RPCs call on stakeholders to urgently fix productivity-linked Collective Agreement

From left: Employers’ Federation of Ceylon (EFC) Director General/CEO – Kanishka Weerasinghe, Planters’ Association Chairman – Roshan Rajadurai, Convener of the Media Committee of the Planters’ Association – Tony Goonewardena, Consultant to the EFC – S. Srikumar and Planters’ Association Secretary General – Malin Goonetileke

Amidst mounting and huge losses in both tea and rubber brought about by rapidly falling commodity prices, crop losses due to abnormal weather, the resultant high cost of production and illogical policy decisions such as the banning of weedicides, Regional Plantation Companies (RPCs) have emphasized the urgent need for the signing of a productivity-linked Collective Agreement for the remuneration of estate workers.

Reiterating that in the face of many issues a Productivity-Based Collective Agreement is essential to the put the industry on a more sustainable footing, the RPCs have pointed out that they cannot continue to be in business and sustain the large population residing in RPC plantations with the current state of the industry.

At the request of the government and considering the aspirations of the workers, the RPCs provided a daily interim allowance of Rs. 100 to their workers for June and July 2016, despite being under significant financial pressure, by utilizing loans of Rs. 800 million provided by State Banks via the Tea Board. The interim allowance was paid for the two months based on the written understanding reached between the RPCs, the government and the Trade Unions that a Productivity-Based Collective Agreement will be signed prior to the payment of wages for August 2016. 

The RPCs emphasize that by continuing to reject the ground reality by postponing the much-needed revision of the wage structure, the industry is being put in a perilous situation – with RPCs being unable to continue to justify large and further accumulating losses to their shareholders. The present 150-year old archaic attendance-based wage system does not provide sufficient incentive to workers to increase output and hence has led to cost escalation. Linking wages to output therefore clearly offers the only mutually beneficial viable solution, under which productivity can be increased, while simultaneously improving the incomes of the workers, the RPCs point out.

The RPCs also called on the government to provide a solution to the weedicide issue, noting that following the arbitrary banning of glyphosate without a suitable alternative, both Tea and Rubber estate fields have become overgrown with weeds. In addition to increasing the cost associated with weeding this has caused many issues including the inability to apply fertilizer (which would be absorbed by the weeds instead of the tea plants), which in return reduces crop. The increase of weeds in tea plantations has also resulted in increase in wasp attacks on workers.  

Estate sector wages 

The wages of Regional Plantation Company (RPC) workers thus far have been determined via a Collective Agreement – negotiated between the Employers’ Federation of Ceylon (EFC) (on behalf of the RPCs) and the estate sector trade unions. The agreement is renewed periodically and is intrinsically linked to Collective Agreement No. 10 of 2003.

The Collective Agreement was up for renewal on 31st March, 2015. With the RPCs being unable to provide a wage increase via the present daily wage system (which was demanded by the trade unions), the RPCs proposed linking remuneration to output, which enables workers to earn a higher income by increasing output. The unions however rejected proposals submitted in this regard. 

Currently the cash wage of a RPC worker (excluding EPF and ETF) is Rs. 620 – which is greater than the daily wage of a smallholder (who account for more than two thirds of total production of tea leaf in the country). According to Gazette No 1881/43 of 26th September 2014, the Tea Wages Board, total daily wage is Rs. 580 per day for Smallholders w.e.f. 1st October 2014.

In the past, when they were financially capable of providing a wage increase, Regional Plantation Companies (RPCs) have granted significant wage increases to workers – including 36% in 2004, 27% in 2006, 40% in 2009, 28% in 2011 and 20% in 2013.

Proposals presented by the Regional Plantation Companies for the remuneration of estate workers

The RPCs have presented two main proposals to align remuneration of workers in line with their output, to provide them incentive to increase productivity. The two proposals which have been presented by the RPCs are a Productivity-Based Collective Agreement and Revenue Sharing.

Productivity-Based 

Collective Agreement

The proposal suggests the payment of Rs. 500 (before considering EPF and ETF) as the Daily Basic Wage for the plucking of 10kg of tea leaves. This represents a 11% increase from the present Daily Basic Wage of Rs. 450 (before considering EPF and ETF). Based on the experience of the RPCs, 10kg can be plucked by a worker with only 2 to 2.5 hours of work.

