The Hindu Business Line : `Plantation sector needs structural change'

"The new thinking is that the plantation sector, comprising the farm and manufacturing segment, should be prepared for a structural change in the 21st century. This means that productivity levels should be linked to the labour employed and marketing strategies should be linked to global markets instead of just on local sales... "

Mr L.V. Saptharishi

The country's plantation industry, consisting mostly of tea, coffee, rubber and tobacco, has been under unrelenting pressure with prices plummeting and growers getting battered by rising cost and declining returns since 1997. Though the issues pertaining to the industry was aired in Parliament and State Assemblies — particularly when import curbs and quantitative restrictions were removed a few years ago — the plight of plantation workers remained a tale of woe. But the situation started changing when the Ministry of Commerce, which is the nodal ministry, became proactive and began extending policy-related ballast to growers. The credit for putting the plantation industry back on the rails should in part go to the Additional Secretary in the Ministry of Commerce, Mr L. V. Saptharishi, who demitted the office on October 31, at the end of his deputation to the Centre, and reverted to his parent cadre of West Bengal.

Mr Saptharishi began his tenure in the Commerce Ministry in October 2000 with the dual charge of the plantation industry and also heading the Directorate of Anti-Dumping and Allied Duties (DGAD) as the Designated Authority. During his tenure as the Designated Authority, Indian industry, faced with the cold blast of competition from cheap imported products inundating the domestic market in the wake of the removal of import curbs, emerged as the single beneficiary of the dumping mechanism.

In the plantation sector, the country's major produce such as tea, coffee and rubber were in the thick of crisis plaguing their operations and Mr Saptharishi devised a slew of schemes ranging from the Rs 500-crore Price Stabilisation Fund Scheme for Commodities, and the Rs 250- crore Tea Modernisation Fund for rejuvenating and modernising the age-old tea plantation industry to the restructuring of special coffee term loans and special tea term loans. For natural rubber growers, there were not only a spate of measures to realise higher prices but also incentives to explore the export markets.

On October 31, Mr L. V. Saptharishi spoke to Business Line in his Udyog Bhawan office on a variety of issues.

Excerpts from the interview:

The plantation sector has been going through traumatic times in recent years with the government announcing periodic booster doses in the form of sops to the plantation industry. Why has the industry come to this pass?

You must appreciate that the plantation sector, chiefly consisting of such crops as coffee, tea and rubber, has been going through a turbulent phase over the last three years or so. This is mainly on account of decline in the international prices of these commodities being attributed to over-production and competition from new players.

In the history of the plantation sector, if one looks back over the past four decades or so, one will come across peaks and troughs characteristic of such perennial crops. In these situations, prices always played an important role, but the margins were taken care of by assisting plantation entrepreneurs to fully cover their cost of production and other incidentals. More margins meant higher profits and less margins meant lesser profits. It was never a case of margins below production cost depriving the growers and entrepreneurs of benefits, or their legitimate return on investment. However, the picture over the last few years is one of steep increase in cost of production coupled with a steep decline in price realisation. The plantation growers are not in today's context hankering for profit but are deeply aggrieved that their cost of production has not also been taken care of in the context of the current prices.

Since there is no safety net for the plantation growers, the problem has become compounded. It should also be appreciated that the situation is not one of their making but thrust upon them due to cataclysmic changes in the international price scene. However, the crisis has demonstrated and taught all of them as to how they should plan for such decline in trends even during times when recoveries will take place and profits come their way.

The relief measures announced range from economic to technological and institutional support. What are the strategy and rationale of such support measures?

The Government has looked at the problems from the standpoint of the financial sector, economic parameters and technological initiatives. In this crisis, the financial sector, commercial and cooperative banks, have played a crucial role in that they have restricted the term loan as well as working capital loan outstandings in favour of the coffee growers and the tea companies, including the growers and bought leaf factories. The restructuring of these loans, now known as the SCTL/STTL (Special Coffee/Tea Term Loan), is an important measure taken by the commercial banks at the height of the crisis, and this benefited the growers in both categories with an exposure of around Rs 2,000 crore. The restructuring exercise that has been undertaken in the plantation sector is the first of its kind in history. Even with this restructuring, one cannot say that it has fully or adequately satisfied the needs of the growers or mitigated the crisis. The measures have been put in force to deal with the legitimate grievances of the borrowers, and it is hoped that the situation will improve.

