Sri Lanka’s plantation sector needs overhaul: Planters’ Association Head


Mar 30, 2016 (LBO) – Sri Lanka’s plantation sector needs far-reaching changes to the operating model which goes beyond the worker remuneration mechanism, Head of the Planters’ Association which represents the regional plantation companies said.

Chairman of the association, Roshan Rajadurai said that it is vital to change the worker remuneration system from the current archaic attendance-based wage to a mutually-beneficial productivity-based wage or a revenue sharing model in which the worker has total control over earnings.

In this interview, Rajadurai delves into issues of vital importance to the plantation industry and outlines his views on an array of topics including the critical role played by the RPCs in sustaining the Ceylon Tea brand, the challenging situation in the estate sector, issues posed by the prevailing outdated wage system, suggestions made by the RPCs to replace the present model with a mutually-beneficial remuneration method and the future of the Sri Lankan plantation industry.

Q: What is the role of the Regional Plantation Companies (RPCs) in the plantation industry of Sri Lanka at present?

A: The RPCs play a vital and irreplaceable role and are a key stakeholder in the country’s plantation sector.

The RPCs account for 35% or over a third of the tea cultivated extent of land in Sri Lanka. Our factories manufacture over 41% of Sri Lanka’s national Black Tea production. The RPCs also account for 37% of rubber cultivated land in Sri Lanka. We add around Rs. 77 billion to the local economy without any value addition, considering the value of the primary crop at estate level. We are the only stakeholder involved in the total supply chain of Tea from growing and processing to marketing.

Collectively, we manage 132,000 hectares of land distributed among 453 estates and employ over 190,000 registered workers. Our contributions – relating to the improvement of housing, sanitation and infrastructure in estates etc. – have benefited a vast population of around one million, who reside in estates managed by the RPCs, despite not being part of our workforce.

While it should be acknowledged that smallholders produce a greater quantity of both rubber and tea from a far higher extent of cultivated land, some have forgotten that the RPCs continue to play a vital and enduring role in Sri Lanka’s plantation economy. Nearly all the various international certifications upon which the Ceylon Tea brand has been built have been obtained by the RPCs including HACCP (Hazard Analysis Critical Control Point), UTZ, Fairtrade, Forest Stewardship Council (FSC), GAP (Good Agricultural Practices), Rainforest Alliance (RA) and ISO 22000.

Q: What is the present situation in the plantation industry?

A: We have been facing some long-term issues including worker shortage/out-migration. The RPC workforce was 39% of the resident population in 1992 but this has now reduced to 20% since young people nowadays dislike the work available in plantations and go to Colombo to work instead. They are of the view that plantation agriculture work is less dignified than even menial jobs in the cities – the remuneration and facilities for which are lower than that in the plantation sector.

The plantation industry is facing perhaps the most challenging period in recent history following the nationalization of the plantations by the government in the 1970s. As a result of a worldwide decline in commodity prices and other external factors beyond our control, including volatility in a vast majority of our key export markets, prices of both rubber and tea have plummeted. From January 2014 to November 2015 price of tea at the Colombo Tea Auction and the local price of rubber have fallen sharply by approximately Rs. 66 and Rs. 115 per kg respectively.

Earlier we could at least set off losses on tea via profits earned from rubber but the crash of rubber prices has eliminated that option. Further, 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.

Thus the RPCs, which on average have production costs in the range of Rs. 450 per kg of tea, are experiencing losses of Rs. 50 – Rs. 70 per kg of tea sold and even higher losses on rubber. Unfortunately, according to forecasts, the situation is unlikely to improve and could even worsen further in the short to medium term.

Sri Lanka’s plantation industry has been plagued by a number of long-standing issues, particularly with regard to low productivity in comparison with other main tea producing nations. We have always acknowledged that productivity is multi-faceted. However, even after making allowance for the comparatively greater age of our tea bushes, labour productivity still leaves much to be desired. Our pluckers only spend around 40% of their total working time in the actual act of plucking.

According to the International Tea Committee bulletin (2013) the national yield per hectare of our competitors such as Kenya is 2,044kg Yield Per hectare (YPH), India 2,016kg YPH while in Sri Lanka it is 1,775kg YPH. However, the daily worker output – in terms green leaf plucked by a single worker – in Kenya is around 60kg, South India 50kg and North India 36kg while in Sri Lanka it is only around 18kg. So the popular misconception that other countries have very high YPH compared to our yield is not valid.

However, though they themselves pledged to improve labour productivity during the discussions which led to the signing of the Collective Agreement – which determines the daily wage in the estate sector – in 2013, the plantation sector trade unions have rejected all our suggestions to link remuneration to productivity, which could be a win-win. Increased revenues from higher production would enable us to consider higher remuneration for workers. The plantation model the world over is to link wages with productivity. This has been done successfully in Kenya and India. This is the reason that the productivity of their workers are two to three times higher than ours, although the National yield is not that significantly higher than in Sri Lanka.

