RPCs to incur Rs.35B additional cost per annum from government’s misguided wage increase for estate workers – Planters’ Association

As a result of the government’s decision to increase the plantation sector workers’ by 70 percent to Rs.1700, the cost of production for tea and rubber is set to rise dramatically, with estimates indicating a minimum 45% increase in the cost per kilogram of tea.

“This surge in operational costs will render Sri Lanka’s tea and rubber industries uncompetitive in the global market, further exacerbating the financial strain on these sectors. Additionally, the wage hike will place an enormous burden on Regional Plantation Companies (RPCs), which will face an annual increase in excess of Rs. 35 billion inclusive of EPF/ETF and gratuity payments. This financial strain is unsustainable and threatens the livelihoods of thousands of workers in the plantation sector,” Planters’ Association (PA) stated.

The PA also noted that the current approach of the Government in attempting to coercively set wages for the private sector, and interfere in management of the sector from key Government figures represent a stark violation of the terms of the IMF agreement, which is crucial for Sri Lanka’s economic recovery. This decision is very clearly driven by short-term populist politics aimed at securing electoral victories rather than fostering long-term economic health of the industry, and securing the interests of workers.

The IMF’s $3 billion Extended Fund Facility (EFF) for Sri Lanka is contingent on several stringent conditions aimed at ensuring fiscal consolidation including reduced intervention in state-owned enterprises (SOE). Historically, state control over enterprises has led to inefficiencies and financial burdens, as evidenced by the failures of numerous state-run businesses in Sri Lanka.

Historically, the state has consistently failed to manage State-Owned Enterprises (SOEs) effectively, leading to steep losses and in many instances, near total collapse. By the time of privatization in 1992, state owned plantations made continuous losses that had to be heavily subsidized by the Government up to Rs. 5 billion per year which was borne by the Treasury. A further Rs. 8 billion was owed by the JEDB and SLSPC to the Bank of Ceylon and Peoples’ Bank as a result of a US$ 300 million lending facility which was extended to the state plantations by the World Bank. While these funds were intended for the improvement of the plantations industry, there were no significant improvements and the plantations did not have the ability to repay the debts, and the Government was eventually compelled to absorb this
debt.

Following privatization, worker wages appreciated sharply, and with a significantly larger workforce of 327,123 within the RPC sector the industry was able to operate more effectively, investing substantially towards the development of the industry, including all of the key certifications and standards that have allowed Pure Ceylon Tea, and rubber to maintain a reputation for unmatched quality relative to global competitors.

These efforts have led to improvements in efficiency and productivity, which are now at risk due to the proposed wage hike. It is also important to note that all these companies are publicly traded companies listed on the Colombo Stock Exchange. Any attempt at a second and immediate expropriation by the Government will therefore contravene Securities and Exchange Commission and SEC rules, the Companies Act and other related statutory provisions.
 
Such an arbitrary and impractical decision also risks severe damage to local and foreign investor confidence alike. The PA warned that this would have negative consequences beyond the plantation industry, especially at a time when Sri Lanka desperately requires foreign direct investment to help boost strategically important sectors in manufacturing and services, as well as the agriculture sector.

The PA has long advocated for a shift to a productivity-linked wage model or a revenue share model, which aligns worker compensation with productivity and revenue earned at auction. This approach not only incentivizes productivity but also ensures a fair and sustainable wage system for workers. Already workers under revenue share under the previous wage structure recorded earnings in excess of the minimum wage that was recently gazette.

The current daily attendance-based minimum wage model is outdated and does not reflect the realities of the modern plantation industry. Any disruption to production or quality standards could send shockwaves through export markets, diminishing export revenues and competitiveness.

“We urge policymakers to prioritize long-term economic stability over short-sighted decisions and to consider the industry’s proposals for a productivity-linked wage model,” the PA said.