How it affects the small holders

by Dr Janaka Ratnasiri

The Cabinet of Ministers, at its meeting held on 26.01.2021, has decided to amend the Wages Board Regulations (WBR) by making it mandatory for tea plantation workers be paid a minimum of Rs. 1,000.00 a day. This is a follow up to the proposal made by the Finance Minister in his Budget Speech that “I also propose to increase the daily wage of plantation workers to Rs. 1,000 from January 2021”.

DEMAND BY THE PLANTATION WORKERS FOR A WAGE INCREASE

Since about 2016, tea plantation trade unions have been demanding that a daily wage of Rs. 1,000 be paid to their workers. However, the regional plantation companies (RPC) were resisting their demands, despite intervention by ministers from time to time. In order to ensure votes from the plantation workers, prior to the election, a pledge was given by those who are in office now, that the plantation worker salaries will be increased. The proposal in the budget speech, as well as the recent amendment to the WBR, were outcomes of this pledge.

Tea is grown in Sri Lanka by two groups, the large plantations managed by the Regional Plantation Companies including other public sector institutes, and the small holders of extent below 10 Acres each. According to the 2015 Annual Report of the Tea Small Holdings Development Authority (TSHDA), the small holders produced about 240 million kg of made tea in 2015, while the large estates produced 87 million kg, which are 73% and 27% of the total production, respectively. According to the TSHDA Report, the number of small holdings below 0.5 ha extent comprise 88% which are mostly managed by family members. The rest up to 10 Acres or 4 ha employ paid workers and they are subject to WBR.

The demand for wage increase came from plantation company workers where salaries paid to workers are decided by the collective agreement between the RPCs and worker trade unions negotiated once in two years. During the last agreement, RPCs have offered an increase of the basic to Rs. 600 a day and increases in some allowances making the total daily wage to Rs. 940.00 subject to good attendance (Daily FT, 26.10.2018). But this was not acceptable to the worker unions.

The RPCs have called for a new wage structure focusing on a revenue share model that could have sweeping productivity-focused reforms in the entire industry. An option favoured by the trade unions is the out-grower model where the workers are allocated small plots of land to grow their own tea to sell to the factories (Daily FT of 19.02.2019). In view of this deadlock, the COM decided to incorporate the LKR 1000 as minimum daily wage payable to tea industry workers which is applicable to both estate and small holding workers.

Despite this Cabinet decision, tea plantation workers across the up-country have launched a token strike demanding immediate payment of the agreed pay hike to them, as some RPCs were hesitant to implement the Government decision. With an annual export earning of LKR 240 billion in 2019, a single day production outage means a loss of over LKR 600 million a day to the country.

PRESENT EARNINGS OF PLANTATION WORKERS

Currently, WBR specifies that the tea plantation workers should be paid a minimum of LKR 680.00 a day, subject to satisfactory attendance during the month. In addition, they are paid EPF at 12% of basic salary of Rs. 545.00 and 3% for ETF, making the total wages Rs. 761.75. It should be remembered that plantation workers generally work only for about 6 hours from 0730 h to 1330 h including 30 min for a tea break. They have to stop plucking early so that the day’s collection could be handed over after weighing to the lorry which comes around 1400 h. A plucker works for a maximum of 22 days a month because it takes about a week for a new shoot to develop to be plucked again.

But, on an average, a plucker may work only for about 16-18 days and after deducting his own EFP contribution, may have a take-home pay of about Rs. 12,200 – 13,700 a month. If they pluck above the minimum quota, they may be paid extra at rates varying from employer to employer from Rs./kg 25 to 30, they can earn extra, provided the bushes in the worker’s lot have shoots. Both during dry months (no moisture) and wet months (no radiation), the shoot growth declines and the average yield drops and much extra revenue cannot be expected during these months.

Being daily paid workers, they are not entitled for any paid casual or sick leave unlike monthly paid workers elsewhere. No work means no pay. Unlike other workers in the mercantile sector, tea workers are not entitled for mercantile holidays, neither they have any annual leave. Whereas, in the case of all public sector and mercantile sector workers, the EPF contribution is computed based on the total salary received, in the case of plantation workers, it is computed based on the basic salary only.

The writer believes that this is a violation of the EPF Act. Though workers employed by RPCs may get free housing and free medical facilities, such benefits are not available to the large number of workers employed in the small-holder sector. Hence, there is a need to increase the wages paid to these workers to compensate for the loss of all these benefits.

