Catch 22? Yield and not the wages!

By Hemal de Silva

As Rohantha Athukorala points out (http://www.ft.lk/2013/05/21/sls-tea-industry-needs-market-driven-policies/), there is no doubt about the importance of the tea industry (TI). Any problem that arises in this industry has therefore to be correctly identified and thereafter search for the best or the better solution to overcome it.

The problem in the Sri Lankan Tea Plantation Industry (TPI), the foundation of the TI, is the yield or productivity of the land and not the increased wages. The catch 22, if it exists, it is in the productivity of the land.

The privatisation of 20 Regional Plantation Companies (RPC) was a wise move. It has shown good results. However, to quote, “But in 2013 we see that the hard work done by the private and public sector is coming apart from a supply and demand perspective”.

Tea being an export oriented product or commodity, the demand for it will depend on factors beyond the control of the producer/exporter. The supply however is fully under the control of the local organisations.

The quality, value addition, cost of production (cop) and the yield or productivity of the land are therefore entirely under the control of the RPCs and the Government, other than effects of climate change, cost of imports for the industry, taxes, etc.

The wage is the payment for a day’s output of work to the worker. The selling price is the payment for one kg of Ceylon Tea to the exporter. These two are incomparable as the daily wage is not for producing one kg of Ceylon Tea. The daily wage is one component of the cop and as it rises, the cop too will increase, but this is not the reason for the TPI to be non-viable today.

I fully agree with Athukorala that “…if the Cost of Production (COP) becomes greater than the Net Sales Average (NSA), the industry becomes nonviable and this can lead to the collapse of the total industry”. But I will explain below that the present problem of the high cop is not entirely due to increased wages, though it is a contributory factor.

The high cop is mainly due to the low yields or the productivity of the land. The data of two tea plantations shown have been adapted from information in the following document in which unfortunately, the selling price was not given (http://www.tri.lk/userfiles/file/225_E&E/02%20225%20E&E%2027Jul2012%20Paper%20I%20Shyamalie.pdf)

Tea plantation No. 1 has over a period of 12 years averaged a yield of 2,121 kg/ha and the other 1,217 kg/ha. The wages have increased from Rs. 136.00 in 2000 to Rs. 572.00 in 2011, an increase of 320%. The net profits/losses indicate that despite the increase in wages, the profits in No. 1 have been achieved due to the high yield and subject to the selling price, though this information was not provided. Does this data show clearly what the Catch 22 is? If so, what is the solution?

The TRI recommends many ways in which the productivity of the land can be increased. Employing any one or many methods recommended, productivity can be increased in two ways. Productivity is the output per unit area of land. Productivity can be increased by improving the output from an extent of land or producing the same or higher output from a reduced extent of land. In the case of tea plantations, both are possible.

What next?

To quote, “We must keep in mind that the tea industry is the first privatised entity in Sri Lanka and it has been kept alive with some smart and sharp working models given that in the last 20 years amidst a war situation the industry held the country together”.

While I fully agree with Athulorala, very unfortunately the situation has now changed and the TPI is non-viable. However, there is no need to panic as everything is not lost yet as long as a few common sense practices are adopted to put things right. If the yields cannot be increased by replanting due to financial constraints, the same output can be produced from a reduced extent.

It must be borne in mind that the UT is continuing to be managed with scarce resources resulting in poor returns or losses. One option is to “retrench” unproductive land. Retrenching, voluntary retirements, restructuring businesses are all well-known in commercial entities. Banks resort to such practices, yielding better returns ultimately. So, why cannot the TPI “retrench” the UT?

The subsistence farmers using the slash and burn technique, know when to leave, let the land lie fallow and move on to another area to produce short term crops when the yields dropped due to low fertility of the soil. Tea being a perennial crop cannot be grown in the same way, but when the yields or the productivity of the land is poor, either it has to be improved with better agricultural practices or the land replanted with the same or an alternative crop.

Under the present situation, replanting cannot be undertaken due to financial constraints. What is the alternative? Continue to maintain the UT with scarce resources yielding poor profits or sustained losses or consider the diversification that may cost more or less what can be saved by ‘retrenching’ the UT to produce what can increase exports and reduce imports? This is the million dollar question that begs for a quick and sensible decision for the TPI to be viable once again.

I would appreciate an expert’s comments.



(The writer can be reached via [email protected].)