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President Ranil Wickremesinghe’s promise of increasing the daily wage of plantation workers to Rs 1,700, though socially desirable, could make the plantations economically non-viable. How this wage hike is financed remains to be seen.

Gazetted

The wage increase has been gazetted, and the President has threatened to take over the estates managed by Regional Plantation Companies (RPC) that do not pay the increased wage.

Plantation Enterprise Reforms and Finance State Minister Ranjith Siyambalapitiya has confirmed that the government has mandated an increase in the wages of plantation workers and gazetted Rs. 1350 as the daily basic salary of plantation workers to be paid immediately. This increment includes a total increase of Rs. 1,700, incorporating a Rs. 350 special allowance.

RPCs

Minister Siyambalapitiya said that around 24 RPCs currently lease government-owned plantations, and if any RPC was unable to pay the increased wages, the Finance Ministry would form a committee to investigate the issue and assess whether these companies’ financial difficulties stem from external factors or internal management problems.

The State Minister emphasised that companies failing to meet the new wage standards due to internal inefficiencies risk losing their leases. He also stated that the government is prepared to terminate the agreements with non-compliant companies and seek new investors for the estates. The new investors will be selected through a competitive process, focusing on their capability to manage export-oriented operations, ensure employee welfare, enhance infrastructure, and incorporate new technologies.

Living conditions

Mr. Siyambalapitiya stressed that the government was committed to improving the living standards of plantation workers and would select new investors who would demonstrate a strong commitment to these principles.

These are lofty expectations that are difficult to realise in the current economic predicament of the tea plantations.

RPCs

The RPCs have pointed out that they are unable to pay such an increase in wages as the costs of tea production would be higher than the prices fetched in the market.

Inadequate

There is no doubt that the current daily wage of tea estate workers is inadequate for basic living. The increases in prices of essentials such as food, medicines, transport, and education have made the monthly income of about Rs 25,000 inadequate.

Dilemma

While an increase in wages is needed to alleviate tea plantation workers’ poverty, the proposed increase in wages may not be within the capacity of plantation companies to bear. This is the dilemma.

Decreased production

The increase in wages has come about at a time when tea estates are trying to resuscitate production from the setbacks owing to the fertiliser and agrochemical ban. Furthermore, this year’s tea output has decreased owing to the drought.

First four months

There has been a decline in tea production this year. In the first months of this year (January–April), tea production declined to 79.73 million kilograms compared to 84.75 million kilograms in the corresponding period last year. Both high-growns and low-growns fell, while there was a slight increase in mid-growns, according to Forbes & Walker.

Tea production

Tea production has been in decline for many years. The recent ban on fertiliser aggravated this trend. Tea production last year was about 16 percent less than ten years ago. Will the wage increase deal another severe blow to the ailing industry?

This year

In the first four months of this year, tea production was adversely affected by the extreme hot weather and lack of rainfall. There is also an acute shortage of labour on the estates. Furthermore, the appreciation of the rupee has decreased export earnings.

For these reasons, a 70 percent increase in wages is not financially feasible for the RPCs as well as small private estates.

Smallholdings

Tea smallholders, who produce nearly 80 percent of the country’s tea, too, are facing the same problem. Their costs of production have risen and yields have declined owing to the fertiliser ban. They are hit by low yields and diminished earnings. Their costs of living have escalated, and their income is inadequate to meet their basic needs.

Government subsidy?

How will the unsustainability of the plantations be resolved? The long-term resuscitation of the plantations requires a long-term investment plan along the lines of the Tea Master Plan of the 1970s that was not implemented. Instead, the focus is on possible short-term solutions to sustain the tea industry.

Subsidy

One option is to give a government subsidy to cover the deficit between prices and the costs of production. Another option is for the government to authorise a loan to cover the deficit with a government guarantee. Both of these solutions would affect the government’s finances adversely and would not be approved by the IMF as they would weaken the finances and increase the fiscal deficit.

Summary

The granting of a living wage to plantation workers is indeed a social necessity. Their current monthly income of Rs. 25,000 is certainly inadequate to meet their basic needs. A monthly income of about Rs 40,000 with a wage hike is certainly desirable. However, such an increase in wages would raise the costs of production to an unsustainable level.

The billion-rupee question is: How will this economic and financial problem be solved? Will it be an election promise that will not be fulfilled like other promises for which the country has no resources?

The wage hike for tea plantation workers will increase the cost of tea production to above market prices. The RPCs have said they cannot pay the increased wage. The government has threatened to take over the RPCs and hand them to other companies that will pay the increased wages. It is difficult to see this happen.

Will the government then provide financial assistance to these companies? Such subsidisation would increase the fiscal deficit, contravene the IMF agreement, and result in the withdrawal of the IMF facility and agreement. This is unthinkable.

Conclusion

The tea industry has warned that Ceylon Tea could become a thing of the past.

The country is on the edge of a steep precipice. How will we overcome this crisis?