The regional Plantation Companies (RPCs), which manage over 80% of tea land in the island’s central hills, their private school-educated planters and the leathery-skinned pluckers of Indian descent are the crumbling fortress of the prestige of Ceylon Tea. These firms – many controlled by some of the most storied companies in the island – have been collectively losing money since 2011. Many of these firms also have rubber plantations, and those managing land in lower elevations have diversified into oil palms, a profitable crop with growing demand and requiring little labour or maintenance.
RPC fortunes have been volatile and on a declining trend since around 2007. The financial decline accelerated after 2011, as costs rose at a faster clip to the trend average since 1992. At the Colombo tea auction – where the commodity’s sales are priced in local currency – high-grown or highland tea prices have been rising. In the five years since 2010, this rise was due to the rupee’s 18% deprecation and not because buyers overseas were paying higher prices.
In their heyday in the 60s, Sri Lanka, or Ceylon as the tea industry likes to refer to the island, had a 20% global market share and contributed a third of national GDP. The nationalization of the industry in the early 70s started the erosion of that glory. Ceylon tea’s global market share was down to 9% by the early 1990s when nationalised estates, mostly in the central hills, were leased back to private sector firms for management.
In 1992, the special Land Reform Commission Act No. 17 established 23 regional plantation companies, allocating to them state-owned tea, rubber and some coconut estates. All but two of these firms were privatised and 17 of them are currently listed on the Colombo Stock Exchange. These firms employed the best industry talent and had plenty of money to invest to improve yields 40% within three years after their takeover of these loss-making estates.
[pullquote]“The land is owned by the government, and theoretically, the bush is owned by the company. Here, the crop is owned by the worker”
– Roshan Rajadurai[/pullquote]
To understand the challenges facing tea and the plantation companies that grow it, it’s important to separate these from the RPCs of other crops like rubber and oil palm, and also from smallholder-controlled plantations, usually someone’s backyard, which account for 72% of the island’s total tea crop. Economics of rubber plantations are also dismal. However, oil palm does rather well. Smallholders grow most of their tea in the lowlands where it is a relatively new crop. Lowland tea land is more fertile – having been brought under agriculture in the last three decades – and because they are small plots, can be managed by a family, avoiding the overheads of a large plantation. These family plantations sell their plucked tea leaf – called green leaf in the industry – to wholesalers or factories at prices benchmarked to Colombo auction prices.
In 2014, the RPCs lost Rs3.5 billion, taking their accumulated losses in the four years since 2011 to Rs8.7 billion. In 2015 too, the RPCs are estimated to have lost over a billion rupees. Since their creation in 1992, investors in RPCs have lost a net Rs4.97 billion up to 2014. When estimated 2015 losses are added, that number rises over Rs6 billion.
“Sooner or later, one by one, [the RPCs] are going to start defaulting,” Roshan Rajadurai, chairman of the RPCs’ representative body, the Planters’ Association, says.
Its worst year was 2011, when RPCs recorded Rs6.5 billion in losses. That year, producers lost Rs49.50 for every kilo of made tea.
The industry thought this was an exception and it couldn’t get worse, but they were wrong. By June 2015, they hit rock bottom, losing Rs77 on every kilo of highgrown tea produced at an RPC. Averages have been hiding the scale of the problem. The RPCs’ overall bottomlines are impacted, often positively, by other crops and tea grown at lower elevations.
The Planters’ Association says its losses in 2015 are slightly over a billion; however, when the industry lost Rs49 for every kilo of highgrown tea in 2011, the RPCs’ overall losses topped Rs6.6 billion.
In the 24 years RPCs have managed highland estates, tea grown there has lost money on 15 of those years. On eight years, the crop made money; data for 2010 is not available. Per kilo losses started hitting worrying proportions in 2009 when it hit Rs33 a kilo. In 2012, they lost Rs25 a kilo, in 2013 Rs37 a kilo, in 2014 Rs38 and a record Rs76.6 a kilo in 2015.
There are two worrying features about the downturn in tea. One is the financially crippling impact its decline has on RPCs that have a majority of their leases on tea estates in the central hills. Second is the potential impact on the over one million people who live on RPC-controlled estates and their livelihoods. The RPCs have also received financial assistance when they were unable to pay salary advances to their workforce ahead of the traditional New Year.
