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Tuesday, 30 April 2013 00:05 - - {{hitsCtrl.values.hits}}
By Jayampathy Molligoda
International Workers’ Day was established in the USA and 1 May is an official holiday in nearly 80 countries around the world. In Sri Lanka too, International Workers’ Day is celebrated on 1 May every year.
A resolution introduced by the International Socialist Congress, Paris on 20 July 1889 states: “… A great international demonstration shall be organised for a fixed date in such a manner that the workers in all countries and in all cities shall on a specified day simultaneously address to the public authorities a demand to fix the workday at eight hours in view of the fact that such a demonstration has already been resolved upon by the American Federation of Labor at its convention of December 1888 in St. Louis for May 1, 1890, that day is accepted as the day for the international demonstration. The workers of the various nations shall organise the demonstration in a manner suited to conditions in their country.”
Marx vs. Weber
In The Communist Manifesto, Karl Marx and his lifelong friend and collaborator wrote “the history of all hitherto existing society is the history of class struggles.” Karl Marx (1818–1883) was a German born philosopher and his analysis of society identifies two main social groups:
The income of the capitalists, therefore, is based on their exploitation of the workers (proletariat). According to the Marxist perspective, class conflict and struggle are inevitable in capitalist societies because the interests of workers and capitalists are fundamentally at odds with each other.
Capitalists accumulate wealth by exploiting workers while workers maintain or advance their own well-being only by resisting capitalist exploitation. The result is conflict and struggle, which is reflected in all aspects of social life, from unionising efforts to strikes to political campaigns to immigration policies.
Max Weber (1864–1920), another eminent German philosopher, agrees with the fundamental ideas of Karl Marx about the economy causing class conflict but claims that class conflict can also stem from prestige and power. Weber argues that classes come from the different property locations. Different locations can largely affect one’s class by their education and the people they associate with.
He also states that prestige results in different status groupings. This prestige is based upon the social status of one’s parents. Prestige is an attributed value and many times cannot be changed. Weber states that power differences led to the formation of political parties. Weber disagrees with Marx about the formation of classes. While Marx believes that groups are similar due to their economic status, Weber argues that classes are largely formed by social status. Weber does not believe that communities are formed by economic standing, but by similar social prestige.
According to Marx’s theory of exploitation, living labour at an adequate level of productivity is able to create and conserve more value than it costs the employer to buy, which is exactly the economic reason why the employer buys it. Thus, the surplus-labour is unpaid labour appropriated by employers in the form of work-time and outputs, on the basis that employers own and supply the means of production.
Tea plantation workers
Let us look at the practical aspects of Karl Marx’s surplus labour theory in the context of the Sri Lankan tea sub-sector, in particular the up-country tea estates which produce some quality high grown teas sought after in the world markets. Interestingly, according to the current labour practices in the tea estates, the male workers who provide sundry work such as pruning, weeding, fertilising etc. put in less than six hours work only and stop work by 1 p.m.
The main plantation unions signed a collective agreement on 4 April 2013 with the Ceylon Employers Federation, signed on behalf of 20 RPCs, thus increasing the daily wage for plantation workers by 20% w.e.f 1 April 2013 for a two year period. Unions and employers brought negotiations to a rapid conclusion on the same day before rival unions create more problems. “We were advised to finish this matter immediately… underlining the purpose of a quick deal,” one member declared. Under the recently concluded collective agreement, the basic daily wage has risen to Rs. 450 plus Rs. 30 per day with an additional allowance of Rs. 140 tied to attendance. Overall income depends on the workers and the management, who jointly decide the number of days of work per month – generally around 25 a month. An average worker could earn around Rs. 15,500 per month.
The additional production cost of Rs. 45 per kilo of tea due to the recent wage increase and continuous drop in high grown tea prices at the Colombo tea auction would make most of the tea estates unprofitable and even the entire high grown tea sub-sector.
As a result, the estates are reluctantly compelled to curtail tea replanting work, thus making further cost increases due to static tea production. Can the plantation companies continue to cross subsidise loss making tea estates from other revenue sources? The strategy seems a flawed one from the point of view of developing the Sri Lankan tea industry.
Colossal losses
Most of the high grown tea estates from this month onwards will run at colossal losses and the regional plantation companies will be compelled to either borrow money from the banks or subsidise tea losses with profits generated from rubber, oil palm, etc. To be more specific, the tea prices at the Colombo auction are within the range of Rs. 360 and the cost of production of a kilo of tea is around Rs. 430, thus making an average loss of Rs. 70 per kilo of Ceylon black tea.
With regards to future tea prices, waiting for some disaster to happen elsewhere such as droughts or political unrest in African tea producing countries are temporary phenomena and the markets will reach equilibrium over time. The estate sector would get into a vicious cycle of low productivity and relatively low prices, leading to losses accumulating unless proper strategies are discussed and agreed on by all stakeholders.
The wage increase granted two years ago in April 2011 was 27% which is substantial, taking into consideration the previous increases as well. The previous wage increase granted in April 2009 of 39% was also considered high. In 2006, the daily wage was only Rs. 260 per day and was increased to Rs. 290 in 2007.
Thereafter in April 2009, the wages were increased to Rs. 405 per day. Now it is Rs. 620 all inclusive. As stated above, the overall income depends on the number of days of work per month, generally around 25 a month. With the allowances, the workers receive an average monthly salary of Rs. 15,500. With the over-kilo allowance, the pluckers get even more.
