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Sunday June 23rd, 2024

Sri Lanka’s plantations lose Rs2.6bn in six months ahead of mandated wage

ECONOMYNEXT- Sri Lanka’s publicly traded plantations companies, growing commercial crops such as tea, which have been asked by the government to pay higher wages to workers have lost 2.6 billion rupees in the six months to September amid erratic weather and low commodity prices.

The plantations represented by the Planters Association of Ceylon are now negotiating with the government on how to pay a wage floor of 1,000 rupees a day mandated by the cabinet of ministers.

Government spokesmen have said a wage supplement from the Treasury or some other support may come.

Publicly listed plantation firms have posted losses totaling 2.26 billion rupees for the six months ending September, interim accounts show.

Revenue at regional plantation companies (RPCs) fell 3.6 percent to 28.47 billion rupees in the six months to September, while cost of sales grew 3.2 percent to 28.8 billion rupees, leading to losses at gross margin levels.

The plantations were privatized in the mid-1990s, after running large losses and the Treasury was forking out 400 million rupees a month to pay wages.

Despite the losses, plantation stock prices have risen 3.4 percent from end-March to end-December, although the entire stock market had risen 10.3 percent during the same period with elections and a general rise in business confidence.

Companies that produce tea, which is most labour intensive, usually suffer bigger losses than firms that have more rubber and oil palm. Oil palm is tax protected and tends to draw higher prices and is also less labour intensive.

Rising Costs

Excessive rains have pushed up operating costs in 2019.

“It has been a challenging year for all tea producers,” Planters’ Association of Ceylon Spokesperson Roshan Rajadurai told EconomyNext.

“Plantations were severely impacted by unfavorable weather. Excess rain brought with it additional costs like more chemicals to fight fungal growth, weeds and other problems like soil erosion.

“This condition made plucking harder since workers couldn’t pluck if the ground was too wet.”

Costs have meanwhile also been escalating amid constantly rising wages over the past decade.

Plantation wages grow every two years, following collective agreements signed between RPCs and labour unions.

Wages were last revised in 2019, when the wages were set at 700 rupees a day with a 50 rupee price supplement, increasing from 500 rupees, which had collectively increased costs by 9 billion rupees for all regional plantations companies.

However, the current government has forced a wage high a year earlier, after ordering the planters to hike the minimum wage to 1,000 rupees by March 01.

Research at the Institute of Policy Studies, a leading think tank, shows that under the 2019 wage agreement, plantation workers are paid 3,055 rupees below a ‘living wage’.

A living wage is defined as the ability to procure basic nutrition, water, housing, education, healthcare, and transportation.

Plantations workers usually reside inside an estate are given some additional facilities.

Wage Model

Rajadurei said there is a need to move from the current attendance-based model, in which workers are paid for attending 25 days even if they do not work a full day, to a productivity-based model.

He said RPCs private companies, plantations and trade unions had already agreed to migrate into a revenue cum productivity model by abandoning the daily wage model.

Other countries have already transitioned into productivity based models which gives better incentive to workers and boost productivity, he said.

“The bottom-line is, ours is an industry which is highly regulated on labour but we do not receive a compensating output from our labour force,” Rajadurai said.

“However, at the end of the day, producers remain unsatisfied as we are only price takers and have no other option but to sell at the auction price.”

Under longstanding rules Sri Lanka tea farms have to put up their produce for auction preventing the development of regional brands, some sector analysts have said.

Some tea companies are now selling limited quantities of tea directly, developing international and local marketing skills and brands.

In Sri Lanka workers pluck 16-18 kilogram’s a day, and if they pluck over 18 kilogrammes they are paid an ‘over-kilo’ rate to reward productivity.

Meanwhile in Kenya and India, pluckers average 36-60 kilogrammes a day, and get paid an over kilo rate for plucking above 24-40 kilogrammes.

Critics have blamed plantations for not innovating on production techniques to lower costs as well as downstream supply chains to boost revenue.

Price Takers

Tea prices goes through cyclical commodity price booms and busts, along with other food commodities sometimes linked to Federal Reserve monetary policy.

