Key Issues in the Process

Market issues
As seen in any industry price development in NR is caused by rubber balance (interaction of
demand and supply). The other factors of price changes are NR stock accumulation, the demand
from final good manufacturers mostly tires, ease of substitution of SR to NR and influence of oil
prices. Sri Lanka exports about 20% - 30% of its rubber in raw form while the remaining 70% -
80% is used by the domestic industries. Sri Lanka’s rubber industry exports has been growing
steadily from approx. US$ 135 Million in 1995 to more than US$ 483 million in 2009. Of this
value, rubber products export account for around 80%. The noticeable drop in the growth rate of
rubber and rubber products is mainly due to the global recession, which prevailed in the year 2009.

Rubber prices currently at the Colombo auction have hit the lowest levels since 2009 and appears
to continue to slip for the foreseeable future. Producers are under pressure owing to lower global
demand for natural rubber accompanied by economic downturn and large stockpiles accumulated
in major buying countries like China, Japan and Europe. The contributing factors to the price drop
were the oversupply by the top producing countries leading to imports into Sri Lanka, and the fall
in synthetic rubber prices with the oil glut. These significant drops in prices and demand have
affected the Pallegoda rubber factory in terms of demand and earnings to production ratio.
Currently due to the drop of natural rubber prices around the world, the cost of production has
risen to a massive 65% of the total income for the Pallegoda rubber factory affecting the bottom
line significantly. In the inevitable fight for survival, the Pallegoda is left with no alternative but
to implement modernization programs such as measures for improving productivity per unit land
area, reduction in overall cost of production so as to produce rubber at economically low’ prices,
and improvement in quality, presentation and grading.

Labor Issues
Research findings indicate that the rubber industry employs approximately 300,000 direct and
indirect workers comprising less than 100,000 in the plantation sector, 127,000 small growers,
50,000 in the informal sector (according to the Ministry of Plantations and Rubber Development
Board) and about 36,000 in the manufacturing industry (Census and Statistics Department, 2009).
An acute shortage of workers is greatly affecting the industry as the younger generations look to
migrating from all plantation industries looking for more lucrative opportunities in cities. In
addition to this, absenteeism too is prevalent in the growing sector and has affected production
greatly. Social acceptability too is a factor that is detrimental to the industry since it poses
economic implications on the workers who succumb to basic human wants and look for more
lucrative opportunities elsewhere. The Pallegoda factory too has been negatively afflicted by the
unsustainability of plantation industry in Sri Lanka in terms of lack of human resources, continual
abandonment by employees, wage issues and quality of life of workers. This dearth of workers has
resulted in a lack of human resources which has become a key challenge to the factory as most of
the activities here are carried out manually and the management model is more regimented. This
too has led to a growing disliking amongst the younger generation to work in the factory. In
addition to that, the available workers are not fully fit enough to perform their duties, due to various
reasons such as alcoholism and illness. A complete overhaul of the traditional system at the
Pallegoda has to be looked at in order to ensure that it becomes sustainable in terms of Human
Resources.

Productivity Issues
World production of natural rubber is greatly dominated by Asia. In The world natural rubber
production rose to 12,079,000 tons in 2013 with Asia contributing approximately 93 percent of it.
At global level, Thailand leads in terms of land productivity, with a yield of 1808 kg per hectare
followed by Vietnam with 1,740 per hectare and India with 1639 per hectare. Sri Lanka’s yield is
just 1,247 per hectare (Table 2).

Table 2: Natural Rubber production and Productivity

Country NR Production Productivity
(000 tons) (Kg per Hectare)
2013 2014 2013 2014
Thailand 4170 4105 1808 NA
Indonesia 3180 3206 1104 NA
Vietnam 949 1042 1740 1742
China 865 871 1261 1223
India 845.5 791 1639 1500
Malaysia 826.4 700 1400 NA
Sri Lanka 128.3 116 1247 1222
 Philippines 1122 1144 1121 NA
Cambodia 825 105.9 1085 1187
Source: Sri Lanka Customs

Sri Lanka rubber production per hectare when in comparison with Thailand, is lesser by 561 Kg
(approximately 1/3rd). Further research should be conducted and the findings should be addressed
in order to ensure that productivity is increased and is in line with the leaders. A number of
biological developments arising from research are readily available in cultivation and production
can be adopted by Pallegoda to ensure better productivity levels. High-yielding planting materials
with yield capacities in excess of 4,500 kg per hectare, improved agronomic practices to bring
planting materials into maturity in a period of four years, optimization of yield through
discriminatory fertilization and the development of yield stimulation techniques enabling trees
already planted and of different ages and varieties to express their full potential is but a few of
them. Pallegoda also incurs a higher cost of production of 65% which affects the bottom line
greatly. A variety of factors such as falling rubber prices, escalating costs of raw materials, high
maintenance cost for outdated machinery, increasing wage costs etc. contribute to this scenario.
Streamlining and complete overhaul of this factory is required in order to better the current levels
of cost of production.

The process at the Pallegoda factory is carried out manually with very little dependence on
technology. Production starts with the milk being sent to the bulking tanks and the relevant
additives added and stirred in manually. This is then left to coagulate for a specific period of time.
Once the coagulation is completed, the coagulated rubber is broken up and run through specific
mills depending on the end product. Though a process layout does exist, broken down mills have
resulted in the coagulated rubber being moved across the line for milling. After the milling is done,
the rubber is then run through the macerator to remove any remaining water and rolled into sheets.
These are then manually carried and hung in drying rooms. After drying, these would be laid out
on long tables and manually cleaned. Every sheet is examined and all particles of dirt are removed
by hand before being run through a macerator for the final time. The finished rubber is then packed
into bales and sent off to the auctions or to the pre-contracted partners. As is evident from above,
the entire process is hampered by layout issues due to broken down machines and intense labor
dependence. In addition to that, the Pallegoda factory has not kept itself in line with technological
advances and improper management of human capital. The rubber industry is known to be a
technology intensive industry. It requires trained skilled workmen who have experiences on
modern machinery and equipment, mature processing technology and high level of product
development to meet the global market trends. There is a failure on the part of Pallegoda in meeting
these requirements which has also resulted in productivity issues.

Other issues
Sri Lanka which was placed 6th as a leader in in the Asian region for the production of rubber in
2013 has declined to number ten in the last few years. Given the current trend in rubber prices and
markets, many rubber plantations have seen better viability by replanting rubber lands with oil
palms. This conversion of Rubber lands into Oil palms has resulted in production drops in the Sri
Lankan rubber industry which in turn has the rubber producers scrambling to switch to other crops
with better returns. Again the necessity of technology and skilled resources in order to overcome
this damning circle is evident. The Pallegoda factory needs to not only to exploit the slogan of
‘replant or die’ but has also has to assume the need to ‘modernize or perish’ as the key solution.