Plantations in Sri Lanka say an ‘arbitrary’ state wage order will destabilize the tea sector

ECONOMYNEXT – A state-mandated wage hike for tea and rubber workers will destabilize the sector by undermining productivity-linked wages aimed at boosting production, plantation managers say.

Paying the compulsory wage, which represents a 70 percent increase in costs, without increasing production, as is possible under alternative models already tried, will force cuts in fertilizer costs and other investments, the Ceylon Growers Association said.

In May, the government published another daily, which provided exactly the same wages as in April, pursuant to the so-called regulations of the pay commission.

Tea and rubber workers’ wages are the highest among all wage commissions, including garments and other government jobs such as

The Planters’ Association strongly opposes the government’s arbitrary and ill-considered wage hike for plantation sector workers

The plantation industry has raised its strongest possible objection to the government’s arbitrary, reckless and unilateral decision to drastically increase the minimum wage for tea and rubber workers by an unprecedented 70%.

All producer stakeholders have issued a unified warning of the devastating impact that the recent surge will have on the plantation sector, creating crippling operational challenges and ultimately leading to severe economic instability in the country.

“This decision was made without proper consultation and consideration of the needs of all industry stakeholders. In particular, it disregards any comments and threatens to paralyze every segment of the tea and rubber industries in Sri Lanka. Current efforts to impose such a clearly unsustainable mandatory minimum wage on small-scale tea and rubber producers and regional plantation companies (RPCS) are impossible for the industry to absorb, even with dramatic cuts to basic operational needs. The continuity of the entire plantation sector is now at risk and, most importantly, the livelihoods of workers themselves and communities associated with the industry across Sri Lanka are at risk,” the Ceylon Planters Association said.

As a result of this decision, the costs of tea and rubber production are expected to increase dramatically, with estimates indicating at least a 45% increase in the cost per kilogram of tea. This sharp increase in operating costs will render Sri Lanka’s tea and rubber industries uncompetitive in the global market, further aggravating the financial burden on these sectors.

Moreover, the wage hike will put a huge burden on the Regional Plantation Companies (RPCs) who will have to face an annual increase of more than Rs. 35 billion including EPF/ETF and gratuities. These financial burdens are unsustainable and threaten the livelihoods of thousands of plantation sector workers.

The AP also noted that the government’s current approach of attempting to compulsorily set wages in the private sector and the interference of key government figures in the management of the sector is a clear violation of the terms of the agreement with the IMF, which is crucial to Sri Lanka’s economic recovery. This decision is clearly dictated by short-term populist politics aimed at securing electoral victories, rather than supporting the long-term economic health of the industry and protecting the interests of workers.

The IMF’s $3 billion Extended Fund Facility (EFF) for Sri Lanka is subject to several stringent conditions aimed at ensuring fiscal consolidation, including limited intervention in state-owned enterprises (SOEs). Historically, state control over enterprises has led to inefficiencies and financial burdens, as evidenced by the failure of many state-owned enterprises in Sri Lanka.

Historically, the state has consistently failed to effectively manage state-owned enterprises, leading to huge losses and, in many cases, almost complete collapse. Until privatization in 1992, state plantations were incurring constant losses, which the government had to subsidize heavily to the tune of Rs. 5 billion a year, which was covered by the state treasury.

Further Rs. JEDB and SLSPC owed the Bank of Ceylon and the People’s Bank an amount of $8 billion as a result of a $300 million line of credit extended to state plantations by the World Bank. Although these funds were intended to improve the plantation industry, no significant improvement occurred and the plantations were unable to repay the debts, so the government was ultimately forced to absorb this debt.

After privatization, employee wages increased dramatically and with a significantly larger workforce of 327,123 in the RPC sector, the industry was able to operate more effectively by investing significant resources in the development of the industry, including all the key certifications and standards that enabled Pure Ceylon Tea and Rubber, to maintain a reputation for unrivaled quality compared to global competitors.

These efforts have led to improvements in efficiency and productivity, which are now at risk due to the proposed wage increase. It is also important to note that all these companies are listed companies and listed on the Colombo Stock Exchange. Any attempt at repeated and immediate expropriation by the government will therefore be contrary to the Securities and Exchange Commission and SEC regulations, the Corporations Act and other related statutory provisions.

Such an arbitrary and impractical decision could also seriously damage the confidence of local and foreign investors. The Palestinian Authority has warned that this will have negative consequences beyond the plantation industry, especially at a time when Sri Lanka desperately needs foreign direct investment to help strengthen strategically important manufacturing and services sectors, as well as the agricultural sector.

The AP has long advocated for a shift to a productivity-linked compensation or revenue-sharing model that aligns workers’ compensation with productivity and auction income. This approach not only encourages productivity, but also provides employees with a fair and sustainable compensation system. Already, employees covered by revenue sharing under the previous pay structure saw earnings above the minimum wage, which was recently published in the bulletin.

The current attendance-based minimum daily 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, reducing export revenues and competitiveness.

“We urge policymakers to prioritize long-term economic stability over short-sighted decisions and consider industry proposals for a performance-linked pay model,” the AP said.