New wage deal for estate workers to hike production costs by 23%: analysts

December 21, 2006 (LBO) – Sri Lanka’s newly minted wage deal for estate workers is expected to hike cost of sales by up to 23 percent for plantation companies with high exposure to tea, analysts said Thursday.

Plantation companies and estate worker trade unions agreed on a daily wage of 260 rupees on Tuesday, followings weeks of strike action on tea and rubber estates.

Wages will be fixed for two years under a collective agreement, with workers getting a basic wage of 170 rupees, a guaranteed price share supplement of 20 rupees and an attendance incentive of 70 rupees.

Estate workers will have to work a minimum of 25 days a month, with all employees who work at least 75 percent of that time, getting the attendance incentive.

The wage component in the Cost of Sales is relatively higher for tea when compared with rubber and therefore, the negative impact of the increased wages will be greater for those companies which have a higher exposure to tea, analysts at CT Smith Stockbrokers said.

For companies Balangoda Plantations, Horana Plantations and Namunukula Plantations, cost of sales is expected to go up by over 22 percent.

For companies with a high exposure to rubber – Agalawatte Plantations, Kegalle, Kelani Valley and Kotagala Plantations, cost of sales is expected to go up between 18 and just over 21 percent.

Impact of cost of sales for listed
plantation companies
Company

Tea/Rubber cost
component as a % of total cost of sales

Total cost of sales increase (%)


Tea

Rubber

Agalawatte*

71 29 21.4
Balangoda 91 09 22.8
Horana 83 17 22.2
Kegalle* 48 52 19.6
Kelani Valley* 27 73 18.2
Kotagala 75 25 21.6
Maskeliya 100 0 23.4
Namunukula 88 12 22.6
Talawakelle 99 01 23.4
Watawala 95 05 23.1
* Companies having high exposure to rubber

(Source: CT Smith Stockbrokers)

Sri Lanka produces over 300 million kilos of tea a year, by both smallholders and 21 regional plantation companies.

Strike action by unions demanding a wage to cope with a soaring costs of living, resulted in losses on estate of over a billion rupees, with recovery of overgrown estates to take as long as January.

The new wage deal will cost companies an additional 3 billion rupees a year and increase costs of production to 21 rupees a kilo of tea.