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Sri Lanka plantation wages do not reward productivity, output, workers lost

ECONOMYNEXT – An existing wage deal with unions of Sri Lanka’s large plantations do not reward the most productive workers unlike small holders, while the sector is losing output and workers and is looking to mechanize, an industry official said.

The plantations companies and unions had started a productivity linked wage structure four years ago.

“Unfortunately in the last negotiations which took place in 2019 January, and following agitation from the Unions, the productivity link was removed while a 40 percent increase in the basic wages was granted,” Sunil Poholiyadde, the outgoing chief of Sri Lanka’s Planters’ Association representing 22 publicly traded commercial plantation firms said (Read full speech here).

“This wage applies for two years irrespective of productivity or price.”

“Further, this wage model applies to all crops in the plantations despite the drastic differences in the revenue generating capacity of all of the other crops.”

In 1992, the price of a kilo of tea was 100 percent more than wages. Now it was about 50 percent.

As a result, where tea is concerned, the price of a kilo of tea which was double the wage in 1992 has increased to be 50 percent of the wage as at present.

In the case of rubber, when wages were fixed rubber was selling at 600 rupees and it is now 300 rupees.

Productivity

Poholiyadde said a wage linked to prices and productivity would reward the most productive workers.

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“Therefore we firmly believe that this wage structure is totally outdated and must urgently be migrated into a productivity based model which is also linked to price,” he said.

“This would enable productive workers to earn the maximum possible when there is an appreciation in the price while ensuring that they are duly rewarded for their productivity.”

Poholiyadde said in the case of small holder sector, which now accounted for 75 percent of tea and 65 percent of rubber there was mechanism by factories to reward green leaf suppliers on both the price and productivity.

“We believe the improvement in this sector is mainly due to this structure of payment where the smallholder is paid based on the selling average of the factory – which is to say: price – and the poundage they bring in which is productivity,” Poholiyadde said.

“This has been a very successful model and so we believe that the way forward for the industry should be a wage structure that is firmly linked to productivity and price.

Regime Uncertainty

However smallholders also own the land freehold, which has been shown to lead to rapid rises in productivity when it first emerged in the UK and later also when collective farms were dismantled in the Soviet Union and other communist states.

Russia became a top exporter of wheat, from being an importer, after the collapse of communism and most state intervention in agriculture ended.

Last year as prices fell, small holders had reduced tapping, though plantations firms had continued to tap at a loss.

In Sri Lanka, the state also gets involved in wage negotiations, making the outcome of negotiations uncertain.

Economists call the state interventions that in policy reversals, undermining of property rights including expropriation, regime uncertainty. Sri Lanka’s Plantations sector was a classic case of regime uncertainty, where farms – as well as other businesses – owned by both foreigners and locals were expropriated.

After privatization under a long lease, land from plantations firms continued to be re-acquired to the state from time to time.

“We also believe that there should be proper policy laid down by the Government based on the covenants of the privatization agreements which includes permission for diversification and the institution of a land policy which specifically prevents lands which RPCs have invested substantially in from being acquired, as has unfortunately been the case over the recent past,” Poholiyadde said.

“Such measures would undoubtedly help to attract more investors and larger, long-term investments into the plantation sector as a whole.”

The plantations sector has been steadily losing workers and has resorted to mechanization to boost productivity after privatization.

“Today our workforce has reduced by almost 50 percent in the high-grown tea sector since many of the younger generation does not want to be workers on a plantation,” Poholiyadde said.

“Therefore the only way forward would be for the pursuit of greater mechanization which would also help to increase productivity.”

Other analysts have also pointed out that near plantations bordering the Western province where there is greater economic expansion, more economic opportunities also came up and the fixed wages may play a part in the worker outflow. (Colombo/Sept20/2020)