RPCs plan growing oil palm in unproductive rubber lands

By Chandeepa Wettasinghe
The Regional Plantation Companies (RPCs) are now planning to convert unproductive rubber lands, which are not suitable for tea, into oil palm estates in order to give a boost to the crises-stricken industry.

“We have considered it and have forwarded the plan to the Plantations Ministry but we have not been given the go ahead,” Planters’ Association of Sri Lanka President Roshan Rajadurei said.

However, he noted that the government has enacted a ban on the import of oil palm seeds and that the Rubber Research Institute and other state-owned institutions are placing obstacles in the way of converting the land.

The RPCs are seen resorting to various measures to regain the profitability of their industry. 

The global tea and rubber markets had taken a beating following the crises in the Middle East and Russia—which are the main markets of Ceylon tea—as well as the oversupply of rubber due to a lull in demand and the cheaper alternative of synthetic rubber due to the crude oil glut.
Further, labour cost, which accounts for around 70 percent of tea production costs, is the highest in the world, while the Sri Lankan plantation workforce is considered the least productive. A Sri Lankan tea plucker is paid Rs.687.5 daily but plucks an average 18 kilogrammes, compared to a wage of Rs.202 for 26 kilogrammes in Assam and Rs.426 for 38 kilogrammes in South India.

This, along with the global trends, has led to tea production costs being higher than the prices at the Colombo tea auction.

While a newly proposed labour wage model focusing on productivity over the present guaranteed work and wage model is being considered by the trade unions, diversifying into oil palm presents an attractive way of floating RPCs, since oil palm is highly lucrative. Former Watawala Plantations PLC CEO Dr. Dan Seevaratnam last year said that any RPC, which has not diversified into oil palm, would run at a loss during 2014/15.

Rajadurei confirmed, saying that the RPCs collectively lost Rs.3.45 billion for the year through tea and rubber, while losing in excess of Rs.2 billion in the previous three years, managing to survive through borrowings from holding companies and banks.

Watawala Plantations currently is the largest cultivator of oil palm in the country with around 45 percent share of the nationally cultivated land and was the RPC to make the most profits in 2014, with profits from oil palm being Rs.780 million for 2014/15.

The company was able to absorb the losses from tea and rubber as it reported a profit of Rs.407 million for the year.

Their oil palm segment revenue increased by 12 percent for the year while profits grew by 23 percent. Oil palm is the least labour intensive of the plantation crops. However, it does lead to faster soil erosion.