Q: What progress has been made so far in the estate sector wage negotiations?

A: Although we have offered a practical and a workable mechanism that would enable the productive workers to meet the desired wage expectation, no progress has been achieved. Unfortunately, from the perspective of the Regional Plantation Companies (RPCs), neither the unions nor the many other stakeholders and commentators appear to have understood the dire need for changing the present 150 year-old remuneration model for estate workers.

At present, the RPCs are mandated to offer a minimum of 300 days of work for registered workers irrespective of the output of the workers or the fields and to pay them a daily wage – which with EPF and ETF – amounts to Rs. 688 for plucking 18kg of tea leaves. However, with all the other attendant non-wage benefits, the cost of a worker is around Rs. 1,100 to the plantation company. The output of pluckers varies from 12kg – 18kg in some Planting Districts and during some periods of the year. Whenever their output is above the ‘norm’ of 16kg – 18kg, the workers are paid an extra payment of Rs. 23/- per kilo of green leaf. However, if they bring less than the ‘norm’ they are in any case entitled to their full day’s wage and cannot be penalised. Therefore, the workers have no incentive to improve productivity as they are guaranteed an income irrespective of their individual productivity or the productivity of the field.

The reality is that the present system – which since privatisation of the estates in 1992 has increased labour wages 13 fold, despite only a six fold increase in tea prices during the same period – cannot continue and is highly unsustainable. Using political pressure and trade union action etc. wage increases have been continuously coerced throughout the years while revenue has failed to increase proportionally. The RPCs cannot even afford the present wage since the revenues from rubber and tea are lower than when the last wage increase was given in 2013 and consequently all RPCs have borrowed heavily from the banks in order to meet the obligation of paying the workers’ salaries.

The RPCs have been consistent in their stand that it is not a matter that we are unwilling to grant a pay increase to the workers but it is simply that we are financially unable to grant any increases in the same old model under the present radically changed trade circumstances. The RPCs simply cannot grant even a single Rupee via the present system and most certainly cannot afford the Rs. 1,000 daily wage – which represents an increase of 61% – which the unions are demanding very unreasonably and imprudently at a time the industry is on its knees.

We have in the past granted wage increases of more than 35% in certain years when it was possible and when the trading conditions permitted it. For the last approximately one-and-a-half decades have consistently granted wage hikes of 20% or more.

Due to the labour-intensive nature of the industry, labour costs constitute 67% to 70% of the cost of production of a kilogramme of tea. An increase of labour wages by a single Rupee would increase production cost of tea by a minimum of Rs. 0.60 per kg. The Rs. 1,000 demand of the unions therefore, if met, would raise our production costs by nearly Rs. 230 per kg and significantly increase the unbearable losses that we are incurring already, making it very difficult to manage plantations. The RPCs suffered a collective loss of approximately Rs. 6 billion on tea and rubber in 2014.

Further, if the demand of the trade unions for a daily wage of Rs. 1,000 is met it would increase the annual expense incurred on labour wages alone by the RPCs by a staggering Rs. 18 billion per year.

While we cannot afford an increase via the present system, recognizing that the workers aspire to increase their incomes, we have proposed two viable alternatives which enable workers to earn a higher income through higher productivity. However, both these proposals – productivity-based wages and revenue sharing – have been rejected by the unions without considering the merits and the long term advantages and benefits that would accrue to the workers.

Q: What are the key features of the proposals made to the unions?

A: I would like to emphasize that what we are suggesting is simply not a change in the way in which the worker is paid. We are suggesting a complete overhaul of the present operating model in the plantation industry, in which the worker now is dependent and his/her earnings potential is restricted by the attendance-based wage. To stop workers from moving out of the sector we need a change to the system and must transform them to entrepreneurs who are proud of their profession and part of an Autonomous Social Business Enterprise.

We believe that our mutually-beneficial proposals are an important and vital step in that direction, enabling workers to control their incomes themselves. It should be noted that the move to promote productivity is in line with the country’s policy as well since the Prime Minister’s Economic Policy Statement too emphasized this point.

Productivity-based wages proposes the reduction of the present minimum threshold (plucking average) for which a basic wage would be paid and an extra payment for each extra kilo in excess of this amount to be paid, to encourage greater productivity and increase earnings for the workers. Through this model, productive workers will be able to earn an income of well over Rs. 1,000 including EPF and ETF.

The proposed ‘Revenue Sharing’ model is similar to the smallholder model which has yielded good results for the country’s 426,000 Tea Smallholders who have exponentially increased their extent of cultivations since 1992, doubling them from 60,000 Ha to 121,000 hectares in a mere 20 years, indicating the practicality and the success of this model. This model has yielded encouraging results in the few estates in which it was adopted, improving worker incomes and productivity, as well as worker morale.