In announcing the proposed wage hike for plantation workers, both the Government and the RPCs are deceiving them by adding the employers’ contribution to EPF and ETF as a part of the daily wage of Rs. 1,000. This is not done anywhere else either in the public or in the mercantile sector. When they announce a salary scale, only the basic salary along with allowances are shown, but not the EPF and ETF contributions. The workers themselves may not have understood the difference, but their unions should have seen the unfairness of this computation.

IMPACT OF THE WAGE INCREASE ON THE SMALL HOLDER SECTOR

Small holders get paid for the green leaf supplied to factories at a rate determined by the auction price paid to factories the previous month. Currently, the rate is about Rs. 90 per kilo after deducting for transport and sack weight. In the writer’s experience, a small holding of four acres with an average yield of 1,500 kg of green leaf a month, brings a monthly revenue of Rs. 135,000. The salary bill for four pluckers and a Kankanama will come to an average of Rs. 80,000 a month. This comprises Rs. 30,000 paid to the Kankanama and LKR 12,500 paid to each plucker on an average, including their EPF and ETF contributions. This works out to Rs. 781 a month per plucker, a little over Rs. 762, the minimum specified in the WBR.

The cost of weeding which is done manually, maintenance of drains and retaining walls on an average comes to about Rs. 25,000 a month. The cost of fertilizers and dolomite and their application costs another Rs. 6,000 a month on an average. In addition, there are other costs of infilling, pruning and replanting of unproductive sections which works out to about Rs. 14,000 a month. This leaves only Rs. 10,000 a month as income from the small holding, which is even less than what a worker earnes a month.

Once the WBR is amended to increase the daily wages to Rs. 1000, the Labour Officers will spare no time in visiting the small holdings and insisting the new wages be implemented. If this is done, it will be an added financial burden of Rs. 15,360 a month. This exceeds the amount left in hand after attending to its management properly. Since the small holdings depend entirely on the money paid by the factories, the obvious solution is to increase this amount at least by Rs. 20 a kilo which leaves behind a decent balance in hand. It is obvious that the COM was not concerned about the small holdings when it decided to amend the WBR, but had only the concerns about the RPC workers in mind.

INCREASING THE PAYMENT TO SMALL HOLDINGS BY FACTORIES

Tea samples offered at the auctions are purchased mostly by exporters for supplying to overseas buyers. About 3% is purchased for sale locally. According to the Tea Board Directory, there are about 325 exporters. Originally, only the dedicated companies exported tea but lately the factories as well as RPCs have got involved in export of tea considering the high profit margin. According to the Central Bank 2019 Annual Report, the average auction price of tea was Rs./kg 546.67, while the average export price was LKR/kg 822.25, leaving a margin of Rs./kg 275.58. The total tea (made tea) production in 2019 was 300.13 Mkg, while the quantity exported was 292.65 Mkg. Thus, the exporters had made a gross profit of Rs. 80.65 Billion in 2019.

Export of tea is subject to a CESS levied at Rs./kg 10, which works out to LKR. 2.9 Billion. Further, Rs.one billion is collected as Tea Promotion Levy by SLTB from the exporters. Another 1% or Rs. 2.4 Billion has to be paid to Brokers for conducting the auctions and carrying out quality control checks and certifying on samples received. These brokers comprising 8 companies deserve it because they ensure that quality tea is exported. After paying these taxes, the exporters are still left with a profit margin of about Rs. 65 Billion annually after paying Rs. 10 billion as income tax (assumed).

The export companies presently enjoy the benefit of this revenue shared among its staff. Assuming each company has 50 staff members, the total staff strength is about 16,250, and each of them could earn a salary of about Rs. 400,000 monthly. This is while a plucker earns below 1/25 th of this amount after trudging up and down the hills carrying kilos of leaf on their back in sun and rain. It would be in the interest of the exporters to share their profits among the plantation workers also, because if the industry collapses, there is nothing for them to export.

SHARING OF EXPORT PROFITS AMONG WORKERS

The number of workers employed in tea plantations are estimated to be about 174,000 in 2017 (ILO Publication on Tea Small Holdings, 2018). If each of them is to be paid an additional Rs. 238 monthly for raising the daily rate from Rs. 762 to LKR 1,000, the annual burden will be Rs. 414 Million. The total production in the small holdings in 2019 was 240 Mkg of made tea according to TSHDA, which is equivalent to 960 Mkg of Greenleaf. If the small holder is to be paid Rs./kg 20 more for Greenleaf, the added burden will be Rs. 19.2 Billion.

Thus, for increasing the daily wage to workers in both the estates and small holdings, the total added financial burden will be about Rs. 20 Billion annually. If the tea exporters could part this amount from their profits of Rs. 65 billion, the problem could be solved. The Government may do away with the CESS levy on tea exports to assist this process. Concurrently, an effort should be made by the tea industry to increase the revenue from tea exports.

