Sweet Tooth: The story of Lanka Sugar Company

By Shiran Illanperuma

Janaka Nimalachandra hollers across the restaurant to a waiter about to deliver his order for a lime juice. “Machan, don’t put sugar!”

It takes him a good half a minute to register why we’re laughing. Nimalachandra is the Chairman of Lanka Sugar Company (LSC), a state-owned enterprise that contributes about 80% of Sri Lanka’s domestic sugar production. 

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“We have one of the world’s highest per capita sugar consumptions. We have one of the world’s highest occurrences of diabetes. We consume 32 kilos per person per year, compared to 21 kilos in India. Some developed countries are in the single digits. We don’t need so much sugar,” Nimalachandra said, with some concern.

Leaving the existential question of our national sugar addiction aside, Nimalachandra expresses pride in having the opportunity to manage what he calls an asset to the country. “I don’t think Sri Lanka has any other company where an agricultural product goes from raw material to a ready to consume, packaged product in one single chain,” he explains.

With qualifications in marketing, advertising, psychology and international relations, Nimalachandra’s CV is eclectic. He has worked for companies in Sri Lanka and India. He has worked for companies that have excelled, and for companies that have failed. Working for a State-Owned Enterprise (SOE), however, was not something he envisioned in his wildest dreams nor perhaps even in nightmares.

Culture shock

The reputation of the public sector work ethic, especially among private sector professionals like Nimalachandra, is not good – to put it mildly. 

“Coming from the private sector, I expected it to be the worst. When I went in, I had already framed my mind to expect the worst. A culture shock was expected, but in some cases, it was ten times worse than expected,” Nimalachandra quipped.

He explained that the biggest challenge was to change the way things were done in a company that had seen around 20 chairmen over a period of 35 years, and had passed hands from the British to the Chinese to the Indian companies. Chairmen had often been aloof to the staff and farmers, never having meetings with more than a handful of people. This in turn led to a lack of direction, bad business practices, and demoralization of the workforce.

 “Communication was what was holding them back. People sit next to each other but don’t talk, they wait until a meeting at the end of the month to discuss issues. They work in a bubble.”

“There’s a big trust issue and responsibility issue. No one trusts anyone. Building a team is difficult. I showed them that we have to work together and luckily everything I planned worked out. I was able to win them in quick time,” he said.

Being something of a social butterfly and a hands-on leader, Nimalachandra set about changing the culture by leading by example. He socialised with staff of all levels to earn their trust. His playing cricket with them was one instance that took the staff by surprise. About 2,000 staff who had worked on a casual basis for nearly 30 years, were given permanent contracts – allowing them to access bank credit, send their children to private schools, or buy a motorcycle. In order to address the unpaid cost of living increments since 2013, he worked towards getting government approval to add Rs. 3,900 to the staff salaries. 

For farmers, Nimalachandra increased the purchasing price of sugar cane by 10%. He ensured that the premises were fully stocked with fertilizer, and oversaw the construction of 30 mini-reservoirs to provide water for cultivation. Additionally, the LSC initiated the second phase of the Gal Amuna irrigation project in order to irrigate a further 1,000 hectares of sugar cane. Meanwhile, after 20 years, farmers were given formal permits to cultivate sugar cane in 3,500 hectares in Pelwatte and 500 hectares in Sevanagala. A 50% subsidy for seed purchasing and land preparation is also provided by LSC. Thanks to these efforts, LSC is expecting a bumper harvest in 2021 and this move has created 1,000 direct and indirect employment opportunities. 

“One year and eight months have gone by without a major protest,” he said proudly. His next challenge is to mould the staff to speak up and demand “the right things” from their future management in order to help the company keep growing.

Dealing with stakeholders

LSC was privatised at a pittance to Master Divers and Daya Gamage Group of Companies in 2002. During this time, sugar production declined, staff were fired, and much of the land fell out of cultivation. The company was reacquired by the state in 2011 under the Underperforming Enterprises and Underutilized Assets Act and has since become a major source of economic opportunity in Monaragala.