I personally believe that by implementing these proposals, incomes of workers can increase substantially – perhaps 50% to 60% – in the long run and we have seen more than adequate evidence of this wherever this model has been introduced on an experimental basis.

We hope that these proposals will be considered and at least eventually saner counsel and rational thinking will prevail. All rational stakeholders with even a grasp of the basic facts would realize that any increase in wages without a significant increase in productivity will lead to the demise of the industry, which will affect the workers the worst and the community which lives and depends on the RPC managed estates.

While the RPCs have willingly engaged with all stakeholders and educated them extensively of these issues, it is unfortunate that efforts are being made to coerce a wage increase via the present outdated model, using threats to nationalize the industry and theatrics such as false self-immolation attempts. The authorities should realize that threats are counter-productive as the RPCs clearly do not have ability to increase wages via the present model, which has been explained repeatedly ad nauseam. In addition, they only serve to further undermine the industry by reducing the confidence of the investors. Political pressure in determining wages in the private sector sets a negative precedent which extends beyond the plantations to the country’s entire private sector.

History has clearly shown that the nationalization of plantations cannot solve any issues. By 2012, the government owned estates had Rs. 3.1 billion outstanding EPF and ETF dues for the 36 estates managed by the State. One should recall that it was the inability of the government to manage estates in a proficient manner because of various reasons that compelled the government to privatize the management of plantations after 20 years of state management.

By 1992, Janatha Estate Development Board (JEDB) and State Plantations Corporation (SPC) were incurring losses of Rs. 1.5 billion a year at the time and the treasury had to grant an annual subsidy of Rs. 5 billion.

The solution is not re-nationalization, but to allow the private sector to manage in a proficient manner, by especially removing undue political influence in the estate sector wage negotiations. The Government must honour the spirit and the covenants of privatisation of management and should not raise obstacles at every turn. However we are very pleased that the current Minister (of Plantation Industries), Hon. Navin Dissanayake has been very helpful and has a very positive and a proactive outlook regarding the industry. It is our wish that all stakeholders work in partnership to improve the industry because of the significant number of people employed and dependent on the industry.

Q: What initiatives have RPCs undertaken on their part as a response to the issue in the plantation sector?

A: As producers, who form a small part of a large supply chain and since we have to abide by legal obligations which require us to sell our tea at the Colombo Tea Auction etc. our options are limited. However, the RPCs have done their best within this framework and financial constraints to replant, improve value addition, enhance productivity and diversify crops.

While there is another glaring misconception that the RPCs have failed to replant tea, since privatization in 1992 to 2012 alone, the 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 the tea smallholders have replanted only 25% of the existing extent of VP Tea (25,707 hectares out of 104,843 hectares) from 1992 to 2012. Thus as a percentage, the RPCs have carried out replanting on a significantly greater scale than the smallholders. In terms of rubber, from 2002-2012, the RPCs have replanted 98% of their existing rubber extent. We have also planted 20,000 hectare of fuel wood at a time where the cost of imported fuel was very high, thereby reducing scares foreign exchange spent on importing fuel.

Some RPCs are also experimenting on the possibility of using manual shears in plantations to assist workers in improving their productivity. Furthermore, to improve worker morale etc. many RPCs now provide uniforms to plucking staff. Further, over 90% of the RPCs have gone into value addition of their primary commodity, in an effort to earn a better price for their produce.

While we have launched initiatives to diversify crops by venturing into palm oil, cinnamon, firewood and agro forestry etc. these efforts have been hindered by inconsistency in the policies of the authorities who have imposed restrictions on land use, despite the ‘Indenture of Lease’ signed by the RPCs giving us independence to cultivate land in an economical and socially beneficial manner.

Q: Considering the host of issues at present, what potential do you see for the country’s plantation industry’s future?

A: There are certainly many challenges. In addition to issues in key export markets and low labour productivity, the government’s decision to withdraw the fertilizer subsidy and the impact of banning of the use of the Glyphosate weedicides, along with the newly introduced charge for cash withdrawal for worker wages all add a further Rs. 5.3 billion to the RPCs’ total annual expenditure. The cost of this additional expenditure would have a further impact of approximately Rs. 58/- per kg of tea.

However, it should be noted that the plantation industry has had an illustrious history spanning over 150 years and has weathered world wars and the fall of empires. Provided that the correct framework is laid – especially with regard to aligning worker wages with output – the industry can continue to add substantial value to the economy as a major provider of foreign exchange and employment.

The question with regard to the sustainability of the industry now lies very much with the unions. Theatrics and political pressure cannot resolve this issue which requires a reasoned and long-term approach. They can continue to make unrealistic and unreasonable demands, which they themselves very well know are infeasible, or accept the present-day reality and cooperate with the Regional Plantation Companies. The future of the plantation industry depends on it and is in the hands of the workers themselves.