In the past, the government had accepted Planters’ Association proposals for subsidized interest rates and a grace period before capital repayments start, on loans to finance replanting.
It’s unusual for established export industries to receive subsidies in poor countries because these benefit consumers elsewhere in the world. Only fledgling export industries usually enjoy such coddling, to help establish them in international markets. But the tea industry is 150 years old. The fact that so many people depend on the industry may be what compels the government to act?
Five percent of Sri Lanka’s population lives in tea estate line rooms managed by these firms. The RPCs employ over 196,000 plantation workers. Over time, the RPCs have come to be held accountable for plantation workers’ access to free housing, free healthcare and convenient education for the children on the estates. If highland tea estates are unable sustain their workforce, one million people will be affected directly.
“Where are these people going to get employed? Where are they going to get sustenance?” Rajadurai asks.
A
century and a half ago, an influx of South Indian workers to “Ceylon” twice a year was a given. They sailed 22km of sea and then walked nearly 100km more to their work in the central hills. They cleared land or harvested a crop, as much as they could and as quickly as they could, in order to get back home as soon as they could. This was when Sri Lankan planters grew coffee.But coffee in Sri Lanka failed, and when the plantations began moving into the commercial manufacture of tea, the obvious solution for the lack of skilled pluckers working year-round was to import them from famine-ridden South India with promises of sure employment and substantial remuneration. Descendants of that generation, who now form the vast majority of pluckers on an estate, currently earn Rs620 a day plus bonuses for any amount of green leaf plucked over the required minimum (usually 16-20kg). With the addition of EPF/ETF and gratuities, housing, healthcare, education, and other benefits, managements claim that a single plucker already costs the RPCs Rs1,100 a day.
“The plantation sector is a unique socio-cultural community with specific political loyalties,” Rajadurai explains the wage-cost problem, “They are a ready-made box of votes.”
Come election time, politicians promise estate workers improved facilities and increased wages as they contest for the prized block-vote. The “monolithic power” of the unions then “wrest” the manifestation of these promises from the RPCs.
RPCs crossed the point of no return during the six years to 2013 when the average daily wage of a worker rose by 113% to Rs620. The RPCs have continually attributed the hole in their pockets to the nearly 60% of production cost accounted for by the pluckers. Political pressure has “coerced” regular wage hikes every two years, the RPC managements say, maintaining that worker productivity must now increase in order to set off the heavy borrowing that has kept them afloat so far. If wages are to continue as they are, the companies cannot expect to break even, unless worker productivity is doubled to 32kg of green leaf plucked by a worker per day. To justify an increase in daily wage would require much more.
It has been maintained by the Planters’ Association that worker productivity in Sri Lankan estates is much lower than in other countries, and that productivity has never been a part of the equation for calculating minimum wage. Rajadurai is convinced that Sri Lankan pluckers can do better.
“Right now, they pluck an average of 450kg a month. I think we can go up to 630kg,” he says.
But despite years of harping on low productivity and educating staff on the importance of plucking, the RPCs have failed to entice pluckers to increase productivity – even for the extra plucking bonus that allows a handful of the harder-working staff to double their usual month’s salary. The general agreement among the RPCs is that if anything must change, it is the payment model. In Kenya, workers pluck an average of 48kg green leaf a day, more than double the Sri Lankan rate, for a wage equivalent to Rs443.30 – only two-thirds of what RPCs pays their workers. In Assam, India, where plucking averages of 26kg per person per day are nearer to but still higher than Sri Lanka’s, daily wages amount to the equivalent of Rs202.35 – a mere one-third of the rate in Sri Lanka. Exorbitantly high wages result in Sri Lanka’s cost of production per kilo of green leaf being four times that of Kenya and five times that of Assam. Considering the facts, the RPCs estimate that, if they are to continue paying these globally high wages that take up a large portion of their cost of production and still break even, auction prices must rise dramatically, nearly double over, to more than Rs600.
