Tea industry on the brink of collapse: PA

By Shezna Shums

Top experts yesterday warned that the tea industry will collapse if immediate steps are not taken to make it more competitive globally.

The Cost of Production (COP) of Sri Lankan tea is on the rise in comparison to the COP of other major tea producing countries. With the new wage agreement, the COP has now been increased by a further Rs. 40 to Rs. 50 per kilo.

According to statistics, the plantation industry has approximately 68 million man days and with the new wage agreement, the industry will take on a further Rs. 10 billion annual bill.

“This is a very bad year for the tea industry, while rubber is doing fairly better because of the good prices,” stated Planters Association of Ceylon Chairman Lalith Obeysekere.

He added that the tea industry would collapse unless the market corrected itself immediately and increased production.

It was also noted that previously Sri Lanka produced one-third of the world’s tea but at present Sri Lankan tea consists of less than one-fifth of the tea in the world market, with Kenya now becoming one the highest producers of tea.

“Unless trade unions and the workers cooperate in increasing tea production, the Regional Plantation Companies will not be able to sustain the current wage agreement,” stated Obeysekere.

Obeysekere was speaking at a press conference yesterday (July 12) on the impact of the latest plantation industry wage agreement and the long-term profitability and productivity of Sri Lanka’s Regional Plantation Companies (RPC).

Also causing a severe negative impact on Sri Lanka tea exports are the problems in the Middle East and the fact that sanctions are now not allowing some banks to use dollars, which in turn is hindering exports and sales of Ceylon tea in the Middle East.

Even with regard to other markets, it was noted that cargos of tea were not able to effectively supply these markets as well as outside the Middle East. The Middle East problems have also resulted in a Rs. 70 to 80 price slump in exported tea to that region. The Collective Agreement which stipulates the wage and other factors affecting plantations workers is signed once every two years.  The agreement is between the three major plantation trade unions, CWC, Joint Plantation Trade Union Centre (JPTUC) and Lanka Jathika Estate Workers Union (LJEWU) and the Planters Association of Ceylon, Federation of Employers and the RPCs.

The first Collective Agreement was signed in 1998. Today, the wage package is Rs. 515 with a basic wage of Rs. 380, an attendance incentive of Rs. 105 and a PSS of Rs. 30.

The increase therefore during this period is approximately 500%. “I can very well say with a sense of responsibility that there cannot be any industry which can boast of an increase in a wage package of this magnitude, during the period under consideration,” noted Obeysekere.

“The percentage wage increase that was granted under the current agreement vis-à-vis the wage package of Rs. 405 is 27.1%; this is phenomenal when compared with the wage increases given in other industries. I am advised that even in the banking sector, the percentage increases granted under the Collective Agreements are not as high as one that has been granted under this agreement.”

Obeysekere added: “The plantation worker today receives a basic wage with provident fund and trust fund contributions of Rs. 9,500 per month. This is Rs. 2,000 more than the current minimum wage stipulated under the Wages Boards in respect of most of the trades.”

In addition, the total wage package of Rs. 515 guarantees a monthly package of Rs. 12,875. In other words, if an employee attends work more than 75% of the days offered, he is assured of the full wage package of Rs. 515 per day.

The impact of the wage package on the industry is substantial. Every rupee increase inclusive of EPF, ETF and gratuity topping up has an impact of Rs. 85.9 million in respect of both tea and rubber sectors. This has increased the cost of production between approximately Rs. 40 to 50 per kilo for the plantation companies. Consultant Ramani Gunatilaka noted that one of the crucial elements that she had highlighted in the study was the positive correlation between profitability and productivity. Her report very clearly states that increase in productivity is fundamental to increase in profitability in the RPCs and that the losses experienced by the high grown, mid grown and Uva sectors are due to the sectors’ inability to increase productivity sufficiently to offset high costs relative to those of competitors. Obeysekere emphasised that unless the trade unions and workers cooperate and assist the companies in increasing productivity, the RPCs will not be able to sustain the wage increase that has been granted under the agreement.

“It is unfortunate that the trade unions rejected the alternative options that the companies proposed with regard to a productivity-based wage during this year’s negotiations,” he highlighted. “However, we hope that the trade unions will advise their membership to clearly bear in mind that unless productivity is increased, the plantation companies will not be able to withstand the pressures of the wage increase.”

Drawing a comparison between Sri Lanka and other tea producing countries, namely, Kenya, China, India and Indonesia, he noted that new producers like Malawi, Turkey and Vietnam are also fast moving into the market. Among all these countries the highest productivity has been achieved in Kenya where some estates have achieved 3,500 kilos per hectare. In Sri Lanka, the highest achieved is 2,500 kilos per hectare. “Our tea is already out-priced in the world market as the Global World Auction average in 2007 was only US$ 1.88 while the average at the Colombo auctions was US$ 2.88,” stressed Obeysekere.

This is a very serious situation as the cost of production is lower in countries we are competing with such as India and Kenya. Tea is also the only commodity regulated and has to be auctioned.

“The plantation industry is Sri Lanka’s biggest employer with close to one million residents and over 250,000 workers. If the industry collapses, the social economic consequences would be disastrous. It is therefore imperative to appreciate and understand the serious implications of increases in wages, which consequently increases cost of production and poses a challenge to the survival of the industry,” stated Obeysekera.