In Sri Lanka the rupee price may pick up due to currency depreciation. In 2018 the rupee fell from 153 to 182 to the US dollar amid liquidity injections.

A weak dollar tends to push up prices of commodities while tighter policy which contracts credit tends to push down commodity prices measured in nominal currency, analysts say.

The Colombo auction average had fallen from 637.75 rupees a kilo (4.16 US dollars) in January 2018, to 512 rupees a kilogram (2.88 dollars a kilo) by September 2019.

Prices have picked up to 588.8 rupees a kilo (3.17 dollars) by January 2020.

Rajadurei said buyers at the tea auction were not offering good prices for tea leaves, although the buyers were getting premium prices at the world market for their brands.

“We have to deal with the risks of climate change and rising wages, but we are price takers at the auction,” he said.

Tea Board Chairman Jayampathy Molligoda said it is “an integrated productivity and quality problem.”

“We have noticed a gradual decline in quality of the green leaf. The good leaf count, which has come down, needs to increase subsequently.”

Auction prices fall if the plucked leaves are of lower quality.

“If the quality of raw material continues to deteriorate, we are in trouble,” Molligoda said.

Planters in Sri Lanka believe that the ‘Ceylon Tea’ brand would ensure survival of the industry.

However, traditional tea brewing is facing severe competition globally with blended ready-to-drink beverages such as iced-tea and drinks with tea extracts gaining popularity.

Molligoda said Sri Lanka’s planters cannot hold on to a belief that the Ceylon Tea brand will continue to provide dividends.

“People are no longer interested in the country of origin as long as the quality of tea is maintained,” Molligoda said.

“It has come to a point where we have to ask all industry stakeholders to adhere to the parameters of raw material standards.”

“Regarding the price factor, yes there is some truth to the price taker mindset in the context of this commodity trap.”

“However, you cannot generalize because you do receive a higher price if the quality is maintained,” Molligoda said.

Kenya, which had overtaken Sri Lanka as the top tea exporter in the world with CTC (crush, tear, curl tea) is now attempting to break through into the orthodox black tea Sri Lanka is famous for.

Sri Lanka tea industry is now trying to prevent stakeholders from losing out through new plans and reforms maximizing quality and productivity in the product.

“The CTTA has given a roadmap and the Chamber has also contributed with plans, thereby we are hopeful for this new year to turn out better than the last,” Rajadurai said.

The new tea industry roadmap for 2030 envisions growing export earnings to 3.5 billion US dollars after fluctuating between 1-1.6 billion rupees between 2007 and 2018. (Colombo/Feb21/2020)

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India supports Sri Lanka Coast Guard to boost maritime security

ECONOMYNEXT – India has given 1.2 million US dollars’ worth spare parts to Sri Lanka’s Coast Guard to be used in a vessel also gifted to the Indian Ocean Island on an earlier occasion, the Indian High Commission in Colombo said.

“Handing over of the large consignment of spares symbolizes India’s commitment to support capability building towards addressing the shared challenges of Maritime Security in the region,” the Indian High Commission said

The spare parts were brought to Sri Lanka on the Indian Coast Guard Ship Sachet, an offshore patrol vessel that was on a two-day visit to the island.

The spares were formally handed over to the Sri Lanka Coast Guard Ship Suraksha which was gifted to Sri Lanka in October 2017 by India.

India has gifted spare parts for the ship in June 2021 and April 2022 and also provided assistance in refilling of Halon cylinders in January 2024. (Colombo/June23/2024)

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Sri Lanka Water Board makes profits, tax-payers inject Rs28bn

ECONOMYNEXT – Sri Lanka’s state-run National Water Supply and Drainage Board has made a profit of 5.2 billion rupees in the year to December 2023, after a tariff increase despite not getting money for 25 percent of its water it pumps out.

Total revenues went up to 61.8 billion rupees in 2023 from 35.4 billion rupees, a Finance Ministry report said.

Water revenue surged to 58.5 billion rupees from 33.1 billion rupees, cost of sales also went up to 32.8 billion rupees from 23.14 billion rupees, helping boost gross profits from 12.3 billion rupees to 29.0 billion rupees.

