Business Times

Das Kapital in a tea cup

By Jayampathy Molligoda

Recently I read an article published in a daily newspaper titled “Tea industry: Golden Goose or Lame Duck?” by Dr. U. Petiyagoda, ex- TRI Director. He has raised very relevant and important issues pertinent to the current affairs of the tea industry. “..It is claimed that this goose which has laid golden eggs for more than one and a half centuries, is currently the third largest foreign exchange earner, employs over 100,000 persons… However, some features are troubling…. most estates appear to report losses...I conclude that contrary to apparent majority belief, the goose that is purported to lay Golden Eggs is in fact a disguised Lame Duck.” Dr. Sivapalan, former Director General, TRI responding to the views expressed in the above article has pointed out that the tea smallholders, especially in the low grown tea producing areas are progressing well and it is the corporate sector that is lagging behind.

The purpose here is to keep the readers informed of the viability of the tea industry in Sri Lanka, in particular the upcountry tea estates producing high grown teas which are most sought after in the world markets.

It is true that most of the high grown tea estates are running at colossal losses and the plantation companies are either borrowing money from the banks or subsidising tea losses with profits generated from rubber/oil palm etc.

To be more specific, the tea prices at the Colombo Auction are in the region of Rs.300 and the cost of production of a kilo of tea is around Rs.400 thus making an average loss of Rs.100 per kilo. If this trend continues, the high grown teas will end up in some Rs 800 million worth of losses by the year end. It is unbecoming of the private sector owners to bring in money from outside to finance such losses.

The worst case scenario is that the estates will be compelled to curtail or totally abandon the development programmes such as re/new planting, factory modernisation, social welfare activities etc. The estate sector would get into a vicious cycle of low productivity leading to losses getting accumulated and eventually making the estates go bankrupt, meaning no bank will provide funds to sustain the operations.

Five years ago, the World Bank in its report on Sri Lanka’s poverty assessment in 2005/06, said the estate sector comprising 5% of the country’s population poses a significant challenge to Sri Lanka’s poverty reduction. The poverty headcount in the estates was 7 % higher than the national average. The report also revealed some crude facts that stated the “higher poverty among estate households is associated with the remoteness or lack of useable link roads to the nearest town.” The estate sector was reportedly posing the highest incidence of poverty with a headcount of 30% in 2002.

Poverty dip to continue
The Department of Census and Statistics has completed the Household Income and Expenditure Survey 2009/10 conducted once in every 3 years, aimed at investigating the living standards of household population in Sri Lanka. The poverty level is measured by Head Count Ratio which presents the total number of persons live under the poverty line as a percentage of the total population. The value of the official poverty line of Sri Lanka was Rs. 3,028 total expenditure per person per month for the 2009/10 survey period.

The latest calculation of poverty shows that the poverty level of the country has further declined from 15.2% reported in 2006/07 to 8.9% in 2009/10. In 2002 /03 it was 22.7%. However the bitter increase of poverty in the estate sector reported earlier was an eye opener towards the hard working estate population who contribute heavily to the growth of the country’s export trade. We are pleased to note that the estate sector has recorded a substantial reduction of the % below poverty line from 30% to 9.5%. How did it happen?

The main plantation unions signed a collective agreement in June 2011 with the Ceylon Employers Federation on behalf of 23 RPC’s, increasing the daily wage for plantation workers by 27.7% w.e.f 1st April 2011 for a two year period. Unions and employers brought negotiations to a rapid conclusion after protests over the demonstrations by tens of thousands of free trade zone (FTZ) workers against a pension scheme. According to the media, the union leaders discussed with the President. “He advised us to finish this matter immediately… Underlining the purpose of a quick deal”, one union leader declared.

Wages and cost of living
Under the recently concluded collective agreement, the basic daily wage has risen from Rs.285 to Rs.380 plus Rs. 30 per day with additional allowance of Rs.105 tied to attendance. Overall income depends on the workers and the management, who jointly decide the number of days of work per month—generally around 25 a month.

The high inflationary conditions prevailed in the last 30 years up to 2008 has now ceased. In 2009, the annual average inflation was only 3.4% and last year it was 6.1%. Inflation can be simply defined as the overall general upward price moment of goods and services in the economy usually measured by the consumer price index. The demand for wage increase stems from these inflationary tendencies. Sri Lanka’s 12 month moving average inflation as measured by the CCPI settled in the month of April 2011 at a single digit figure of 6.6% for the 21st consecutive month since August 2009.

However the wage increase granted in April 2011 was 27.7% which is substantial taking into consideration the previous increases as well. The previous wage increase granted in April 2009 of 39.7% was also considered high. In 2006, the daily wage was only Rs.260 per day and was increased to Rs. 290 in 2007. Thereafter in April 2009 the wages were increased to Rs. 405 per day. Now it is Rs. 515 which is nearly a 100% increase during the last five years. As stated above the overall income depends on the number of days of work per month, generally around 25 a month. With the allowances, the workers receive an average monthly salary of Rs 12,875. With the over-kilo allowance the pluckers get even more.

