China sets its eyes on Sri Lanka’s plantation sectors

Rubber-plantationChinese firms are in talks with Sri Lanka’s Plantation Industries Ministry to collaborate with local firms to channel substantial capital into commodities like rubber, tea and coconut plantations and production value chains to boost production and produce quality value-added products.

Plantation Industries Ministry officials have stated that Chinese firms have expressed an investment interest in Sri Lanka’s rubber production as China sees natural rubber growing to become one of the most strategic material in the world over the next decade.

During the launch of Finite Element Analysis Simulation Centre (FEASC), the first project under the Rubber Master Plan, recently, Plantation Industries Minister Navin Dissanayake said his ministry has signed an agreement with the provincial government of Hainan, China, for technical assistance.

Hainan is among the top three rubber producing regions of China and home to some of the largest rubber manufacturing companies in the world. The provincial government has also expressed the interest to transform Sri Lanka into a rubber manufacturing hub and have already submitted a proposal to Sri Lanka’s Ministry of Plantation Industries to invest in finished rubber product segment.

Dissanayake also informed that the Chinese central government approached him and promised to invest US$30-40 million to assist Sri Lanka’s rubber industry. He said the ministry officials are preparing feasibility reports to receive these investments.

However, according to ministry sources, the US$30-40 million investments are a fraction of the overall investments planned. The initial investments would act as capital for start-up and R&D investments.

The Ministry officials pointed out that the investment requirement for a modern tyre plant might go up to around US$800 million.

China Hainan Rubber Industry Group Co., a subsidiary of Hainan State Farms Agribusiness Group Co. Ltd., and Hainan’s top rubber producer has been on a buying spree, acquiring stakes in international companies. The company has come on board to invest in Sri Lanka’s rubber production value chains. The Ministry officials said that they would facilitate the synergy between local and Chinese firms to establish joint ventures, specifically aimed at setting up new plants and amassing new technologies to boost rubber yields and production.

Ministry officials state that the Ministry is currently working with interested local firms to establish an investment models which could be used as a benchmark for other joint ventures.

Several cash-stripped Regional Plantation Companies (RPCs), who have been replacing rubber plantations with oil palm due to low prices of natural rubber in the world market, have also expressed their interest in working up with Chinese firms.  The Ministry noted that the Chinese firms can invest in RPCs through setting up new subsidiaries and sub leasing.

Minister Dissanayake and officials also recently held a three-hour discussion with a Chinese delegation led by China’s Sinoshine Group CEO, Amy Lin, on long-term investments in Sri Lanka’s rubber production value chains linking to China’s Belt and Road initiative.

Dissanayake assures that Sri Lanka’s plantation sector has a bright future ahead. He maintains the plantation sector needs to advance to an innovation-led growth model rather than depending on state subsidies.  Plantation Industries Ministry foresees Chinese investments increasing Sri Lanka’s low rubber yields from the current 800 kg/ha to minimum of 2,000 kg/ha while venturing into high value-added products.

China has also recognised the Rubber Master Plan as a good platform to develop Sri Lanka’s rubber industry and expressed interest. The Ministry expects the investments in the Rubber Master Plan to catalyse crucial private sector investments.

The ministry officials said that they would also explore possibilities to obtain low-interest loans for smallholder sectors from China to boost replanting and productivity through mechanisation and new technologies.

Although Sri Lanka’s value addition has increased significantly since 1980’s, the average value addition in rubber is still almost half of the global average, which is mainly due to lack of advanced technologies.

Dissanayake was optimistic that Sri Lanka’s rubber product exports would climb up to US$5 billion in another 3-4 years, easily backed by implementation of the projects in the Rubber Master Plan.  The ministry, in partnership with the private sector, plans to see through up to US$1.5 billion in investments during the programme period.

China’s natural rubber plantation history is only 60 years old. But today, the country is a leading rubber powerhouse in terms of both production and consumption of both natural and synthetic rubber and is the world’s second largest producer of tyres.