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Evaluation Workshop of the Plantation Development Project

Remarks by
Richard Vokes
Country Director, Sri Lanka Resident Mission
Asian Development Bank

30 October 2009
Colombo, Sri Lanka

A.  ADB involvement in the sector

The tree crop subsector has received considerable assistance from Development Partners, with the World Bank and ADB being the main sources. The ADB has provided eight loans to the plantation sector since 1968.¹ The earlier loans provided the funds for development but did not address the issue of policy environment. The last 2 projects are the only ones to address the policy issues through privatization and institutional reforms. Specially these last two projects:

1. privatized the management of 21 (out of 23) tea producing Regional Plantation Companies, putting the largest agro-industrial export sector, the largest foreign exchange earner, and the largest employer in the country in the hands of the private sector. This reduced the Government's fiscal burden and introduced regional plantation companies to the commercial banking system, capital market (Colombo stock exchange), and professional management;
2. improved the socioeconomic conditions of estate workers by providing proper living and working conditions, through improved housing, water supply, sanitation, workers' health and other facilities in the fields and factories;
3. increased the productivity of the regional plantations through replanting of tea bushes and decreased labor absenteeism;
4. introduced diversified activities within the plantations, such as ecotourism, perennial crops, intercropping, and others, thus increasing their profitability;
5. reforested watersheds within plantation areas for environmental protection, translated into reduced soil erosion/loss;
6. increased the contribution of smallholder tea to the total tea production;
7. increased replanting rate;
8. constructed feeder roads to shorten travel time to markets, resulting in reduced leaf damage and therefore better market prices, and
9. modernized tea factories.

B.  ADB preliminary assessment

The Plantation Development Project is the last of these projects, ADB carried out a very preliminary evaluation while the project was still under implementation and the major findings were the following:

1. The project was assessed relevant. The design was to assure the continuity of the reforms under the Loan 1402-SRI: Plantation Reform
2. The project was assessed relevant. The design was to assure the continuity of the reforms under the Loan 1402-SRI: Plantation Reform Project [1996-2002] which was designed to transfer ownership of the plantation sector through divestment of the 23 RPCs.
3. The project was assessed consistent with the Government plans of privatizing the RPCs at the time of design. However, given the change in Government policies, the three remaining plantations won't be divested as they are considered strategic enterprises of the country. To improve their financial situation and performance, the Government has plans to commercialize their operations through new management models (such as public private partnerships, out-growers, leasing of management, etc.). The Project was also found consistent with ADB strategy (1998-2003) to encourage private sector development and to provide support to activities that would improve the health and housing status of plantation workers.
4. The project was assessed as less effective as there are contrasting developments in terms of the progress of achieving the project objectives, in particular over the first 3 years of implementation. The non-compliance with selected covenants such as the removal on export restrictions on tea and the divestment/privatization of the remaining state-owned plantations has some repercussions to improving the profitability of the plantation sector. Furthermore, the progress on transferring market intelligence and product promotion to the private-sector led Tea Association of Sri Lanka (TASL) has been minimal. In contrast, progress has been made in improving the living and working conditions of estate workers through better social infrastructure and related amenities and through social awareness and working conditions of estate workers through better social infrastructure and related amenities and through social awareness programs, although not in the foreseen scale. However, all project objectives cannot be attained as envisaged at project design.
5. The project was rated less efficient given the project's significant disbursement delays (resources not used optimally) and the cancellation of $15 million. This is substantiated for instance by (a) the cancellation of the housing component package which could not even start due to the presence of more attractive alternative packages offered by the Government; and (b) the late and slow start of the Plantation Fund. Nonetheless, the estate workers have been direct beneficiaries of initial project outputs as their living and working conditions are being improved.
6. Project benefits are less likely to be sustained unless: (i) there is consistency with government policies regarding sector reforms; (ii) tea prices are high and consistent; (iii) budget is allotted for maintaining the social infrastructure constructed or improved during the project; and (vi) adequate funding for research and extension is ensured, including thru improved cess allocation.

C.  ADB lessons learned

The implementation of the Project has provided some useful lessons. The major lesson is that the Government should maintain a consistent policy to achieve the desired benefits. The privatization of the RPCs was aimed at improving the profitability by putting management decisions with the private sector. However, the policy was not followed through and three RPCs were However, the policy was not followed through and three RPCs were not divested and no progress in the restructuring of Janatha Estate Development Board (JEDB) and Sri Lanka State Plantation Corporation (SLSPC) was made. Obtaining continued support from stakeholders for policy reforms is essential for sustaining the reform process. While consultations are necessary during the formulation of a policy reform program, such a program should also provide the resources for continued consultation. The vulnerability of policy reform momentum to political change needs to be understood and addressed in the program design.

Another lesson learned is the difficulty of policy reform given the vested interest of the different segments of the industry. Although the Government raised the ceiling for direct exports to 50%, restrictions that favor the single-channel marketing through the auction continue. Likewise, restrictions on forestry and other activities continue, thus restraining the RPCs' efforts to diversify from their core activities.

The Project also demonstrates that the demand for project activities continued to be subject to the start of parallel programs fully funded by the Government through different ministries. Streamlining implementation mechanisms to avoid duplication and overlapping of estate programs and mid-course corrections to respond to emergent needs make the project flexible and demand driven.

Lastly, the Project addressed the immediate need for re-roofing of the workers houses but it does not address the workers' aspirations for house ownership and improvement of their social status. Furthermore, the overlap Furthermore, the overlap of responsibilities for workers welfare and conflicting programs by different ministries tend to undermine the sustainability of the housing and social programs.

Concluding, despite all difficulties during implementation, the Project managed to pick up in the last 3 years and achieve important results in development investments on the plantations and in improvement of workers living and working conditions. We look forward to the sector stakeholders building on these successful stories for the overall betterment of the plantation sector.