As far as economic related measures are concerned, it should be clarified that in today's market-oriented situation, the Government does not intervene by way of price subsidy or procurement. Many market promotion measures have been adopted both on the export and the domestic front to help the growers and the industry get a reasonable return on their investment. In fact, in the case of natural rubber (NR) such a package of incentives adopted during 2002 has started paying rich dividends and today NR growers are in a somewhat more comfortable position than the coffee and tea growers. In the case of these two beverages, the situation has become complicated because of excess global supplies, competition among major players and challenges from cold beverages, and so on.

With regard to technological issues, it should be stated that quality and productivity are receiving great attention today in the plantation sector. All the schemes and programmes of the Tenth Plan for the plantation sector are focussed on these two dimensions which are increasingly becoming the concern of consumers the world over. There is resistance to pay more and to accept substandard products. It is earnestly hoped that the host of measures on the institutional, economic and technological fronts will assist the plantation sector in achieving a turnaround in the near future. The long-term approach is that even after achieving a turnaround immediately, the industry should not become complacent, as it has to grapple with the secular trends on the price front far removed from the bonanza of the past.

Do you believe that the plantation industry could do well in the Quantitative Restriction-free regime when imports from neighbouring and competing countries flood the domestic market and depress the value of indigenous producers/ growers?

As far as the QR free regime is concerned, it is a settled issue and cannot be revisited at least for the present. With regard to imports of similar plantation sector products from neighbouring countries, one has to get over the mindset and learn to compete on quality and price terms. Instead of agitating against the WTO principle of a QR-free regime, it would be far more advantageous to the plantation sector if India and its neighbours started thinking in terms of joint marketing strategies and work towards that goal so that the legitimate aspirations of the primary produce growers can be protected and export interests safeguarded without the need for price undercutting and dumping.

What remedial measures are contemplated to bring the plantation industry back on rails so that the economics of their operations is sustained and sustainable?

As already mentioned, the Government have been working on many fronts to give relief to the plantation sector and also help it overcome the current crisis. Apart from these measures, the new thinking is that the plantation sector, comprising the farm and manufacturing segment, should be prepared for a structural change in the 21st century. This means that in the case of tea growers and bought leaf factories productivity levels should be linked to labour employed and marketing strategies should be linked to global markets instead of local sales only. In the case of organised tea industry, it should appreciate the role played by the small tea growers and the bought leaf factories, and work out arrangements with them with regard to production strategies and the removal of varietal imbalances and generic promotion.

With regard to coffee growers, experiments revealed that diversification of crop opportunities cannot any longer be wished away and should be structurally worked out at the field level keeping seasonal factors, crop husbandry practices and cost inputs. NR growers are gaining confidence today because they have started making forays into the external markets unlike in the past when they regarded the domestic markets as their sole channel for sale.

It is in this scenario one notices greater level of confidence on the part of NR growers today who are not particularly perturbed when imports are also taking place. This is a telling example of the QR free regime benefiting the domestic growers as well as the grower industry on a win-win basis.

Are the measures such as Price Stabilisation Fund (PSF) scheme any answer to the structural constraints plaguing the sector that demand long-term measures?

The Price Stabilisation Fund Scheme, to be precisely called Plantation Growers Employment Provident Fund Scheme, has just been put into operation, and it is too early to comment on its efficacy or viability. The Chief Executive Officer of the PSF Scheme is in extensive contact with the entitled categories of growers in the rubber, coffee, tea and tobacco sectors. As the people have been accustomed to receiving subsidy and not putting something into their coffers even in times of better earnings there is a problem in bringing about a change in the outlook of these growers subscribing to the PSF scheme.

Unfortunately, while adversity did not teach that kind of a lesson to the growers, today's bright fortunes in the case of the NR sector has enthused the growers to perceive the benefits of the PSF scheme, and they are coming forward to joining the scheme. Others also will join in good numbers in the coming months as they have come to realise that instead of depending upon the government for benefits under the price crisis situation, it will be more helpful if they also learn to save something for the rainy day under the scheme.

The PSF scheme is a new experiment and its reliefs could be assessed or evaluated only after the corpus start yielding returns and the subscribers get their benefits from the yields.

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