'Labour: plantations' expensive component in tea production'
The Planters' Association of Ceylon (PA), the representative body of
the Regional Plantation Companies (RPCs), said in a press release this
week, that labour costs accounted for the largest component of the
steadily rising cost of production of tea in Sri Lanka and called for
higher productivity to sustain the industry. The PA noted that the cost
of production of a kilo of tea had increased from Rs 124.06 in 2002 to
Rs 350 by 2011 and is now outpacing tea sales revenues.
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Tea pluckers at work |
The PA warned that if this trend was to continue, Sri Lanka's tea
industry would become unsustainable in the near future, as companies
have been steadily losing money in their tea production and unable to
cope with shouldering labour expenses, such as accommodation, medical
facilities, childcare.
The PA noted that while services and materials accounted for 6% and
16% of the total production costs respectively, labour costs accounted
for about 63% - 68% of the total manufacturing costs, making this the
largest fixed cost faced by RPCs. Staff and executive salaries, from
estate supervisor level to company, CEO account for only 10% of total
cost of production. Therefore, plantation field employee salaries and
welfare measures account for close to 70% of the plantation company
costs.
The PA also noted that unlike the smallholder sector, RPCs were
unable to cut back on wages and welfare facilities in response to the
reduction in income. RPCs, despite cash flow difficulties, have abided
by the collective agreement and continued to accommodate the current
daily wage and incentives, including EPF and ETF contributions and a
host of welfare measures for its work force and also resident estate
families. Currently, around 220,000 people have been employed by RPCs as
registered workers. However, RPCs support a resident estate community of
around 1 million persons that include families of estate employees. This
large estate population benefits from essential services, such as free
water, medical facilities, housing and other amenities.
The PA said the tea industry production costs have increased sharply
in 2012, as the industry is forced to absorb high fixed costs, mainly
labour costs. Tea output from RPCs reduced by 12% in the 1st half of the
year, because of adverse weather conditions caused by a prolonged
drought, reducing incomes of RPCs. In addition, instability in the
Middle East has reduced Ceylon Tea purchases by Middle Eastern
countries, which has again, reduced incomes of the plantation sector.
Current auction prices of Ceylon Tea have been unable to compensate for
the large drop in revenues, said the PA. As a result, the average cost
of production of tea was now higher than the average sales revenues from
tea.
Currently, Sri Lanka's cost of production have been averaging at
around Rs 400 to Rs 410 per kilo of tea, while the average selling price
per kilo of tea, for the period January to September 2012, has been
around Rs 385.66 (US$ 3.05).
The PA also noted another development in international tea markets
that has raised a red flag regarding Sri Lanka's tea industry. Kenyan
teas are currently fetching US$ 3.20 per kilo, raising warning signals
that Ceylon Tea may be ousted from its position as the premium global
tea. The PA said Kenyan teas may be generating higher prices due to an
11% drop in production and also due to heavy marketing and promotion by
the Kenyan authorities.
The PA maintained that Ceylon Tea, with its lowest pesticide residues
and environmentally friendly manufacturing, ensures the highest quality
of tea, but the Ceylon Tea brand may lose its position in the near
future, unless this threat was urgently addressed. The PA pointed out
that the lack of brand positioning would translate into lower auction
prices for Ceylon Tea and lower industry incomes,which in turn, would
reduce foreign exchange earnings to the country as a whole.
The PA maintained that the twin problems of unsustainable cost of
production and insufficient promotion of the Ceylon Tea brand image,
needs to be addressed immediately by all industry stakeholders, to
safeguard Sri Lanka's historic tea industry. The cost of production said
the PA, could be addressed to a great extent, through a significant
increase in labour productivity, as RPCs could not control tea prices
that are dependent on external factors, such as the weather and
political stability in the Middle East. Given this situation, the PA
said that it was extremely important that plantation employees and trade
unions urgently collaborate with plantation companies, to increase
overall productivity and ensure the survival of the plantation industry. |