General perception
However the general perception of the estate workers by the trade unions and the general public who are sympathetic towards the working class is that “with the high cost of living, this salary is not enough even for meals each day, let alone other expenses…”
The World Socialist website reported: “They are among the most oppressed layers of the Sri Lankan working class, living on the plantations in cramped accommodation without essential facilities such as electricity and running water.”
The World Bank, in releasing its report on Sri Lanka’s poverty assessment in 2005/06, said the estate sector comprising 5% of the country’s population poses a significant challenge to Sri Lanka’s poverty reduction. The poverty headcount in the estates was seven percentage points higher than the national average. The report also stated that “higher poverty among estate households is associated with the remoteness or lack of useable year-round roads linking the estate to the nearest town.” The estate sector was reportedly posing the highest incidence of poverty with a headcount of 30% in 2002.
The Department of Census and Statistics has completed the Household Income and Expenditure Survey (HIES) 2009/10 conducted once in every three years, aiming at investigating the living standards of household population in Sri Lanka. The poverty level is measured by head count ratio (HCR) which presents the total number of persons live under the poverty line as a percentage of the total population. The value of the official poverty line of Sri Lanka was Rs. 3,028 real total expenditure per person per month for the 2009/10 survey period.
The latest calculation of poverty shows that poverty level of the country has further declined from 15.2% reported in 2006/07 to 8.9% in 2009/10 (in 2002/03 it was 22.7%). It must be noted that the estate sector has recorded a substantial reduction of the percentage below poverty line from 30% to 9.5%.
Capitalism is an economic system in which the means of production are privately owned and operated for a private profit; decisions regarding supply, demand, price, and investments are made by private actors in the market rather than by central planning by the government.
According to Marx, the central driving force of capitalism is in the exploitation of labour: “The ultimate source of capitalist profits is the unpaid labour of wages.” Marx calculates that the total required for subsistence is equivalent to about six hours of labour a day. “But will the owner allow his workers to knock off at the end of their six hours? To earn their wages, they must work for another six hours, thus providing the “surplus labour” that creates the owners profit,” Marx argued. As stated previously, according to the current labour practices in the tea estates, the male workers who provide sundry work such as pruning, weeding, fertilising etc. put in less than six hours work only and stop work by 1 p.m. However, the present labour law demands a minimum eight hour work rule per day.
From the above it can be seen that, within the overall tea plantation working environment, the determination of daily wage and the number of working hours per day makes no surplus money for the estate as Karl Marx claimed in a capitalist system. In fact, it is a financial loss of Rs. 70 per kilo of production.
Ceylon tea marketing
MTI Consulting recently studied tea marketing aspects in collaboration with the industry players and Sri Lanka Tea Board and in their presentation stated: “The Sri Lankan tea industry was like a slow burning candle, burning on three sides. On the demand side, ‘power’ lies with top global brands, retailers and food service chains.”
However, the writer’s own view is that Sri Lankan tea industry could look at aggressively to manufacture, blend, pack and export ‘true’ value added tea products with a view to enhancing net foreign exchange, currently around $ 1.4 billion only, provided some winning strategies are designed and implemented by the tea industry stake holders.
Some trends in global tea marketing as identified by experts in the industry show that the ‘tea bag’ market is the growing trend globally and that traditional tea drinking is fast disappearing. (‘Real tea’ quality is now irrelevant with the various flavours on offer). Furthermore, ‘store brands’ are emerging and will overtake own brands in the international distribution channels of tea trade.
Middle Eastern countries which consumed leafy teas in the traditional manner are also converting (younger generation) to tea bags now. With changes in lifestyle, customers will always have a choice and will switch to a similar or substitute product sooner or later. On the supply side, the countries like Indonesia and Vietnam are producing poor quality (as perceived by traditional tea industry players in Sri Lanka) teas at a very low price.
Ceylon tea is being used by blenders globally which helped Ceylon teas (up to a point) maintain a reasonable level of prices. As a result, the Ceylon tea image and price has already been devalued as it is being blended with teas of other origins over which we have little control. High prices of Ceylon tea drive away global players/customers to other producers. For example, Lipton used 100% Ceylon tea in 1950, and presently uses 6%. It is important to realise that the total tea production of Sri Lanka is approximately 325 million kilos. Only 80 to 100 million kilos are suitable for tea bags. A certain percentage of Ceylon tea dominates a small niche market such as the specialty tea standards which includes BOP, BOPF, OP, FBOP etc. (During the quality season this fetches high premium prices.) In short, we are just price takers in the global tea marketplace.
Conclusion
The cost of production (COP) of tea in Sri Lanka is completely disproportionate to the costs of the competitors in India and African countries. No significant change in volume in production would be possible for the producers of Sri Lanka due to the socio-political structure of the tea industry (limitation of land availability, application of technology etc.). To be of the assumption that Ceylon Tea will continue to command a premium price in the global market place above that of other growers is a delusion. As stated above, the declining tea prices coupled with increased COP has already made tea estates unprofitable. Can the tea estates continue to undertake field and factory development work such as new planting from borrowed money without generating internal surplus money?
The writer’s articles published on 5 July 2010 titled ‘Is tea a perennial crop or a beverage?’ and ‘Das kapital in a tea cup’ on 4 September 2011 tried to address twin issues in order to generate a meaningful discussion to map out strategies:
The writer is a Fellow member of the ICASL and holds a Masters of Business Administration from PIM. At present, serves as the CEO of Bogawantalawa
Tea Estates Plc.
