"Declining tea and rubber prices, additional tax and debt burdens and unviable wage formulas have plunged Sri Lanka's plantation industry into a serious liquidity crisis," the association said in a statement. It said the tea sector had lost more than Rs 4,400 million ($61.6 million) in export revenue in the first five months of the year, despite a production increase of nearly 12 per cent.

"Average sale prices between January and July 1999 have fallen by about Rs 34 per kg over prices in the corresponding period last year, and producers, including small holders, are now facing difficulties in meeting operation costs," the statement said.

In the rubber sector, latex crepe prices are currently about Rs 49 per kg against Rs 81.34 in 1997 and Rs 61.78 in 1998. RSS1 prices were around Rs 40 per kg against Rs 56.62 in 1997 and Rs 49.70 in 1998, the statement said.

"Some urgent measures will have to be taken if the country is to avert a full-blown crisis that will have serious adverse effects on the economy," secretary general of the association SK Seneviratne said in the statement.

There was no immediate comment from the government on the association's appeal, but President Chandrika Kumaratunga decided last week to appoint a presidential task force to address the issues facing the plantation industry.

Sri Lanka's cost of tea production, already the highest in the world, has increased further with the introduction of goods and services tax (GST) on inputs and companies have been compelled to pay workers a fixed daily price share supplement of Rs six in addition to their daily wages.

"These payments are not dependent on prices and even when prices fall below cost of production, the companies are required to keep paying. Such payments add up to more than Rs 2.5 million a day," Seneviratne said.

The association has requested the government to exempt from GST all major inputs into the industry, or to place tea and rubber in the zero category, which will enable companies to claim input credit on the tax they pay.

Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.