The world’s biggest buyers of Sri Lankan tea are Iran and Russia. Twenty two percent of Sri Lanka’s tea exports in 2013 went to Iran and 14% to Russia. But UN sanctions re-imposed on Iran in 2012 slowly took their toll, while United States’ embargo on Russia, the weakening Russian ruble and falling oil prices caused auction prices to plummet in an unprecedented fashion in the latter three quarters of 2015. With the lifting of sanctions on Iran in January 2016, the tea industry expects a slow and steady pickup in auction prices. But increasing auction prices in general guarantees no light at the end of the tunnel for upcountry tea. Iranian buyers prefer the dark colour and strong flavour of Sri Lanka’s low-grown varieties that come out of smallholder properties in Galle and Matara, while Russian buyers are the ones to make premium bids for vast quantities of the RPCs’ upcountry tea. With the Russian ruble falling, there is hardly a chance that produce from cooler climes will see much glint of gold.
S
ri Lanka’s hills are ideal for growing tea. Gentle sunlight in the mornings and soft showers by afternoon coaxthe dappled grey and brown stalks of the tea bush to produce brightly coloured and succulent leaves with a subtly but distinctly flavoured hot brew.[pullquote]Since their creation in 1992, investors in RPCs have lost a net Rs4.97 billion up to 2014. “Sooner or later, one by one, [the RPCs] are going to start default ing,”
– Roshan Rajadurai[/pullquote]
But the Maha Uva estate, 300 hectares of tea land in Ragala, approximately 15km northeast of Nuwara Eliya as the crow flies, has hardly ideal weather. The north-eastern monsoon visits between December and February, but a drought hits the estate from May to September bringing only the strong upward-sweeping winds of the south-western monsoon. The extreme weather makes the Maha Uva tea bushes very unhappy indeed, and turns its leaves an unhealthy leathery texture. Maha Uva had no competition for the title of Ugly Duckling from among the 11 estates under Mathurata Plantations management.
“Our tea prices are the lowest in the country, and we had the lowest yield of all the western estates,” general manager of the up country estates for Mathurata, a sub-subsidiary of Browns Capital PLC, Subhash Abeywickrama says.
At times, the Maha Uva yield was as low as 700kg of made tea per hectare of cultivatedland. The measly yield generally fetched half a dollar less than the average western high-grown tea. In January 2014, Maha Uva made a loss of Rs5 million, and in February of the same year, the loss came to Rs6.2 million. And then, “for the first time in history”, Maha Uva made a profit of Rs995,799 in January 2016. The magic potion that turned everything around is something Abeywickrama, along with the rest of the management at Maha Uva, call “outsourcing”.
In the last quarter of 2015, management at the Maha Uva estate, after much deliberation and planning, took a leaf out of the Tea Smallholders’ operations model of small-time entrepreneurs producing and selling their own leaf. Maha Uva set the process rolling in 2014, discussing the proposal with staff and creating awareness about the initiative. The company would lease out two-acre blocks of its estates to
staff on a five-year contract agreement. Lease-holders would be held responsible for maintaining the tea bushes and land, the harvest from which they would sell to Maha Uva estate. Terms of the lease would state the right of the company to reclaim properties that weren’t maintained according to management expectations. Management, in turn, would begin taking on more stringent supervision, to make sure things stayed on track.
“When they first told us about this, we were very worried that there would be no work,” Shelton, once a factory employee who now holds a lease for part of the Maha Uva property, says. “We thought we would get no pension and not even have work. But now we realize it’s actually better this way.”
Shelton has been working on Maha Uva estate for 10 years, and until 2015, he was a registered employee receiving EPF/ETF and other benefits, just like both his parents before him. Over the generations, they would routinely report to duty at 8.30am and work under the watchful eye of the field officers until 4pm, to take home something in the vicinity of Rs14,000 at the end of the month.
In October 2015, Shelton signed papers with Maha Uva management and stopped reporting to work. Instead of working 8am-4pm, he now heads to his block in the morning, to clean, weed, level and harvest from his garden. His retired mother, once an expert plucker and lately accustomed to “just sitting at home”, now goes to the field with him to help with the farming. Shelton’s father is now too weak to work and is rather fond of his two-anda-half-year-old grandchild, so the two of them stay home together. By lunch time, Shelton and his mother are back home and able to sit down together for a meal, after which he might head leisurely to the boutique for purchases or towards the town for other work.
“We take advances during the month, and they give us fertilizer; so after deducting all of that, I got Rs22,000 in April,” he says. “I couldn’t save any money, but I paid down Rs5,000 to release our gold.”
