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Value addition shouldn’t be limited to product variations


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Further deterioration in the plantation industry is bound to create a negative impact on social, political and economic grounds. This calls for the Sri Lankan plantation sector to aggressively address this grave situation by vigorously driving innovativeness, and steering away from the traditional solutions derived through ‘experience’ and tacit knowledge. Rather, it has to pursue value addition on an industry scale and not just at the product variant level – Pic by Shehan Gunasekara 

 

The colonists left us quite a few things which we still utilise daily including the railway system, the school system and the plantation sector. The economy has benefitted immensely from the latter in terms of foreign exchange revenue over the years. This was the case in the mid-1980s when we were the world’s largest tea exporter. However, this head-start has been lost over the past three decades and we are struggling to perform at the required level amidst internal and external challenges, without a viable solution to adapt to ever-changing customer demands and competition.  

 

Current predicament

The Sri Lankan plantation sector continues to persist with its century-old original crops for the greater majority of its extent, except for very little diversification of rubber into oil palm. Even diversification of poor yielding tea fields into timber was as a secondary alternative. In spite of prevailing clear advantages in relation to land productivity and greater economic benefits compared to the other comparable crop, rubber, the total extent of oil palm in Sri Lanka as at today is lesser than 10,000 hectares.

Sri Lankan tea fields are many folds older than those of other new global entrant competitors. This results in a series of drawbacks such as depleted soil conditions, lower yields, lesser land and labour productivity, and a need for high usage of chemicals, etc. leading to a higher cost of production.

The labour force on tea plantations being predominantly of Indian origin, the remote geographical locations of plantations and the inability of other industries to provide alternative job opportunities in these regions due to skill mismatches, increases the vulnerability to engage in undesirable activities such as terrorism and the formation of a decisive voter base. In recent years, labour and wage disputes within the sector have become the subject of national conversation, creating a negative perception about the tea industry in particular.

Further deterioration in the plantation industry is bound to create a negative impact on social, political and economic grounds. This calls for the Sri Lankan plantation sector to aggressively address this grave situation by vigorously driving innovativeness, and steering away from the traditional solutions derived through ‘experience’ and tacit knowledge. Rather, it has to pursue value addition on an industry scale and not just at the product variant level. 

However, the value addition of the main crops continues to be outside the purview of plantation companies and the research institutes, leaving this vital responsibility at large. Therefore, in effect, systematic R&D of plantation crops continues to be confined to agronomical aspects ranging from development of planting material to harvesting and production of basic finished goods which represent the initial stages of the value chain.

 

The role of research institutes

The focus and efforts of the research institutes have thus far been on improvement of ‘existing crops’, mostly as ‘mono crops’ than on aspects such as enhancement of land and labour productivity, viability through the ‘best crops’ and value addition for better business performance.

Therefore, it is timely that the research institutes be entrusted with the task of placing more emphasis on high-end value addition related research such as ‘virgin coconut oil’ for medicinal purposes including Alzheimer’s treatment, world-renowned Ceylon tea to be traded with higher value addition and innovative products to suit modern-day young and old tea drinkers and explore possibilities to devise a mechanism to trade carbon fixed in the rubber plantations. 

 

 One of the biggest quandaries facing mature businesses today; how, or how far, can they adopt disruptive practices without harming their organisation? One way of addressing this is to use technologies that allow you to experiment in small but scalable ways

It’s evident that as a business, the plantations need to change, and we need them to change quickly. We just have to make sure we don’t, at the same time, throw away the business that we have. Innovation is a culture and it doesn’t come from a good idea alone. Matured organisations and industries that have been used to certain systems and practices for a long duration due to their effectiveness, should consciously and systematically create an innovation-conducive environment if they are to succeed in the long-term

 

Further, there is also a lack of research in post-harvest value addition innovativeness. Changes are therefore imminent in the Sri Lankan plantation sector, which opens up new avenues for future research in the areas of crop diversification into more viable crops and value addition to finished products. 

 

Regional examples of diversification

In the 1960s, Malaysia and Indonesia converted their lands under rubber and other agricultural commodities to more economically-viable palm oil. Even though palm oil is primarily used for cooking, Malaysia and Indonesia ventured further into quality enhancement and value addition, creating products good enough to be sold in western supermarkets in the form of Dove soap and Ben & Jerry ice cream, to name some. There were also initiatives to convert palm oil into biodiesel, thus making it their largest export earner, annually turning over $ 20 billion and $ 15 billion, respectively, against Sri Lanka’s current, meagre export earnings of around $ 0.20 billion from rubber.

The Sri Lankan coconut sector is still at the relatively lower-end of value addition partly due to its strong domestic demand.

Since the majority of produce comes in small quantities from small holdings and that it provides a livelihood to a large number of people, exploring opportunities for high end value additions which yield health benefits, have been limited. This again calls for attention for innovative measures to be taken through a conducive organisational culture and leadership style across the coconut industry.