Any additional kilos plucked during the working day (that is any kilo in addition to 10kg) will be paid at a rate of Rs. 23 per kilo.

This proposed formula will enable a worker who plucks the current norm of 18kg of tea leaves per day for 25 days of the month to earn an income of Rs. 17,100 (before considering EPF and ETF). 

Revenue Sharing

This proposal suggests the payment of a Daily Basic Wage (before considering EPF and ETF) of Rs. 720 (which represents a Rs. 100 or 16% increase) on three days of the week – with 12 days of work per month guaranteed under the system. 

On the rest of the working days, workers will be paid Rs. 35 per kilo of tea leaves plucked.

A worker who plucks the current norm of 18kg for 25 days (of which 12 days is assumed to be under the daily wage system and 13 to be under the per kilo payment system) will earn a monthly income of Rs. 16,830 (before considering EPF and ETF). 

Labour cost and productivity

Since labour costs account for 67% - 70% of the total, cost of production of tea cannot be reduced without substantial increases in labour productivity. 

Labour productivity in Sri Lanka, even after making allowance for lower land productivity, lags behind the country’s competitors and is the lowest in the world among major tea producing nations. 

The daily plucking average of a Sri Lankan plucker is approximately 18kg of tea leaves. However, the corresponding figure for competitors are; Kenya – 48kg, South India – 38kg and North India – 26kg.

According to the International Tea Committee bulletin (2013) the national yield per hectare in Sri Lanka is 1,775kg Yield Per hectare (YPH), in Kenya 2,044kg YPH and in India 2,016kg YPH.

It has been found that of the total working time, Sri Lankan pluckers only spend 40% in the actual act of plucking and can hence substantially increase output without increasing overall working time.

According to the estimates of the RPCs, a one Rupee increase in labour wages will increase the cost of production of tea by 52 cents per kilogramme.

Losses

RPCs lost Rs. 5.5 billion from Tea and Rs. 1 billion from Rubber from January to December 2015.

From January to June 2016, RPC lost further Rs. 2 billion from Tea and Rs. 1 billion from Rubber. 

This was as a result of High Grown Tea prices dipping by Rs. 66 per kilo From January 2014 to December 2015, while Rubber RSS1 prices declined by Rs. 115 from 2014 to 2015.

On average the production cost of 1kg of black tea is in the range of Rs. 450 to Rs. 470 for RPCs, who are thus experiencing losses of Rs. 50 – Rs. 70 per kg of tea sold and even higher losses on rubber.

Losses have necessitated heavy borrowing to maintain cash flow, thus leading to a vicious circle.

Other issues

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 fall in auction prices as well as substantial quantities of tea remaining unsold at the auctions.

The government in arbitrary manner decided to ban glyphosate, without any substantial scientific evidence and without providing an alternative – despite it being used by many tea producing nations. With manual labour being more expensive, the cost of removing weeds has increased.

Contribution of the RPCs

RPCs account for 35% or over a third of the tea cultivated extent of land in Sri Lanka. RPCs also account for 37% of rubber cultivated land in Sri Lanka. 

RPC factories manufacture over 41% of Sri Lanka’s national Black Tea production. 

RPCs add around Rs. 77 billion to the local economy without any value addition, considering the value of the primary crop (including tea, rubber and other crops grown by the RPCs) at estate level.

Collectively, RPCs manage 132,000 hectares of land distributed among 453 estates and employ over 190,000 registered workers.

Nearly all international certifications upon which the Ceylon Tea brand has been built have been obtained by the RPCs including Hazard Analysis Critical Control Point (HACCP), UTZ, Fairtrade, Forest Stewardship Council (FSC), Good Agricultural Practices (GAP), Rainforest Alliance (RA) and ISO 22000.

Since privatization, from 1992 to 2012 alone, RPCs have replanted 21,237 hectares out of the available 36,347 hectares with Vegetatively Propagated (VP) Tea. This is 58% of the existing VP extent. In contrast, tea smallholders have replanted only 25% of the existing extent during the same period.

From 2002-2012, the RPCs have also replanted 98% of their existing rubber extent.

The total number of residents of RPC estates is approximately five times the number of the RPC workforce – indicating that RPCs incur significant costs in providing facilities to many non-workers.