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LSC consists of two subsidiaries – Pelwatte and Sevanagala. In total, the company owns 35,000 acres of land, employs 6,000 staff, and buys from 10,000 sugar cultivators. Nimalachandra estimates that there may be 25,000 families indirectly dependent on their income from LSC – including various suppliers of goods and services.

“The reason why Embilipitiya is this developed today is thanks to Sevenagala, and why Buttala is this developed is because of Pelwatte,” Nimalachandra explains.

Since re-nationalisation, LSC’s sugar production has increased from 22.7 thousand tonnes in 2011 to 40 thousand tonnes in 2020. Meanwhile, total revenue has also increased from 1.5 billion to 8.6 billion in the same period. The socioeconomic conditions of Monaragala have changed in tandem. The district’s poverty headcount stood at 20.8% in 2013, but had declined to 5.8% by 2016.

All these factors make LSC far more than a mere commercial entity in Monaragala. It is in many ways a social, and indeed a political, institution. A chairman cannot just navigate day to day commercial operations with a clinical view towards the bottom line.

“With SOEs, you mainly have to deal with different stakeholders, including politicians from the area. Even the gamey pansale hamuduruwo [the head monk of the village temple] has a say in what happens within the SOE. Some of the Pradeshiya Sabha guys have their meetings at our premises. You get 10 to 12 unions, [representing both government and opposition]. Managing all that is one of the biggest challenges,” Nimalachandra explained.

To make matters even more complicated, LSC is responsible for taking care of a 250 km fence to keep out the wild elephants. This includes paying the salaries of over 500 people who man the fence. “When we man this fence, we don’t only protect our crop, but also the crops of other villagers. When something goes wrong, they call us,” Nimalachandra said. As such, LSC is an entity embedded in the daily lives of people in Pelwatte.

Who says the government can’t work?

The treasury appears to be serious about turning around LSC that has seen years of malpractice (LSC has not submitted an annual report since 2013). This is where Nimalachandra comes in. In just one year, he has been able to turn a one billion rupee loss into a one billion rupee profit. LSC made a net profit of 1.3 billion in 2019, and 1.1 billion in 2020. This is the highest net profit earned by LSC in 35 years. Nimalachandra hopes to make a net profit of 4 billion by the end of 2025.

He introduced a zero-recruitment policy, trying to make the best use of the existing bottom-heavy structure. He avoided making heavy- handed staff transfers. He attempted to reform procurement practices. The company was bleeding 300 million rupees a year renting vehicles and machinery when it could have simply bought these for a little more. He lobbied to stabilize the selling prices of sugar and stop imports of ethanol. Since ethanol is a value-added product of sugar, and LSC has the capacity to produce it. Import protection allowed the company to raise prices, and increase profits through a captive home market.

“Now I ask, who says that the government can’t work? I have done this with the same team. These were the same people who used to be up on the roof half the year protesting,” Nimalachandra said.

Indeed, Nimalachandra is now a victim of his own success. Sugar cane yields have doubled in some areas as farmers returned to cultivation thanks to better security of tenure and provision of fertilizer and water. However, Pelwatte’s machinery has broken down, and impoverished farmers, desperate for cash, are starting to harvest their crop, and in some cases burn it in order to force the company to buy and crush them (Burned sugar cane retains the majority of its sugar content but only for 24 hours).

“We anticipated this but didn’t expect it to be this bad. Pelwatte’s machinery gave up on us, it’s 35 years old. Still, we know that we can manage this but the farmers are agitated because they want to bring their crops to the factory before the rains come in,” Nimalachandra says,

“I’ve done a mountain of work. I have a mountain of work still to be done. You get frustrated. You get angry. It’s very difficult. But now I have seen the results and the team has seen the results. When I gave them this year’s targets, I completely took them out of their comfort zones,” he said.

How much sugar do we really need?

