Slippery Situation
The Rs20, 000 per MT surcharge was imposed in February last year to arrest a downward pressure on nut prices, boosting farm gate prices for nuts.
While providing much needed relief for growers, the latter half of last year saw a sharp drop in export volumes of desiccated coconut(DC), a 40 percent decline over 2000 quote s all time record.
To the alarm of the export trade, the surcharge, due to end on December 31 2001, was extended to March following the change in government.
The new Minister requested three months to review the situation, asking coconut growers to also come forward with their proposals, safeguarding their interests.
Sri Lanka enjoyed a 35 to 40 percent world market share for DC in 2000 with exports of as much as 82,735 MT.
The effect of the surcharge was felt most severely in 2001 when export volumes dropped alarmingly and local prices rose well above world market levels.
"Sri Lanka has began to lose major markets like Europe and the Middle East - which usually offers a premium on Sri Lankan DC, to competitors Philippines, Indonesia and even Vietnam", said Managing Director Murtaza Lukmanjee, Adamjee Lukmanjee & Sons Pvt Ltd.
With local market prices standing at US$ 975 (Rs82,000) per MT, compared to world prices at US$ 700 to $750, the DC export market is being elbowed out of the running.
"The huge price difference makes it completely unworkable for DC and any other kernel products to stand a chance in the world market. This is especially serious now with competitor countries already securing orders for 2002", he added.
DC exports from January to October 2001 fell a staggering 40 percent to Rs2536 mn from Rs 4243 mn for the same period in 2000 following the surcharge.
"Production has come to a near standstill with as many as 50 of the country quote s 60 DC mills closed down. As many as 30,000 people directly and indirectly depend on the trade", said Director, A. Baur & Co. Ltd, Amal Peiris.
About 70 percent of nuts are consumed locally with the remaining 30 percent channelled into the coconut products industry.
With the surcharge creating an artificial market, local coconut oil prices soared to Rs 95,000 per MT over world prices of Rs 35,000.
The tide shifted, with growers favouring oil producers and began the collapse of the largely export DC market and other coconut products.
As much as 90 percent of coconut oil produced in Sri Lanka is consumed locally leaving only 10 percent to be exported.
But the soaring prices will have a negative impact on long-term exports of oil.
The high oil prices are translated back to the consumer, who pays as much as Rs 95 per kilo of oil (Rs 35 per kilo endash world market) and Rs 16 to 20 per coconut.
"This impacts significantly on the cost of living seriously burdening the country quote s 20mn consumers", Lukmanjee said.
"Even if the surcharge is removed, the import duty of 25 percent will prevail. Oil prices would not come down below Rs65,000 PMT ensuring a fair price to the coconut grower and consumer prices will even come down by a further few rupees", he added. Also badly hit is the activated carbon market, using coconut shell charcoal as a raw material.
"About 40 to 50 percent of our coconut shell requirements come from the DC industry. With most of the industry in a state of collapse, we quote ve been forced to import from countries like Indonesia, Philippines and Thailand", said Manager, Raw Material Purchasing, Haycarb Ltd. Sanjaya Herath.
"What we need is a variable duty structure so that we can be competitive all around. Instead, what we see is an adhoc, often drastic revision of tariffs that takes the industry from one extreme to another. And all parts of the trade are not consulted", one industrialist said.