From the above it can be seen that there has been a steady increase in the disposable income of the estate workers thus reducing the poverty in the estate sector. The ongoing programmes of the Government such as providing infrastructure facilities (road etwork, electricity/water supply), livestockdevelopment at estate level etc. also would have contributed to the reduction of poverty. However the general perception on the estate workers by the trade unions and the general public who are sympathetic towards the working class is “With the high cost of living, this salary is not enough even for meals each day, let alone other expenses….’ The World socialist website reported: “They are among the most oppressed layers of the Sri Lankan working class, living on the plantations in cramped accommodation without essential facilities such as electricity and running water.” The World Bank report highlights the need for ensuring the labour force living within the commercial property to have improved movement to and from the towns. The report talks about relieving management of welfare responsibility toward residents and the obligation of residents to provide labour to the estate.

Socialism in capitalist tea cup
Capitalism is an economic system in which the means of production are privately owned and operated for a private profit; decisions regarding supply, demand, price, and investments are made by private actors in the market rather than by central planning by the government.

According to Karl Marx, the central driving force of capitalism is in the exploitation of labour. “The ultimate source of capitalist profits is the unpaid labour of wages.” Marx calculates that the total required for subsistence is equivalent to about six hours of labour a day. “But will the owner allow his workers to knock off at the end of their six hours? To earn their wages, they must work for another six hours, thus providing the ‘surplus labour” that creates the owners profit,” Marx argued.
Interestingly, according to the current labour practices in the tea estates, the male workers who provide sundry work such as pruning, weeding, fertilizing etc put in less than six hours work only and stop work by 1.30 pm. Within the overall capitalist economic system, the tea plantations working environment, especially the determination of wages and the number of working hours per day and other labour practicesseems to be similar to a socialist system. The real issue here is that the additional cost of Rs. 50 per kilo of tea due to the recent wage increase and recent drop in tea prices at the Colombo tea auction would make most of the tea estates unprofitable and even the entire high grown tea sub sector. As a result, the estates are reluctantly compelled to curtail tea replanting work, thus making further cost increases due to static tea production. Can the plantation companies continue to cross subsidize loss making tea estates from other revenue sources?

Correction Process
Dr. Petiyagoda in his article very correctly commented on the tea replanting practices. “In tea estate practice, when replanting becomes due, the soil is ‘rehabilitated’…. It was rather wishfully believed that two years of grass can rectify a hundred years of abuse. Experiments tended to show that the practice was of no benefit to the succeeding tea. If the period under grass could be 25 years instead, the result may have been different…”

Since 1860’s tea has replaced coffee as a mono crop in many parts including some land with high sloping gradients. One can argue the degradation of certain tea lands was due to inadequate attention to environmental concern for sustainable development. The area of natural forests has declined drastically during the last 100 years. With the decline of the natural forest, the alternatives for meeting the needs for timber and fuel wood are from trees grown on non-forest land and tea plantations. In my recent article appearing in the Business Times I have touched on the importance of soil organic matter and soil building. The organic carbon content (organic matter) of soil decreases fast after harvesting the crop. According to experts, unless the soil is kept covered by some means, the top soil continues to get eroded and productivity decreases. Studies have established the relation between topsoil depth and yield. Soil organic matter content considerably improves the structures and water holding capacity.

There are instances where higher productivity of tea has been achieved through nutrient ply from organic sources even without applying artificial fertilizer. Planting short rotation coppicing trees like caliandra along with high valued timber trees in marginal tea lands would enhance the soil organic matter.
Crop diversification on degraded tea land undertaken by plantation companies is one example of a strategy to 'integrate environmental concerns into the development process. This type of crop diversification is encouraged especially in degraded tea land as well as land with high sloping gradients. Agro Forestry is another method adopted by plantation companies. The tree crops bind the soil and prevent adverse environmental impacts through soil erosion.Agro forestry could be simply defined as integrating agriculture, forestry and or animal production into a synergistic system. It has now become necessary to introduce improved agro-forestry systems to the plantation sector. The new agro-forestry model will among others: (a) minimize the negative effects (b) improve productivity & bio-diversity of system (c) increase sustainable profits.

As can be seen from the above, the suggested agro-forestry model in marginal tea plantations is in-fact environmental friendly and leads to bio-diversity. The economical viability & financial feasibilities are also greater in any agro-forestry model as opposed to undertaking a mere replanting of tea in marginal tea lands. The writer is willing to share the financial model with those who are interested to know the details or those having different views. The real issue is that currently the RPC’s do not generate sufficient funds to plough back into soil and undertake field development activities mainly due to high cost of labour. My own view is that the whole “industrial relation issue” needs to be first re-assessed with a fresh and open mind as a way forward.

(The writer works in the plantation sector and writes regularly on industry issues. He could be reached at

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