Plantation industry needs to rationalise land, labour and management

Sri Lanka needs to change traditional land and labour use and management models applicable to Regional Plantation Companies (RPCs), to enable RPCs to clear the current tea industry crisis, a former Director of Planning at the Ministry of Plantation Industries and immediate past Chairman of the Ceylon Chamber of Commerce Anura Ekanayake said.

Anura Ekanayake

"Sri Lanka needs to facilitate greater non-plantation employment opportunities for plantation populations, to reduce production costs of plantation companies. Land use diversification, into areas such as forestry cultivation, where tea cannot be cultivated, should also be encouraged, to maximise plantation industry land productivity," Dr Ekanayake said.

Dr Ekanayake, who did his doctoral research on economics of human capital, at the Australian National University in mid 1980s, said although plantation populations are generally seen as fixed labour resources of estates, and estates are obliged to employ all estate residents of working age seeking employment, this model may not be sustainable into the future. Many RPCs are currently experiencing large-scale losses and say the current cost structure is not sustainable. Much of the concern is to do with meeting the increasing labour costs.

"Under the current collective agreement, RPCs are required to provide 300 days of work for its workforce, at a set daily wage, and must also pay an attendance incentive. They must also provide a fixed, so-called, price share supplement, which was originally intended to be linked to tea prices, but is now given regardless of price increases or reductions.

All of these are fixed costs, and this inflexibility becomes a problem when work forces are very large, running into the thousands, as in the case of resident employees in many high grown tea estates," said Dr Ekanayake. While the cost of maintaining large estate workforces and their resident families, have increased, tea prices have declined in recent times and are not expected to see significant increases in the near term.

"The political instability in many major tea buying Middle Eastern countries and slowing growth of western economies would imply that a sharp increase of tea prices in the near term, is unlikely.

We also cannot expect global tea prices to keep rising, to counter the rising cost of production in Sri Lanka," Dr. Ekanayake said.

While increasing outputs could help increase plantation industry revenues, this is not seen as a sustainable long-term solution.

"Our major plantation crop, tea, is a commodity. So prices depend on demand and supply. For instance, if there is a supply shortfall due to adverse weather in other tea producing countries, prices for Sri Lankan tea will go up.

Currently Sri Lankan tea is seen as a high priced speciality product, due to limited production. But if we suddenly increase our yields by large amounts, this will increase supplies and cause prices to drop," said Dr Ekanayake.

Sri Lanka also has physical limitations to production increases.

"We cannot keep increasing outputs and yields indefinitely, because Sri Lanka has a limited land area to cultivate tea. Also, fertility levels of tea lands in the hill country have been eroded due to mono cropping for over a century," said Dr Ekanayake. Value addition efforts, while benefiting the country, may not address the problem faced by tea plantations.

"Revenues from value additions generally accrue to the value adding party, which, in the tea industry, is often a third party and is not the producer. In many cases RPCs may not be able to directly get involved in value adding. So value addition will not, by and large, address the need for sustained revenue increases by tea growers," Dr Ekanayake said.

However, production factors that can be addressed are labour and land.

For instance, currently, some estates have an oversupply of labour, while others have a shortage. "In the upcountry estates, where this problem of wage costs is most acutely felt, there is a labour surplus in most estates. However, there is a labour shortage in low and mid country estates, because in these areas there are alternative employment for estate populations," he said. Estates with labour shortages however, are weathering the current cash crunch well.

"A larger labour force does not necessarily guarantee a larger output. In fact, in estates where there is a labour shortage the current difficulties are felt less, because they do not have to employ large numbers even at times of low output.

These estates can also resort to over-time work when there is excess plucking, which is less costly. So labour productivity tends to be higher in such estates and unit costs are lower," Dr Ekanayake said. Given the current conditions, one solution is for policy-makers and plantation industry stakeholders to facilitate labour mobility between estates and encourage estate labour integration with the rest of the labour market.

"It might be possible to facilitate labour mobility between estates that have labour shortages and estates with labour surpluses. We also need to encourage and help estate populations find employments outside estates," he said.

Another option available for plantation companies is to increase their incomes by increasing land use efficiency.