Growers sceptical of FDI in coffee, rubber estates

While the plantation-related stocks reacted positively to the talk of the Government considering foreign direct investment (FDI) in coffee and rubber estates, producers are sceptical of the latest move considering the experience in tea sector, where allowing 100 per cent FDI has not yielded any results, so far.

“We welcome the Government’s move to liberalise. However, considering the experience in tea sector, we are sceptical that the proposed move will unlikely help attract any foreign investments in coffee and rubber plantations as the returns are not lucrative,” said Ullas Menon, Secretary, United Planters Association of Southern India (Upasi), the apex planters body.

Further, unless the restrictions in plantation sector such as the statutory requirement of sharing the social costs of labour and land use are removed, it may not be attractive for foreign investors, Menon added.

The Government had allowed 100 per cent FDI in tea plantations way back in 2002, but the sector has hardly attracted any foreign investments.

K Kurian, Chairman of the Karnataka Planters Association, said FDI may work in coffee plantations unlike in tea sector which is highly labour-intensive.

However, generating adequate returns from plantations may remain a challenge due to high capital costs as compared to other countries.

It was reported that the Commerce and Industry Ministry was considering a proposal allowing foreign players to invest in rubber and coffee plantation, engage labourers in plucking of coffee beans or collecting latex from rubber trees and processing of the raw material.

“In all probability, the government is likely to consider FDI in processing sector and this will not benefit the growers,” says Shajimon Jose, President of Chirakkara Rubber Producers Societies.

However, if the FDI covers rubber plantations, Jose said there was scope for widening the farming activities to more areas and it would benefit growers to realise better prices in future.

Jose pointed out that majority of rubber growers in Kerala are reeling under the price crash that has impacted the entire sector badly.

At present the growers are getting only ₹114 a kg for sheet, while the latex price is hovering at ₹94, forcing growers to pay half the amount for tapping.

Given this scenario, Jose said rubber farming has becoming un-remunerative forcing majority of growers to shift to other farming practices.

Quoting statistics, he said rubber production has registered a 12 per cent drop in FY 15 at 6,45,000 tonnes while the consumption has gone up during the period.

The Association of Planters of Kerala was of the view the Government’s move would bring in much needed investment, technological upgradation and improved cultivation practices to the retarded plantation industry.

However, the final aspects of implementation will hold the key in the success of this initiative, C Vinayaraghavan, Chairman, APK, said. He pointed out that 90 per cent of the land holdings under rubber are with less than an average area of two hectares and this may act as a hindrance to large scale investment, mechanisation and economies of scale.

Moreover, the ambiguities created by vested interest groups in different States on the ownership of large holdings may act as deterrent to the foreign investors. The rigid labour laws and reluctance for labour reforms could also play a spoilsport in the successful implementation of the new scheme, Vinayaraghavan added.

“Until and unless security of land and planting assets are not ensured such changes and policies will only remain on paper. The spiralling cost of production and negative margin on returns will impact this policy,” he said.

APK suggested that the Commerce Ministry should consider ease of doing plantation business in India as a precursor to the change in policy of allowing 100 per cent FDI, so that this policy will become a success and it will benefit all the stakeholders.

N Radhakrishnan, Advisor, Cochin Rubber Merchants Association, said FDI will benefit only large rubber estates who are now reeling under severe financial troubles due to price crash.

In Kerala, 90 per cent of the plantations are owned by tiny and small sector comprising around 11 lakh growers with a holding of 0.5 to 5 hectares and the FDI in the sector will not derive any benefit for them.

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