As much as agricultural self-sufficiency remains a powerful political slogan, Nimalachandra admits point-blank that Sri Lanka can never be self-sufficient in sugar. At least, not without sacrificing vast expanses of land and committing water resources that could be used for growing food crops. Self-sufficiency in ethanol, however, is entirely possible and the country has almost achieved it.

“Out of 196 countries in the world, only a handful produce sugar and are self-sufficient. 99% import from Brazil, India, China, Thailand and Australia. Some, like the US, UK and Germany have moved out of sugar,” Nimalachandra explained.

“For a country like Sri Lanka, how much sugar do we really need is a question we never look into,” Nimalachandra said.

“Sugar cane requires a massive landmass, and it is not a good crop to have if you’re solely dependent on that. This year Sri Lanka will produce 15% of its 600,000-tonne requirement – the highest ever produced. Ideally, our sugar requirement should be kept below 500,000 tonnes. We could produce about 150 to 175 thousand tonnes locally with a few more sugar companies,” he said.

Modernizing Sri Lankan sugarcane production and improving yields require long term planning. One of the major issues is the poor recovery of sugar per unit of sugar cane. Only about 7% of the weight of sugarcane is converted to raw sugar, compared to 12-14% in India. Yield per hectare is also a problem, but that can be addressed with proper provision of water and fertilizer.

Sugar also requires a lot of nitrogen, and quickly depletes the nutrient content of the soil, requiring large amounts of fertilizer to sustain yields. The government’s organic drive, though challenging in implementation, is welcome in the long run, as organic sugar would obtain premium prices both locally and globally.

Plans are afoot to start a third sugar factory in Weli Oya, off Thanamalwila. The new plant would produce about 25,000 tonnes of sugar annually with a daily crushing capacity of 1500 tonnes and an ethanol production capacity of 6 million litres a year. Meanwhile, sugar production is also expected to resume in Kanthale.

“Land preparation for sugarcane cultivation takes a couple of weeks. It takes one year for the plants to grow. After the first land preparation, the area can be cultivated for 5 years. Of all crops, sugarcane needs the least attention. It needs fertilizer just once or twice,” Nimalachandra explained.

The benefit of sugarcane cultivation therefore, is that it allows farmers to cultivate a second crop or engage in another economic activity, effectively drawing multiple sources of income.

The road ahead

The SOE may be named Lanka Sugar, but Nimalachandra sees no reason why the company should strictly adhere to the name on the label. Rather, like any successful private enterprise, it should diversify and find new opportunities for investment.

Considering the company’s broad asset base, and geographical location, there is a multitude of opportunities for further investment, such as in agritourism. Nimalachandra says. “You could have dinners under the stars. There are rivers flowing between the fields. It’s stunning. We are less than an hour away from Lunugamvehera, Yala, and Uda Walawe national parks.”

On the industrial side, the government’s decision to ban fertilizer imports and develop organic farming is also seen as a unique opportunity that Nimalachandra hopes to take full advantage of. “We are setting up Sri Lanka’s best biofertilizer plant, with a nitrogen content of 12.1% which is unheard of in the country. We are thinking of commercial operations by the end of the year or beginning next year,” he said.

The biofertilizer will enable LSC to transition to organic sugar cane production, which in turn opens doors for exports considering the premium on organic sugar in developed markets. The plants would also be able to supply farmers in the region with organic fertilizer. If successful, the effort may prove to be a model for state-owned organic fertilizer production, eliminating the need for imports of fertilizer and smoothening the transition to healthier, more sustainable organic farming.

At the moment, the future of LSC appears bright. Its story could be a textbook example of how state-ownership, protectionism, and an end-to-end supply chain, can generate multipliers that sustain entire communities – in this case, what was once Sri Lanka’s most impoverished region. The company’s leap from a one-billion-rupee loss to a one-billion-rupee profit in the space of a year, under essentially the same staff and asset base, is ample evidence that the state can do business – as long as it means business.

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