Finance costs surged to 14.9 billion rupees from 3.9 billion rupees,

NSWD reported net profits of 5.2 billion rupees for the year, against a loss of 2.7 billion rupees a year earlier.

The Treasury had given 28 billion rupees from tax payer money to settle loans.

During the Rajapaksa administration, macroeconomists who ran the Finance Ministry made state enterprises borrow money from banks through Treasury guarantees listing them as ‘contingent liabilities’, claiming they were ‘off balance sheet’.

The Road Development Authority, which had no revenues to speak of borrowed large amounts of money from banks which were listed as ‘contingent liabilities’ though they were a responsibility of the state from day one, allowing macroeconomists to understate both the budget deficit and national debt, critics say.

The water tariffs were raised by 81 percent after macroeconomists printed money to supress interest rates for flexible inflation targeting/potential output targeting. The currency collapsed after macroeconomists tried to float the rupee with a surrender rule in place.

Non-revenue water for which no money is collected was 25.2 percent. The agency was supposed to reduce non-revenue water. In some districts religious establishments are responsible for non-revenue water, according to an official who said it on condition of anonymity.

The water board is also unable to collect money from some services like common toilets for underserved communities. (Colombo/June23/2024 – Update II)

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Sri Lanka will expedite Indian projects: President

ECONOMYNEXT – Sri Lanka will expedite Indian-backed projects in the island, President Ranil Wickremesinghe told Indian business people after a visit by Indian External Affairs Minister S Jaishankar this week.

“I discussed with Prime Minister Modi the need to accelerate the joint program that we have decided, agreed on. So the major ones are identified, and Foreign Minister Jaishankar came down today [20] to have a discussion. Now this will show the new path we are taking,” president Ranil Wickremesinghe said.

“It won’t be individual projects. We’ve discussed a fair number of them. First is the grid interconnection between Sri Lanka and India, so that sustainable energy can be transmitted to India.

“We have the Sampur solar power project, which is a Government to Government (G2G) project, and a three island project, which is where we hope the ground breaking can take place in July,” he told Indian business people at the 31st All India Partner’s Meet 2024 (AIPM 2024), held at ICT Ratnadipa in Colombo.

The AIPM 2024 which was organised by KPGM Sri Lanka and India provided a platform for both countries to reaffirm their commitment to collaborative projects that promise to redefine bilateral relations and propel socio-economic growth.

“It’s a great pleasure and a privilege to have you in Sri Lanka, in Colombo, holding this meeting. It shows on one hand the close friendship that our two countries have, and on the other hand, the confidence that you have in Sri Lanka.

“Having now survived two difficult years, I must acknowledge that this was possible because India gave us a loan of $3.5 billion. All that will be repaid.”

Cooperation between the two nations needed to be enhanced, particularly in the energy sector, aiming to foster new development for the Northern region, Wickremesinghe said.

“We are looking at developing Palk Straight for wind energy and solar energy, both countries to get together and have a large farm for solar energy, for renewable energy. It also means that we will have a new economy for the northern province, which was worst affected by the war.”

Several Indian-backed projects in Sri Lanka have stalled due to protests from some parties, with some going to courts.

India is helping expand the Kankesanturai port, and is discussing development of the Palali and Colombo airports.

The National Livestock Development Board of Sri Lanka, in collaboration with India’s Amul Dairy Company, is involved in a project to enhance liquid milk production in the country.

The two nations are also considering establishing land connectivity.

Discussions have also taken place regarding expediting the Trincomalee Development Project, which encompasses industrial investment zones and tourist areas.

“Plans are underway to construct a multi-product oil pipeline from Nagapatnam to Trincomalee, pending the final observation report. Trincomalee is poised to become a hub for oil refining, with the development of ports and investment zones, transforming Trincomalee Port into a significant hub on the Bay of Bengal.

“Today, the entire East Coast is being opened up for tourism, with additional land earmarked for hotels in Galle and southern areas. Moreover, there are plans to establish more investment zones across the country, alongside expanding our professional training programs. In these endeavours, we are collaborating closely with India.” (Colombo/Jun22/2024)

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