Sri Lanka tea replanting, promotions hit due to withheld industry funds

March 10 (LBO) – Sri Lanka’s smallholders are not getting promised incentives for replanting and the national promotional budget for tea has also been hit because industry funds are being held by the state, officials said. Local tea exporters currently pay a four-rupee cess on every kilogram of tea sold, netting in over a billion rupees last year, channeled into a state fund, though a third of that never benefited the industry, Colombo Tea Traders Association said in a hard hitting statement last month.

That money funds the Tea Board, which is the regulator, the Tea Research Institute and the Tea Smallholders’ Development Authority (TSHDA).

A TSHDA official told the television program Lanka Business Report that funds promised to the islands 300,000 odd small growers for replanting are not coming on time.

“There was a 60 million rupee short-fall for 2005 and this was received in 2006. Now there is a shortfall for 2006 and we are trying our best to get this and give the funds to the tea small holders,” N D Nandasena, General Manager of the tea smallholders’ development authority said.

“The unfortunate thing is when this happens the growers don’t have the sufficient funds to go ahead with their planting and replanting.”

Tea smallholders’ development authority uses its export cess funded budget to subsidize three hundred and fifty thousand growers.

In addition, the growers also get technical know-how and help to organize grower societies from the authority, which employs 450 people costing 160 million rupees or two fifths of its annual budget.

The other 240 million rupees in directly transferred to tea small holders who are growers with less than 50 acres of plantations.

Three years ago, the tea smallholder’s development authority spent millions in tax money to voluntarily retire some of its excess work force.

“In the past there have been certain irregularities in the recruitment “but in the recent past this has been done with the approval of the treasury” following restrictions,” Nandasena said.

The tea smallholders’ authority still has about a hundred staff in excess, but the hiring freeze has held so far.

CTTA said they expect up to 300 million rupees to be held back this year from the 1.2 billion expected from cess collections.

The association, which brings together brokers and exporters, say the funds are “dispensed by the State Fiscal Authority, in irregular installments, with a progressively increasing share, presently amounts to almost a third, being retained for other purposes, depriving the industry of desperately required financial assistance.”

The industry says as much as 280 million rupees was withheld by the government in 2006, resulting in reduced spending to promote the island’s tea industry in overseas markets.

The CTTA accused politicians of stuffing their supporters into tea industry related institutions.

“Funds that are ploughed back into the Industry are, being squandered on maintaining exceedingly over-staffed, largely unproductive, state institutions, associated with industry sectors, which serve as an useful vote-base for successive Governments,” the CTTA charged.

“This brings no return to the Industry and merely subsidizes the livelihood of political supporters of respective parties in power.”

The industry regulator the Tea Board has had more complications. The board spent 20 million rupees to prematurely retire 40 excess employees three years ago.

However last year, the Tea board hired a fresh set of 40 graduates. The cost of excess employees is eating in to spending in critical areas.

Fixed costs such as salary and utility bills have to be met, but often at the expense of spending on critical areas such as image building or value addition for the industry.

“Last year the promotional budget was 110 million or so” out of this we could not spend more than 50  60 million ” it had to be reduced,” Lalith Hettiarachchi Chairman, Tea Board admitted.

“There is a certain current expenditure that we have to get involved in, like salaries, water, transport, electricity, and these cannot be cut down. Therefore what we do is cut down on promotion. This affects the industry ” this is where the problem is.

Tea earnings hit a record last year as the depreciating currency gave the sector breathing space. The dollar value of tea at Colombo’s auctions however has been unchanged in nearly four decades.

The industry survives on productivity gains and rupee depreciation.

The industry is lobbying for cess funds due to them, to be spared this year, but have been unable to strike a deal with the Treasury so far. Any deal will also require legal changes in the budget.

As a start, the tea industry is also asking representation in the cess committee, so that they are allowed to directly influence how the export levy is allocated.

Colombo rubber trade later complained that a similar fate has befallen on its development funds.