares of tea and 1,400 hectares of diversified crops in cultivation in the hill country.

Prior to Bogawantalawa’s entry, there were 7,000 hectares of oil palm in Sri Lanka. Watawala Plantations PLC is the largest cultivator of oil palm with 3,000 hectares.

While former Watawala Plantations CEO Dr. Dan Seevaratnam had said that companies not into oil palm would run at a loss during the past financial year, Bogawantalawa has performed admirably, pulling out from a Rs.40.50 million net loss to a net profit of Rs.75.20 million year-on-year.

“This is because we’re working with strategic partners to manage and share risks. Our tea prices are higher compared to auction averages and we clear the elevation averages by about Rs.30,” Molligoda said.

As reported in Mirror Business recently, the RPCs are expected to collectively retain losses of Rs.11 billion by the end of this financial year due to demand side issues in key markets and rising wages.

Molligoda said that compared to the Rs.20,000-25,000 tea estate workers in his company earns, oil palm cultivators could expect an income between Rs.50,000-60,000.
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