INCREASING THE REVENUE FROM

TEA EXPORTS

The writer published an article in The Island of 11th and 13th of November, 2015 describing the strategies to be adopted to increase the export revenue, and also to increase the wage increase. Though it was written more than five years ago and the data little outdated, the reasonings are still valid. The article which appeared in two parts may be accessed via the following links:

http://archive.island.lk/index.php?page_cat=article-details&page=article-details&code_title=135105

http://archive.island.lk/index.php?page_cat=article-details&page=article-details&code_title=135203

One strategy is to move away from the manufacture of traditional orthodox tea to CTC (Crush-Tear-Curl) tea which is in high demand in the western countries like the USA and the UK. Both Kenya and India have overtaken Sri Lanka as major exporters because they supply CTC tea while Sri Lanka sticks to orthodox tea. According to Tea Exporters Association data, Sri Lanka has produced in 2019, out of a total of 300 kt of tea, 274 kt (91.3%) of orthodox tea, 23.6 kt (7.9%) of CTC tea and 2.6 kt (0.8%) of green tea. According to World Exporters Site http://www.worldstopexports.com/tea-imports-by-country/, Sri Lanka in 2019 has occupied only 10% of the tea market in the USA while only 4.1% in the UK. The major importers were Kenya, India and China. Today, most Western countries consume tea in the form of tea bags for which CTC tea is necessary. But to cater to these markets, Sri Lanka will have to increase the CTC output.

World’s highest tea importer is Pakistan, but most of the teas consumed in Pakistan are imported from Kenya, India, Uganda, Rwanda and Tanzania. Currently Sri Lanka’s market share in Pakistan is only 2-3% of total tea imports. A publication by Sri Lanka’s Consulate General of Sri Lanka in Karachi released in December, 2016 has recommended that “While capitalizing on the taste factor, Sri Lankan tea companies should produce quality strong black CTC teas comparable to East African countries focusing on leaf and liquor in large quantities and offer straight lines such as Garden Originals. Pakistan consumers are very particular about the appearance of tea and prefer to drink thick gold color tea”, if Sri Lanka wishes to increase its market share in Pakistan.

The other strategy is to move into producing more high value tea such as green tea and instant tea. According to Central Bank 2019 Annual Report, Sri Lanka has exported 285 Mkg of black tea at an average price of Rs./kg 797.00, 4.75 kt of green tea at an average price of Rs./kg 1,987.00 and 3.07 kt of instant tea at a price of Rs./kg 1.357.00. Hence, the logical step to increase the export revenue from tea is to offer high value tea instead of traditional black tea. But, instead of doing that the Sri Lanka Tea Board was spending billions of rupees on promoting black tea in existing markets. In 2014, the COM approved a budget of LKR 2.3 billion for promotional activities but the Tea Board could not finalize the project for several years because of disputes it ran into in selecting a suitable advertising company.

IMPLICATIONS OF WAGE INCREASE IN THE SMALL HOLDING SECTOR

If the proposed wage increase applies to the small tea holdings without any corresponding increase in the payments made for green leaf supplied to factories, the only option available to the small holder is to give up the tea plantation and consider other options. Among these are shifting to another crop such as cinnamon or pepper along with gliricidea or partition the land into several segments and hand over them to existing workers or others to manage them on their own with no liability to pay any wages to the workers by the land owner.

Gliricidea stems are in demand as a biofuel for use as a source of thermal energy in industries. With the Government giving high priority for renewable energy, industries will have to turn to biofuels as a substitute for oil or gas to generate thermal energy. One barrier they face is the lack of a proper supply chain ensuring continuous supply of biofuels. Already a project supported by UNDP and FAO is assisting the Government to set up fuelwood collecting centres across the country as part of the supply chain improvement. Hence, converting the tea plantation into a gliricidea plantation will help in this venture and provide a source of revenue possibly higher than what the tea plantation provides without any WBR controls.

CONCLUSION

In order to meet the demand made by tea plantation workers, the Government has decided to incorporate the proposed increase to the WBR rather than limiting it to the Collective Agreement between RPCs and Trade Unions. This affects the small holders as well who depend on payments made by factories for green leaf supplied to them. Unless there is a corresponding increase in this payment rate, the small holders have no option other than to give up planting tea.

It is also proposed that the Government should intervene to get the enormous profits earned by exporters to share their profits with the workers enabling the RPCs and small holders to implement the proposed wage rise. Concurrently, the factories should endeavour to produce high-value tea products to increase the export revenue.