A Sustainable Future for Sri Lanka’s Plantation Sector – Lanka Business Online

By Dr. Dan Seevaratnam

Sri Lanka continues to grapple with serious economic challenges that affect all citizens, including those in the plantation sector. At a time when nearly one in four Sri Lankans has fallen below the poverty line as a result of Sri Lanka’s historic economic crisis over the past four years, it is also clear that the country’s most economically vulnerable communities, including those in the plantation sector, have been saddled with an unbearable financial burden.

At a time like this, Sri Lanka needs stability. All stakeholders must put aside their differences and work sincerely for the common good if we are to ensure the dignity of work and a decent standard of living for all citizens. To effectively address these challenges and find a solution that
truly serves the interests of plantation communities, it is imperative that decision-makers take a holistic approach that takes into account both the economic and social dimensions.

The proposal to increase the salaries of plantation workers by 70%, currently before the Supreme Court, has naturally sparked a wide debate that is now spreading to other sectors, while the issue of salaries of civil servants and public sector employees is also being seriously considered.

While action to address the severe economic burden faced by society due to government wage increases may be a politically supported decision, it raises critical questions about whether it will actually improve living conditions, especially if such increases ultimately threaten the viability of Sri Lanka’s export sector.

The final decision taken regarding the tea and rubber sector will not only have a direct impact on the grower communities but will also send a signal to
how the rest of Sri Lanka’s export sector will develop.

Unfortunately, the history of Sri Lanka’s plantation sector has so far been marked by a series of hasty policy decisions tied to the vagaries of electoral cycles. From the failed transition to organic farming to bans on glyphosate and oil palm, these riot-inducing promises may have aided electoral victories but have always resulted in major economic setbacks for the industry.

It is important that we learn from these mistakes.

Economic impact and sustainability

The consequences of the 70% increase in the tea and rubber sectors have significant economic implications. For the tea industry, it would raise the Cost of Production (COP) of tea from the current Rs. 1,150.00 per kg to Rs. 1,903 per kg.

Such an increase would push the price of tea in Sri Lanka well above sustainable levels, given that the current gross sales average (GSA) of high-growing tea in 2023 is Rs 1,072, while the national GSA is Rs 1,171. The government has ordered a higher salary of Rs 1,700 to be paid to farm workers.

While Elkaduwa Plantations has been paying higher wages to employees, it is unclear whether it will be able to afford such salaries on its current revenues.

There is also much talk about the fact that many plantation companies have posted significant profits in the last financial year. However, this completely ignores the fact that over the last decade, these companies have posted marginal profits only in recent years due to the appreciation of the rupee.

They have been forced to finance their wage costs by borrowing from local banks, and over the past 4 years interest rates have further drastically increased the cost of financing.

Moreover, the daily wage paid to workers is part of a much larger payment that each plantation company will have to pay. Including EPF/ETF and Gratuity, RPCs would face a cost of Rs 35 billion per year, which would mean a significant increase in operating costs compared to 2023.

The consequences for the rubber sector – where production has already fallen from 152,000 MT per year in 2010 to just 64,000 MT – are even more dire. Over the past year, rubber producers have received an average of just Rs 660 per kg for 1X latex rubber.

If the proposed wage increase is implemented, manufacturers will face an insurmountable 120% increase in production costs.

Maintaining quality of life improvements

While wage increases are often seen as a popular, quick fix to economic problems, we must consider the broader socioeconomic conditions in which these increases are being implemented, as well as the potential impact they will have in addressing the systemic challenges faced by the grower community.

Quality of life is often measured using several standard indicators. These include not only income levels, but also maternal and infant mortality rates, pre-school, primary, secondary and tertiary education.

Taking all these indicators into account, there is no doubt that significant progress has been made in the era of privatization of management in the plantation sector.

These key improvements have been achieved not through wage increases but through the implementation of a series of strategic initiatives, leveraging the collective support of all plantation sector stakeholders to address critical gaps in public infrastructure and services, using a combination of public, private and international financing.

To make further progress, we need to analyse the impact of existing interventions and realistically assess how they can be increased through strategic interventions.

At the same time, concerted efforts were made to directly educate and empower people in the community on nutrition, primary health care and hygiene. Among the most successful were programs launched across the private sector to combat infant and maternal mortality by providing
pregnant and breastfeeding women with folic acid and other key nutrients, as well as ensuring regular medical check-ups.

Other notable examples include the establishment of Child Development Centres, which aim to provide education and nutrition, which has helped to dramatically alleviate problems related to mortality and low birth weight.

Similar initiatives to support primary and secondary education, vocational training and livelihood development, as well as community kitchens, have been remarkably successful in providing systemic solutions to problems.

The persistent plague of alcoholism on plantations

Alcoholism remains a critical, unresolved socio-economic problem in the plantation sector. Recent studies reveal that around 40% of plantation workers’ wages are spent on alcohol, and 40-65% on illicit alcohol.

Although legal alcohol consumption is expected to decline by 8.2% in 2023, the illegal trade is estimated to be twice as large as the legal market.

The problem is no longer confined to men, whom it traditionally affects, and is now worryingly common among women living in housing estates.

Alcohol consumption has become deeply integrated into everyday life and
cultural practices, from births to funerals.

According to Sri Lanka Sumithrayo, a government-backed charity, one in 10 school-going children in Tamil plantation communities drops out of school because of alcohol consumption at home.

For every alcohol consumer, at least ten family members are negatively affected. The problem is exacerbated as workers migrate to urban areas, which often leads to more intensive work, illegal drug use and deepening cycles of debt and poverty.

Gender-based violence is often linked to alcohol and drug abuse, which seriously affects women and children. The impact of alcoholism extends beyond an individual’s health, affecting household finances and draining funds
from basic needs such as education and healthcare.

This perpetuates cycles of poverty and hinders community development. Nationally, foreign exchange is wasted on importing raw materials for illicit trade.
alcohol production.

Simply raising wages without addressing these deeper social issues will not lead to lasting solutions. While wage increases are necessary, they must be linked to productivity for sustainable development.

Comprehensive educational programs on household cash management and the dangers of excessive alcohol consumption are key. These initiatives can help employees make informed financial decisions, improving their quality of life without relying solely on potentially unsustainable wage increases.

By adopting this balanced approach, we can address both the economic and social challenges in the plantation sector. We must prioritize sustainable solutions that benefit workers while maintaining the global competitiveness of the industry, rather than resorting to politically convenient but economically unwise decisions.