Committed to Responsible Tea - How Agarapatana's Commitment to Sustainability has Delivered Record Profits Amidst a Turbulent Economy

Despite unprecedented economic turbulence, Agarapatana Plantations Limited (Agarapatana), one of Sri Lanka's leading tea growers and producers, achieved record profits in just the 1st three quarters of FY 2022/23. In this exclusive interview, Director - Finance at Agarapatana, Kowdu Mohindeen discusses how this feat was achieved through various strategic decisions and a focus on sustainability, supported by technology, and guided by a commitment to environmental and social responsibility.

1. Agarapatana posted its highest-ever profitability of LKR 1.9 billion during the first three quarters of FY 2022/2023. What helped you achieve this feat, particularly amidst what is probably the most turbulent period in Sri Lanka's economic history?

The Management focused on operational sustainability by introducing the concept of Strategic Business Units (SBUs), where each estate was considered an SBU and was expected to manage its own cash flows. As a result, each SBU was compelled to generate funds by increasing production to meet projected outflows, which contributed to our overall profitability.

Effective labour utilization was also highlighted as a crucial element in achieving financial viability for each estate. To ensure this, we enforced a mandate that required each SBU to allocate a minimum of 70% of targeted workdays to direct harvesting and the remainder to other agricultural tasks. Consequently, this policy helped to improve productivity.

Additionally, the estate management was given a formula to help balance these norms, which considered various factors that could impact productivity. A Management Information System (MIS) was also introduced to control the effective utilization of man-days by introducing daily reporting of man-days utilized, and Green Leaf harvested vs man-days deployed under sundry works, to ensure a 60:40 balance was maintained.

The formation of a Marketing Committee, headed by the Deputy Chairman, was another initiative that helped - by continuously monitoring auction prices achieved by our selling marks, against the elevational averages, and then advising the marketing team accordingly. In fact, this helped most of our estates to meet and or exceed the relevant elevational average.

The stringent financial policies we implemented three years ago, due to continuous poor trading conditions and increased costs, particularly labour wages, also helped to maintain financial viability. These initiatives helped maintain strict financial discipline and increase worker output, and the company was also able to benefit from tea price appreciation resulting from a weaker rupee.

Together, these measures have helped us deliver exceptional value.

2. Do you expect this positive financial momentum to have continued into the 4th quarter as well?

Yes, because our present financial performance is the direct result of reforms and innovation within the business, and is only minimally driven by external factors, we believe that we are on a sustainable financial trajectory. To answer your question, the trend has, in fact, continued in the 4th quarter as well, and we anticipate that year-to-date profitability will be proportional to what has already been achieved. Therefore, it is reasonable to expect this positive trend to continue.

3. Have you taken any measures to improve the cost efficiency of Agarapatana’s operations?

We have implemented several measures to enhance our operational cost-efficiencies, particularly as we face the prospect of a fast-dwindling workforce, which has already witnessed a decline of 50% over the past 30 years To tackle this, we have introduced mechanized tea plucking, which has allowed us to improve harvest yields, quality of the crop, per capita productivity and, thus, cost efficiency.

Additionally, the management is now concentrating on incorporating advanced technology to enhance product quality and reduce handling time, amongst other potential benefits. These machine-intensive techniques will help us achieve competitive and sustainable prices in the market over the long term.

4. Preserving the environment while combating the negative impacts of climate change are stated aims for Agarapatana. How do you ensure these objectives are achieved while maintaining financial viability?

We have adopted a number of approaches to ensure that we remain sustainable and financially viable. These include various sustainable practices, reforestation efforts, precision agriculture, and independent certifications and accreditations.

By implementing such sustainable practices, we are able to increase our reliance on renewable energy, reduce waste and promote recycling. These practices help reduce the impact of plantation activities on the environment while also providing cost and productivity efficiencies, which together contribute towards improved performance across financial KPIs, as I have discussed earlier.

Reforestation efforts are a key part of our overall sustainability model, as they help to mitigate and even offset the environmental impact of plantation and agricultural activities. In fact, this effort ultimately helps to promote carbon fixation, which is a key way we can help combat climate change.

Precision agriculture is another focus area for us, and helps us optimize the use of resources such as water and fertilizer, using technology - ultimately increasing yields while reducing resource consumption. We also implement a number of carbon offset programmes to compensate for our emissions - such as investing in renewables and other activities that reduce and or reverse emissions.

Agarapatana, as one of the leading players in the sector, also works to obtain and maintain certifications and accreditations, such as membership within the Rain Forest Alliance, helping to demonstrate our commitment to sustainability, and communicate this both quantitatively and qualitatively to our target groups, which in turn enable us to achieve higher prices and improved bottom lines, while remaining committed to our goal of sustainable agriculture and business.

5. What is your outlook for the present financial year, 2023/24? What external factors could potentially present obstacles for continued sustainable growth and financial performance?

Looking ahead, we hold a positive and optimistic outlook, thanks to the various measures being implemented, many of which I have already discussed.

To further improve production going forward, we have undertaken important agricultural work, such as forking, to improve soil conditions and ensure sustainable yields and quality of crop. We have also acquired mechanized harvesters in sufficient quantities to meet green leaf harvest targets. Meanwhile, we are in the process of furthering mechanization, which will soon include drone spraying and monitoring, together with automation in the manufacturing process wherever possible.

We have also implemented a comprehensive training, recognition and incentives framework as part of our commitment to investing in our people, helping everyone achieve their fullest potential. Financially too, Agarapatana is in a strong position that will enable us to carry out all development activities without compromising operational viability, as we have secured adequate working capital facilities.

External factors, such as arbitrary wage increases and other dictates from bureaucracy, exchange rate risks, and climate risks, however, could pose challenges going forward. Despite this, we believe that our strategy, planning and fiscal prudence, will ensure that we are able to adapt to dynamic conditions and continue to deliver sustainable growth and exceptional value to all stakeholders, well into the foreseeable future!

Kowdu Mohideen, Director finance., Agarapatana Plantations LTD.