Shelton is positive that he can earn even better for May, and expects that he will be able to retrieve the gold from the pawning agent soon. The last six months have given Shelton’s family much hope. A new baby is expected to arrive soon, and when his wife takes her maternity leave, she would have already completed 10 years at a garment factory in Kandy, where she earns Rs10,000 a month. They have been discussing the future. Shelton’s income last month was the equivalent of what they both took home on average each month last year, and they expect it to get better.
“Maybe after the baby, she can stop working at the factory and we can work on this field together,” he trails off shyly. “We haven’t decided yet.”
Stories like Shelton’s are becoming common on Maha Uva estate, and more and more workers are getting interested in the concept. Soon, the whole estate will run on the “outsourcing” model, as they call it. “In the beginning, convincing workers was a long process,” General Manager Abeywickrama admits, describing repeated “interference” of worker trade unions and suspicion of the whole project. It took three months to effectively communicate the possible benefits of the new system, but the results after implementation were immediate. By April 2016, yield of made tea per hectare per month had risen 200% from 36,000kg in November the year before to 106,000kg. Despite very low auction prices, the estate declared a Rs3.2 million bottomline that month, allowing the “worst” estate in the company profile to contribute 6.4% to profits, off of 8% of cultivated land.
“Maybe the field is producing more crop, maybe the worker is covering more ground, that is a possibility,” Rajadurai concedes, “but it is also a real possibility that the workers can harvest more than they do now. And in terms of enhanced earnings and improved quality of life, this is the best short-term way out.”
Abeywickrama associates the turnaround at Maha Uva with a “mentality change” of the staff on the estate.
“They are the owners of the given blocks.”
The solution, which is in fact practiced on a number of other estates, sometimes called by different names, addresses the fundamental problem behind low productivity: ownership. If the current population trends on RPC-owned estates are anything to go by, employee numbers will continue to drop as potential pluckers leave the estates and find work in cities, putting greater burden on those that continue to work the fields. Management insists that they have progressed from the days of the “coolie” label, but Rajadurai admits that workers still see plucking as “menial work”. The Ordinary Level exams are the getaway scheme for many aspirational young men and women coming out of the estate communities, shunning the work of their parents and pursuing greener pastures as shop assistants and stewards at hotels. They no longer want to identify with the estates.
“The only reason they come back is when the girls get married,” Rajadurai says, “because from conception to birth and up to five years old, we look after their children.”
Young women return to the estates and sign on as pluckers, doing the minimum required to earn a regular salary and be entitled to the benefits of healthcare and education for their new children. The plucking bonuses have no significance to those who have learnt to “game” the system, in Rajadurai’s words.
“With the outsourcing, the workers received their own tea land which they now have a sense of responsibility to maintain,” Abeywickrama explains. “They pay more attention to their work and are enthusiastic about maintaining the bushes and harvesting the green leaf.”
Maha Uva estate is one of Rajadurai’s favourite examples of a concept the Planters’ Association has been pitching with greater and greater insistency as a short-term solution to the RPCs’ highland tea problem: revenue sharing.
On RPC estates, pluckers work in “gangs”, moving along individually assigned “rows”. The workers in a gang of 30 are assigned row 1 and will finish that off and move to row 31. If the plucker assigned row 2 doesn’t show up on a particular day, then the plucker on row 1 will pluck both rows 1 and 2. On average, a plucker works through 1,200 tea bushes a day in this manner, taking intermittent rows.
The only change the revenue sharing model will bring to estate operations, Rajadurai says, is that instead of working in rows, pluckers will work in blocks of 1,500 bushes on average, and sell the green leaf to the estate, instead of just handing it over.
“The land is owned by the government, and theoretically, the bush is owned by the company. Here, the crop is owned by the worker.”
The Ceylon Workers’ Congress has temporarily suspended its agitations for a wage hike, but not accepted the Planters’ Association proposal either. Negotiations on the details of any possible changes to the wage model have not yet begun. Although the RPCs need a much more impactful long-term solution to recover, he believes revenue sharing will slow their decline and buy them some time.
“A completely irreversible diminution” is what Rajadurai calls it. “The writing is on the wall. When you are spending Rs450 on average and earning only Rs400 for 24 months in a row…Not a day more.”