Business Times

Sri Lanka’s tea industry faces a threat of collapse amidst workers wage hike

By Bandula Sirimanna

With the recent wage hike given to plantation sector workers, Sri Lanka’s once lucrative tea industry is facing a threat of collapse due to the inability to increase labour productivity and declining yields in high grown, mid grown and Uva tea sectors generating losses for several years, senior plantation sector officials said in Colombo on Tuesday.

These companies would witness their cost of production rise by Rs. 40 to Rs. 50 per kg, and each company would have to pay in excess of Rs. 10 billion on wages, EPF/ETF and gratuity, they disclosed.
The new, agreed wage of Rs.515 is an increase of 27.1 % from the latest agreement and a worker will be able to earn Rs. 12,875 per month if he attends work for 75 % of the allocated days. He is also eligible to EPF and ETF, said Planters Association Chairman and Chairman Plantations’ Services Group of the Employers Federation of Ceylon (EFC) Lalith Obeyesekere at a press conference in Colombo. Unless the trade unions and workers increase productivity, this wage increase could not be sustained, he added.

Mr. Obeyesekere noted that the Middle Eastern crisis and Sri Lanka’s high cost of production due to the heavy wage bill were the main reasons behind the current decline in the industry. “Sri Lankan tea prices have dropped by about Rs. 70 to 80 per kg owing to the Middle Eastern crisis. “We are also outpricing ourselves due to the high cost of production”. About 55 to 50 % of our production cost constitutes wages. This is twice the cost of South India and our cost of production is 35 % higher than Kenya,” he added.
Sri Lanka is competing with Kenya, China, India and Indonesia and new producers like Malawi, Turkey and Vietnam, he said. Among all these countries the highest productivity has been recorded by Kenya where some estates have reached the target of 3,500 kg per hectare against Sri Lanka where the highest achieved is 2,500 kg per hectare, he noted.

Making a presentation on the long term profitability and productivity of Sri Lanka’s Regional Plantation Companies (RPCs) in tea and rubber sectors, Dr Ramani Gunatilleke, a well-known economist and an independent consultant, pointed out that Sri Lanka RPC sector needs to be unbundled into profitable and loss-making sectors so that profits as well as losses are immediately identifiable and quickly addressed. However she noted that this may be done most effectively by the RPCs unbundling themselves to adopt a cost –centred approach with respect to each estate, and perhaps each division.

She pointed out that there is a positive co-relation between profitability and productivity and increase in productivity is fundamental to increase profitability in the RPCs and that losses experienced by the high grown, mid grown and Uva sectors are due to the sectors' inability to increase productivity sufficiently to offset high costs relative to those of the competitors. She was of the view that that wage hike would be unaffordable under the present loss-making conditions.

EFC Director General Ravi Peiris highlighted the pressure on employers in the plantation sector to grant wage increases due to the nature of the industry. “This is not just an employer—employee relationship, it is an employer—community relationship and the employers have to think of wage negotiations under this highly politicized set up, ” he said. "This is the only industry based on collective agreement that's surviving in Sri Lanka," he said. It may be necessary to consider wage negotiations based on the capacities of companies as they faced different issues, although that approach itself was complicated, he said.

The plantation industry is Sri Lanka's biggest employer with over 250,000 workers involving one million residents.

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