RPCs need to adopt cost centred approach - Economist
By Azhar Razak
Apart from the need to increase levels of productivity to tackle high costs of production, Sri Lanka’s Regional Plantation Companies (RPCs) should unbundle themselves to adopt a cost-centred approach with respect to each estate, and perhaps each division so that profits as well as losses are immediately identifiable and quickly addressed, recommends a leading independent consultant.
Dr Ramani Gunatilaka, an Adjunct Research Fellow of the Faculty of Business and Economics at the Monash University, in a report published recently states that some estates, even some divisions, may have comparative and competitive advantages in traditional tea or rubber and those that do not, need to be put to other productive uses whether in agriculture or not.
“In each case, the immediate external environment needs to be taken into account: the tightening labour market, urbanisation and encroachment, extent of environmental degradation, the potential to develop middle class housing, and the potential for high-end tourism,” she suggested.
However, she noted that many of these options would be possible only if the terms on which the RPCs lease the land from the government are revised or existing clauses, where relevant, are fully implemented.
“In such a context, wage bargaining also needs to be decentralised in order to free up the movement of labour within the sector, and enable wages to be determined on the basis of supply and demand, providing incentives for workers to migrate from labour surplus plantation areas to labour deficit areas, and help stem its migration out of the sector,” she pointed out adding that these issues need to be addressed if the RPC sector is to become efficient in its operations, invest in increasing the productivity of the land, increase its contribution to the national economy, and be able to afford a better living for those who work in it.
The report, which was prepared based on an analysis of quarterly and annual data provided by the RPCs for the period 1995-2009 identified that Sri Lanka’s share of the global market in commodities has been steadily declining and this is generally attributed to high costs of production and low levels of productivity compared to competitors.
“The study finds that the high grown, mid grown and Uva teas have been making losses for at least half the period considered. The low grown tea sector’s profitability is likely dependent on the large bought leaf component which has effectively subcontracted out green leaf production costs,” the report stated.
It added that the high grown, mid grown and Uva sectors are clearly unsustainable at current operating costs since labour productivity has been either stable or has declined, and yield per hectare has risen only in the mid-grown and rubber sectors.
“The high growns and Uvas are in the worst straits as both labour productivity and yields have been declining,” the report warned although adding that the high share of labour costs, inevitable in this type of industry, is only the tip of the iceberg and should not blind stakeholders to what else is wrong with the sector.
“The inability to increase labour productivity and declining yields in high grown and Uva tea sectors appear to be the main reasons why the high grown, mid grown and Uva sectors have been generating losses for several years. So long as these trends continue, wage increases too, will remain unaffordable,” it concluded.
http://www.thebottomline.lk/2011/07/17/page1.html
By Azhar Razak
Apart from the need to increase levels of productivity to tackle high costs of production, Sri Lanka’s Regional Plantation Companies (RPCs) should unbundle themselves to adopt a cost-centred approach with respect to each estate, and perhaps each division so that profits as well as losses are immediately identifiable and quickly addressed, recommends a leading independent consultant.
Dr Ramani Gunatilaka, an Adjunct Research Fellow of the Faculty of Business and Economics at the Monash University, in a report published recently states that some estates, even some divisions, may have comparative and competitive advantages in traditional tea or rubber and those that do not, need to be put to other productive uses whether in agriculture or not.
“In each case, the immediate external environment needs to be taken into account: the tightening labour market, urbanisation and encroachment, extent of environmental degradation, the potential to develop middle class housing, and the potential for high-end tourism,” she suggested.
However, she noted that many of these options would be possible only if the terms on which the RPCs lease the land from the government are revised or existing clauses, where relevant, are fully implemented.
“In such a context, wage bargaining also needs to be decentralised in order to free up the movement of labour within the sector, and enable wages to be determined on the basis of supply and demand, providing incentives for workers to migrate from labour surplus plantation areas to labour deficit areas, and help stem its migration out of the sector,” she pointed out adding that these issues need to be addressed if the RPC sector is to become efficient in its operations, invest in increasing the productivity of the land, increase its contribution to the national economy, and be able to afford a better living for those who work in it.
The report, which was prepared based on an analysis of quarterly and annual data provided by the RPCs for the period 1995-2009 identified that Sri Lanka’s share of the global market in commodities has been steadily declining and this is generally attributed to high costs of production and low levels of productivity compared to competitors.
“The study finds that the high grown, mid grown and Uva teas have been making losses for at least half the period considered. The low grown tea sector’s profitability is likely dependent on the large bought leaf component which has effectively subcontracted out green leaf production costs,” the report stated.
It added that the high grown, mid grown and Uva sectors are clearly unsustainable at current operating costs since labour productivity has been either stable or has declined, and yield per hectare has risen only in the mid-grown and rubber sectors.
“The high growns and Uvas are in the worst straits as both labour productivity and yields have been declining,” the report warned although adding that the high share of labour costs, inevitable in this type of industry, is only the tip of the iceberg and should not blind stakeholders to what else is wrong with the sector.
“The inability to increase labour productivity and declining yields in high grown and Uva tea sectors appear to be the main reasons why the high grown, mid grown and Uva sectors have been generating losses for several years. So long as these trends continue, wage increases too, will remain unaffordable,” it concluded.
http://www.thebottomline.lk/2011/07/17/page1.html
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