Link wage increases to higher productivity - Planters’ Assn chief

by Rohana Jayalal

Any increase in wages needs to be linked to higher productivity, as the island lags behind other tea exporting countries in productivity, Chairman, Planters’ Association of Ceylon, Roshan Rajadurai said.

The Association represents Regional Plantation Companies (RPCs).

He said it is unfortunate that efforts are being made to coerce a wage increase via the present outdated model, using threats to nationalise the industry. It is vital to change the worker remuneration system from the current archaic attendance-based wage to a mutually beneficial productivity-based wage or a revenue-sharing model where the worker has total control over his earnings.

Rajadurai said the solution is not re-nationalisation, but to allow the private sector to manage tea estates in an efficient manner sans political influence in the estate sector wage negotiations.

Regional Plantation companies contribute around Rs. 77 billion to the local economy without any value addition.RPCs are the only stakeholders in the total supply chain of tea - from growing and processing to marketing.

The RPCs account for 35% or over a third of the tea cultivated in Sri Lanka.

Our factories manufacture over 41% of Sri Lanka’s national Black Tea production. RPCs also account for 37% of rubber cultivated land in Sri Lanka.

RPCs manage 132,000 hectares of land distributed among 453 estates and employ over 190,000 registered workers. Our contribution to the improvement of housing, sanitation and infrastructure in estates benefit a vast population of around one million, who reside in estates managed by the RPCs.

Authorities should realise that threats are counter-productive as the RPCs clearly do not have the ability to increase wages via the present model, which has been explained again and again.

Smallholders produce a greater quantity of rubber and tea from a far higher extent of cultivated land, some have forgotten that the RPCs continue to play a vital and enduring role in Sri Lanka’s plantation economy, he said.

RPCs have called on the government not to interfere in their talks with labour unions on a pay hike which has remained deadlocked for over a year.

Political pressure in determining wages in the private sector sets a negative precedent which extends beyond the plantations to the country’s entire private sector, Rajadurai said.

Such pressure only serves to further undermine the industry by reducing the confidence of investors.

The political authorities have proposed a productivity-based and revenue sharing model to labour unions which have rejected the offer.

RPCs hope, these proposals will be considered and eventually saner counsel and rational thinking will prevail, Rajadurai said.

We have in the past granted wage increases of over 35% in certain years when it was possible and when trading conditions permitted it. For the past one and a half decades wage hikes of 20% or more have been granted.

Due to the labour intensive nature of the industry, labour costs constitute 67% to 70% of the cost of production of a kilogram of tea. An increase of labour wages by a single rupee would increase production cost of tea by a minimum of Rs. 0.60 per kg.

The Rs. 1,000 demand of the unions, therefore, if met, would raise our production costs by nearly Rs. 230 per kg and significantly increase the unbearable losses that we are incurring already, making it very difficult to manage plantations. The RPCs suffered a collective loss of approximately Rs. 6 billion on tea and rubber in 2014.

If the demand of the trade unions for a daily wage of Rs. 1,000 is met it would increase the annual expense incurred on labour wages alone by a staggering Rs. 18 billion per year.

Earlier we could at least set off losses on tea via profits earned from rubber but the crash of rubber prices has eliminated that option. Russia, Middle East and Ukraine that account for over 70% of exports of Ceylon Tea are all experiencing serious economic and political issues which have led to a fall in auction prices and substantial quantities of tea remaining unsold at the auctions.

RPCs, which on average have production costs around Rs. 450 per kg of tea, are experiencing losses of Rs. 50 – Rs. 70 per kg of tea and even higher losses on rubber. Unfortunately, according to forecasts, the situation is unlikely to improve and could even worsen further in the short to medium term.

There are many challenges the plantation industry faces. In addition to issues in key export markets and low labour productivity, the government’s decision to withdraw the fertiliser subsidy and the impact of banning of the use of the Glyphosate, a weedicide, along with the newly introduced charge for cash withdrawal for worker wages all add a further Rs. 5.3 billion to the RPCs’ total annual expenditure. The cost of this additional expenditure would have a further impact of approximately Rs. 58 per kg of tea.

The plantation industry has been facing some long-term issues including worker shortage and out-migration. The RPC workforce was 39% of the resident population in 1992 but this has now reduced to 20% since young people nowadays dislike the work available in plantations and go to Colombo and other areas to work.

They are of the view that plantation agriculture work is less dignified than even menial jobs in cities - the remuneration and facilities for which are lower than that in the plantation sector.

Sri Lanka’s plantation industry has been plagued by a number of long-standing issues, particularly with regard to low productivity in comparison with other main tea producing nations. RPCs have always acknowledged that productivity is multi faceted.

Even after making allowance for the comparatively greater age of our tea bushes, labour productivity still leaves much to be desired. Our pluckers only spend around 40% of their total working time in the actual act of plucking.

The plantation industry is facing perhaps the most challenging period in recent history As a result of a worldwide decline in commodity prices and other external factors beyond our control, including volatility in a vast majority of our key export markets, prices of both rubber and tea have plummeted. From January 2014 to November 2015 price of tea at the Colombo Tea Auction and the local price of rubber have fallen sharply by approximately Rs. 66 and Rs. 115 per kg respectively.

RPCs are suggesting a complete overhaul of the present operating model in the plantation industry, in which the worker now is dependent and his or her earnings potential is restricted by the attendance-based wage. To stop workers from moving out of the sector we need a change to the system and must transform them to entrepreneurs who are proud of their profession and part of an Autonomous Social Business Enterprise.

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Mean while plantation industries minister Navin Dissanayake said, the government has no intention of taking back estates that were handed over to private management except for 2-3 RPCs “under financial stress and not being properly managed.”

We can’t allow them to collapse,noting that the government was committed to supporting the plantations industry given its economic importance.Dissanayake said.

The slump in tea and rubber prices has hit the island’s plantations industry hard with most RPCs suffering cash flow problems and losses.

Given current prices, RPCs are reluctant to commit themselves. There will be some kind of settlement within 2-3 months.