Sri Lanka's Tea Producers Warn 70% Wage Hike Threatens Industry Stability

Sri Lanka's tea producers are sounding the alarm over a government-mandated 70% wage hike for tea plantation workers, warning that the move could destabilize the industry and undermine its profitability. The increase, which raises daily wages from 1,000 rupees to 1,700 rupees, is set to take effect next month.

The wage hike will increase tea production costs by 45%, according to the Planters' Association of Ceylon (PAoC). The industry, already struggling with skyrocketing costs for fertilizer, fuel, and power resulting from the country’s financial crisis, now faces an additional annual burden of 35 billion rupees to cover the wage increase.

Roshan Rajadurai, spokesperson for the PAoC, criticized the decision as being made without proper consultation. "This is unsustainable and unfair. This decision was made without proper consultation and will result in the quality of Sri Lanka's tea declining," he said. The PAoC argues that Sri Lanka's key rivals, India and Kenya, have lower prices and higher productivity, which could make Sri Lankan tea globally uncompetitive.

Why this matters: The stability and profitability of Sri Lanka's tea industry have significant implications for the country's economy and the livelihoods of thousands of workers. If the industry is destabilized, it could lead to widespread unemployment and economic instability.

The Labour Ministry has warned that plantation companies refusing to comply with the wage hike could be taken over by the government. Minister of Labour and Foreign Employment, Manusha Nanayakkara, emphasized the need for estate owners to provide a reasonable wage to workers, especially given their sacrifices during the COVID-19 pandemic.

Sri Lanka's financial crisis, triggered by a severe shortfall of foreign exchange in 2022, has quadrupled costs for the tea industry and plunged around a quarter of the population into poverty. The tea industry, which employs approximately 615,000 workers and exports about 95% of its 250 million kilos of tea production annually, is seen as a vital sector for the country's economic recovery.

The PAoC has suggested a shift to a productivity-linked wage model or a revenue share model, which aligns worker compensation with productivity and revenue earned at auction. They argue that this approach would be more sustainable and fairer for both workers and plantation owners.

The decision to increase wages has also raised concerns among small and medium estate owners. Ushan Samarasinghe, Founding General Secretary of the Medium Scale Tea Estate Owners Association, warned that smallholders might be forced to switch to other crops if the government does not identify new markets to generate additional revenue. "The government needs to do their homework first; they need to show us new markets, so we can earn this additional revenue to pay our employees. Otherwise, they will be forced to move into other crops," Samarasinghe stated.

The wage increase is approaching, and the tea industry faces a critical juncture. The government's decision, while aimed at improving worker livelihoods, could have unintended consequences that threaten the stability and profitability of one of Sri Lanka's most vital economic sectors.

Key Takeaways

• Sri Lanka's tea producers warn 70% wage hike will destabilize industry.
• Wage hike to increase tea production costs by 45%.
• Industry already struggling with high costs for fertilizer, fuel, and power.
• Wage hike could make Sri Lankan tea uncompetitive globally.
• Government warned that non-compliance could lead to takeover of plantation companies.