December 14, 2006 (LBO) – Trade union action, wage hikes and high fertiliser prices are proving a volatile cocktail of problems for Sri Lanka’s plantation sector, with dismal predictions for early next year.
Green leaf production on Sri Lanka’s tea estates grew a negative 0.7 percent in the third quarter of this year over the 5.1 percent of 2005, Sri Lanka’s census and statistics department said.
The department suggested re-introducing a fertiliser subsidy for tea estates, as companies struggle to cope with high fertiliser prices, taking its toll on the quality of the crop.
“The present fertiliser prices are so high that planters are finding it difficult to apply the right dosage of fertiliser to the estates,” Census & Statistics chief, Suranjana Vidyaratne said.
“If the fertiliser subsidy can be worked out in tea production, it would not only be an incentive to the planter but go a long way in lowering the costs of production while it would reflect favourably on the economy.”
Fertiliser makes up about 11-15 percent of the total cost of a kilogram of tea, currently selling at an average of about 214 rupees a kilo at the weekly Colombo tea auction.
A shortage of labour – mainly women tea pluckers on estates, has also added to the increasing costs of production, as workers leave for more lucrative jobs as domestic aides in the Middle East.
Unions representing over 250,000 estate workers, have struck work for the tenth day, demanding a 50 percent wage hike to 300 rupees a day, which will cost 5-billion rupees annually, making the industry unviable, the Colombo Tea Traders Association said Thursday.
Unions want high commodity prices and the high cost of living factored into the increase. Employers have offered to go up 250 rupees a day, but say any further increases would cripple companies and result in huge financial losses.
Plantation companies also point out that workers already take home over 250 rupees, if allowances are taken into account.
Wage negotiations between employers and trade unions under a three year collective agreement broke down in November, resulting in a complete halt in work and disruption of produce being transported to Colombo for sale.
Losses on estates belonging to 20 regional plantation companies are estimated to be in the region of a billion rupees, with a large drop in volumes sold at the auction.
Concern is mounting that buyers of Ceylon tea will also look at other markets as volumes available to be sold, begins shrinking and prices for high grown teas soars.
A total of 5.5 million kilos was on offer at this week’s tea auction, with brokers saying that it now takes over the usual week to collect teas for a single sale.
Prices for high grown teas – where most of the strike action is concentrated – are also expected to reach 250 rupee levels from the 202 rupees a kilo last week, as demand outstrips supply.
“Exporters unable to service Sri Lanka’s customers due to absence of volume and choice, and those restrained by the sharp price rises are concerned that they may not be able to retain their overseas customers,” Asia Siyaka Commodity Brokers, said Thursday.
Asia Siyaka has scaled down annual forecasts for this year to about 300 to 305 million kilos over the 317 million kilos last year, with mid to higher growing elevations the most affected, though strike action has spread to low country estates as well.
Sri Lanka’s top business chamber warned on Thursday that ongoing trade union action was jeopardizing the country’s credibility as a major international tea exporter.
International packers and consumers would also be compelled to substitute the Ceylon Tea component with teas of other origins, the Tea Traders Association said.
“This situation is now affecting the internationally renowned Colombo Tea Auctions. Volumes available for disposal are already recording considerable declines and will continue to do so, with the fast deteriorating circumstances.”
Crisis talks are ongoing with intervention of the labour department, though no solution was reached as at Thursday evening.
Tea brokers have forecast lower intakes in December of 21 million kilos over the usual 25 million kilos.
“The producers whose fields are over grown will not be able to recover loses. Even if the strike was resolved it will take a fair length of time for the estates to recover. We believe that the impact of this current issue could extend through 2007,” Asia Siyaka said.