Regional Plantation companies vehement on productivity-linked wages

Warning that any ad-hoc increase of estate sector wages with no link to productivity would have dire consequences and would plunge the already haemorrhaging plantation industry into an insurmountable crisis, the Planters’ Association of Ceylon – which represents Regional Plantation Companies (RPCs) – has called for reasoned approach to the wage issue which does not endanger the sustainability of the sector.   

The Association points out that as a Rs. 1 increase in labour wages increases production cost of tea by approximately Rs 0.52 per kg. If the demand of the unions for a daily wage of Rs 1,000 (which represents a Rs 312 increase from present) is met, production cost of tea per kg would skyrocket by Rs 162.24, making the tea produced by the RPCs completely uncompetitive in the global market.  The Colombo Auction price for High Grown Tea has dropped by Rs. 66/- per Kg since last year and currently most of the RPCs are incurring a loss of over Rs. 50/- per Kg of Tea, which has been the situation since January 2014.

If so, the cost of production of the RPCs, which is in the region of Rs. 450 per kg at present, would exceed Rs. 610. Since the Total Sale Average of tea at the Colombo Tea Auction in the last week of November 2015 only amounted to Rs. 409, the loss from a single kg of tea produced by RPCs would increase from around Rs. 50 to Rs. 70 at present to over Rs. 200, making operations completely financially and economically unviable and impossible.  Added to this, a high percentage of the tea remains unsold at the Colombo Auctions and the Tea Trade indicates that there is a serious drop in the orders for tea in the forthcoming quarter too.  

Furthermore, due to the labour-intensive nature of production (RPCs collectively employ around 193,000 workers), only a Rs. 1 increase in the daily wage of an estate worker would increase the annual expense incurred collectively by the RPCs on labour wages by Rs. 66.6 million. 

Therefore, if the demand of the trade unions for a daily wage of Rs. 1,000 is met, which represents an increase of Rs. 312 from the present daily wage – it would increase the annual expense incurred on labour wages alone by the RPCs by a staggering Rs. 20,800 million (Rs. 20.8 billion).  It is unthinkable, given the present circumstances, that the tea prices would increase to cover this additional expenditure in order for the RPCs to have the ability to pay their workers.

However, due to plunging prices as a result of political, economic and military issues in key export markets which account for over 70% of exports of Ceylon Tea, the RPCs are finding it difficult to even meet the existing wage obligations – with both tea and rubber price levels at present being lower than at the point at which the last estate sector wage hike was given in 2013, where the tea prices have dropped by Rs. 66/- per Kg and Rubber prices by Rs. 115/-.

The RPCs suffered a collective loss of approximately Rs. 4,000 million on tea and rubber in 2014. Further, considering the national Gross Sale Average (GSA), the Revenue Loss at the Colombo Tea Auction from January to November 2015, compared with the same period last year (at the 2015 quantity level) amounts to around Rs. 18.4 billion, which has been shaved from the revenue that should have gone to the producers.  

 “It is indeed extremely difficult to understand the position of the unions in continuing to unreasonable and impractical demand for an unconditional 45% wage increase in the estate sector daily wage during a time when the industry is in its worst crisis where companies are borrowing a colossal amount of money from the banks to pay the current labour wages. 

Even the simplest of calculations would indicate that such as increase is plainly impossible and completely unaffordable, which I am sure the Trade Unions and the other related stakeholders are well aware of would confirm the impossibility of granting such an increase the Chairman of the Planters’ Association of Ceylon, Roshan Rajadurai said. “With plunging prices of both tea and rubber, volatility and a host of issues in export markets and low productivity and hence high productions costs, the plantation industry of Sri Lanka is perhaps facing its darkest hour following the nationalisation of estates.”

 “In such a scenario, continuing to adamantly stick to impractical demands which cannot be fulfilled is a short-sighted policy akin to ‘killing the goose that lays the egg.’ An adverse impact on the Regional Plantation Companies and its eventual collapse would be totally detrimental to the workers themselves and the nearly one million resident population living in RPC estates, who enjoy many facilities provided by the RPCs despite not being part of our workforce,” he added.

 “We understand the demand of the workers for a higher wage and we have continuously provided significant wage increases – in some years even exceeding 35% – whenever we’re able to.  Since the privatisation of the estates in 1992, the labour wages have increased 13 fold, although tea prices have increased only by 6 fold in the same period.   However, all stakeholders must understand that at this juncture, providing an ad hoc wage increase of any amount that the Companies do not have the ability to pay via the archaic and outdated remuneration model used at present, which is not linked to productivity is simply impossible. Many of the RPCs are listed companies which are answerable to our shareholders and we cannot simply agree to draconian terms which will inevitably put the companies further in financial jeopardy and to its eventual collapse. The RPCs have provided viable alternatives;  productivity based wages and revenue sharing – which will be a win-win, workable method, enabling workers to earn their desired income by increasing output, which unfortunately the unions have failed to agree with.”    

RPCs have previously provided significant wage increases to workers in many years including 36% in 2004, 27% in 2006, 40% in 2009, 28% in 2011 and 20% in 2013. While the unions themselves have recognised the issue with regard to lack of labour productivity, pledging to improve the same in the last wage negotiations, no substantial improvements have been recorded. In Sri Lanka the daily plucking average of tea is around 18kg – which lags significantly behind that of competitors such as Kenya (48kg) and Assam in India (28kg), despite wages in Sri Lanka being substantially higher.  The government’s decision to withdraw the fertiliser subsidy and the impact of banning of the use of the weedicide Glyphosate along with the newly introduced charge for cash withdrawal for worker wages all add further Rupees 5.3 billion to the RPCs total expenditure.  The cost of this additional expenditure would have an additional impact of Rs. 58/- per Kg of tea.