 

Where we stand on value addition

In the area of value addition to finished goods, the main focus is restricted to only facilitating product development efforts by way of testing physical properties of intermediate compounds and finished products. For instance, the mere product innovations by the tea research institute have been confined to the prototype stage in the cases of yoghurt, tea cola, carbonated tea and tea wine. Other than the use of ‘BMF’ (Broken Mix Fanning)-grade tea used to make instant tea by Unilever, other innovations are yet to be successful on a commercial scale. These meagre improvements have only managed to help the plantation industry to maintain its status quo and pure existence. 

 

Sri Lankan tea fields are many folds older than those of other new global entrant competitors. This results in a series of drawbacks such as depleted soil conditions, lower yields, lesser land and labour productivity, and a need for high usage of chemicals, etc. leading to a higher cost of production

The Sri Lankan coconut sector is still at the relatively lower-end of value addition partly due to its strong domestic demand

Due to its potential impact on socioeconomic and political fronts, the state regulatory bodies hardly impose conditions on the plantation management. This in turn, takes away the burning need for change and innovation, allowing the plantation sector to maintain the status quo in their own comfort zone, whether it is detrimental or not

No matter how successful the company or stable the industry, firms that don’t prepare themselves for disruption risk extinction. Innovation is not just about creating new markets. It extends product life cycles, increases value addition, improves cost margins and has the ability to further the competitive landscape

 

Future research must build on this knowledge, and more time and effort can be allocated for high-end value-added products such as the usage of virgin coconut oil for wellness purposes, as mentioned earlier. The research institutes have a major role to play here in creating awareness amongst current and potential producers as well as educating policymakers on encouraging investors with appropriate incentives such as tax holidays, funding through state banks on special interest scheme, marketing support through embassies and assistance for R&D activities.

In addition, it will be also interesting to study the ‘level of value addition’ and the ‘mix’ of value addition vis-à-vis other countries which are producing similar products. This will help to elevate the produce to the top-end of the value addition grid which fetches premium prices and when developing products selling at the bottom end of the value addition grid which can fetch prices marginally higher than the price realised for bulk produce, in order to optimise net earnings.

 

How can we move forward?

There are inherent limitations within the plantation sector in terms of organisational culture, leadership styles and innovation which at present, prevent decisive, large-scale transformations for the better. Sustainable change for the industry may begin by evaluating and balancing these aspects. 

Due to its potential impact on socioeconomic and political fronts, the state regulatory bodies hardly impose conditions on the plantation management. This in turn, takes away the burning need for change and innovation, allowing the plantation sector to maintain the status quo in their own comfort zone, whether it is detrimental or not. 

 

Disruptive innovation in mature industries

With new entrant countries driving and defining transformation and disruptive change, established organisations like the Sri Lankan plantation sector are compelled to integrate new disruptive innovations with their core assets.

No matter how successful the company or stable the industry, firms that don’t prepare themselves for disruption risk extinction. Innovation is not just about creating new markets. It extends product life cycles, increases value addition, improves cost margins and has the ability to further the competitive landscape. 

Today, few companies can escape the impacts of technological advancement and digital disruption as it reshapes business relationships, overhauls logistics processes and revolutionises markets across every sector. Mature companies have a strong growth history, and the resources and capabilities to change. However, this strength itself is bound to become a resistance to change, as convincing decision-makers can be challenging. Leaders of such organisations with an expansion pipeline may see disruption as an unnecessary risk. 

One of the biggest quandaries facing mature businesses today; how, or how far, can they adopt disruptive practices without harming their organisation? One way of addressing this is to use technologies that allow you to experiment in small but scalable ways.

Phillips, which is amongst the 40 most well-known brands in the world, wouldn’t be around if it hadn’t been able to change and innovate its product line. The company, which sold off its iconic television division and moved from electrical goods to lighting and energy efficiency, is now concentrating on optimising opportunities presented via digital disruption of its healthcare and consumer division. In doing so, one of the conscious decisions made by Philips was to spend eight percent of sales on innovation whereas any other traditional company would have spent the same on marketing. 

At 175 years old, ‘Barry Callebaut’ is the world’s leading supplier of chocolates, and is a prime example of an entity that realised the difference between innovation and renovation. With time, rather than follow the norm of changing its recipes to use less artificial sugar and more healthy fats, the company drove into the jungles of Indonesia, Brazil and Africa, to encourage suppliers to change the fermentation process to ensure the natural medical and healthy elements of the cocoa bean were not lost in the process. This has enabled the company to stay competitive after so many decades in operation.

It’s evident that as a business, the plantations need to change, and we need them to change quickly. We just have to make sure we don’t, at the same time, throw away the business that we have. Innovation is a culture and it doesn’t come from a good idea alone. Matured organisations and industries that have been used to certain systems and practices for a long duration due to their effectiveness, should consciously and systematically create an innovation-conducive environment if they are to succeed in the long-term.

This is easier said than done, but it is necessary given the number of people whose livelihoods are directly or indirectly affected by the industry and the burden it continues to exert on the economy. 

Next week in my ‘Beyond the Plants’ series, l will explore the different macroeconomic aspects affecting the plantations and other factors which hinder change.

(The author is a Director of State and private sector plantation companies with extensive experience at operational and strategic levels. He can be contacted on: nbogahalanda@gmail.com.)


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