Storm through tea plantations

An opportunity for the industry to respond

By the Economist

Tea plantations workers have been on strike since December 4. Earlier, on November 24, they began a go-slow that hampered tea production in the mid-and up-country estates. Consequently estate production of tea has been seriously affected. In turn, it would have an adverse effect on our already severely strained trade balance and balance of payments.

The demand is for a rise in wages to Rs.300 per day. Their current daily wage rate is Rs.135. There is also a variable allowance that tops up the salary to about Rs.190. Given the wage rates in the informal sector for agricultural labour and the high cost of living, it appears to be very reasonable to give an increase in their wages especially as their wage rate has increased by only about fifty rupees during the last decade. The plantation companies are however not conceding the demand as they contend that an increase in wages of this magnitude would raise the costs of production to a level that would make Sri Lankan tea not competitive in international markets. No doubt an increase in estate wages would increase the cost of production of estate teas, as about 70 per cent of the cost of production of tea is wages. They are however willing to raise it to Rs.240. An increase in their wages appears reasonable. How much that should be is a moot question. A compromise between Rs.240 and 300 is reasonable and is the most likely and expected result of further negotiations. The seriousness of the problem is such that vocal political opinion is of the view that it is a reasonable demand and that it ought to be speedily settled with government intervention.

Both bad weather conditions, the go-slow of the workers at first and the subsequent strike have resulted in estate tea production declining in the last quarter of this year. What appeared to be a year when tea production would rise to a new high would probably end in a year of lower production than that of last year. Fortunately estate tea production accounts for only 40 per cent of total tea production in the country. However high grown teas have a different market preference and this market for which Sri Lankan teas are famous is seriously jeopardised. This is especially so as it is well known that even once the strikers get back, the tea plucked would be course owing to the period of not plucking the tender two leaves and a bud. Therefore quality would suffer and high grown tea prices would take a tumble.

The low wage rate on the estates has led to shortages of labour. Most estates in the country have a high rate of absenteeism. This is mainly due to plantation labour working outside the estates, as much as they could, as the outside wage rate is around Rs.350 to Rs.400. Estate workers allocate their labour in a rational economic manner by working as many days outside the estates at a high wage and as little as possible on the estates so as to keep them on the estate roll. Consequently there is a shortage of labour on the estates and this has had consequences for tea production for a number years. One remedy is to reduce the divergence between the estate and outside wage rates.

The resolution of this problem requires action on several fronts. It may be necessary to see whether plantation company management fees are exorbitant and out of alignment with other costs and returns of the estates. There is a paramount need to increase productivity on the estates. It is well known that estate tea productivity is low compared with comparative yields in other tea producing areas and in comparison to the yields in the low country smallholdings. While there are differences in agronomic conditions in the up-country estates and low country, that make the comparison somewhat unreasonable, there is no doubt that the years of neglect of the estates under state management was a root cause. Although productivity increased after private management, there is an inadequate replanting of old and senile tea with vegetatively propagated teas (VP). Only a small proportion of tea estates have VP teas while the low grown tea on small holdings are mostly VP teas.

The other significant issue is the productivity of estate labour. This may be partially due to the discontent in wages that may have festered over the years. It is said that productivity of plantation labour in other tea producing countries is much higher. The most often quoted example is from South Indian plantations. The impending increase in wages should be looked at as an opportunity to ensure that the wage hike is coupled with better norms of production. It is in fact not the wage rate that ultimately matters for the cost of production of tea, but the cost of labour with respect to a unit of production. Therefore if the basic wage rate could be increased together with incentives for higher productivity, then the increase in wages could yield benefits to both workers and owners of the estates.