Storm in a Tea-Cup – Industrial Strife hits Ceylon Tea

Roshan Madawela – www.riunit.com

Traditionally the powerhouse of the Sri Lanka economy, tea still remains a vital component of the island export portfolio and cannot afford to withstand any long periods of industrial strife. In order to maintain its position as the world’s number one exporter, an urgent effort is needed to finalize a settlement to the current dispute and pick-up on falling production at the estates level.

Industrial Strife

December has been a detrimental month for Sri Lanka’s tea sector due to the ongoing industrial action in the plantations and the failure of the estate worker trade unions and the employers to reach a settlement. The bone of contention is once again the daily wage of estate laborers and the rising cost of living. Whilst the workers are lobbying for an Rs300 per day remuneration, inclusive of allowance from the current Rs.180, the employers are willing to accommodate a hike of Rs240 per day. However, the situation remains in a state of flux and at the time of writing negotiations were closing in on a settlement of Rs260.

Earlier this week, The Ceylon Workers Congress (CWC) asked the striking workers to return to work whilst they return to negotiate a settlement with the plantation companies. A senior official at the CWC is quoted as saying that they will resume discussion in order to ‘achieve a reasonable salary increase’ adding that they have ‘communicated the position to the other two unions as well’. The CWC along with the Lanka Jathika Estate Worker Union and the Joint Plantation Trade Union Centre account for over a quarter of a million workers or 90 per cent of the estate workers and are leading the talks. The latest CWC statement appears to recognize that a lose-lose scenario need to be avoided at ay cost.

Already, sector analysts have forecasted lower production for 2006 as compared to 2005 as a consequence of the industrial strife. Scaled-down annual forecasts are now in the region of 300 to 305 million kilos as compared to the 317 million production figure achieved in 2005. The highly sought after mid and high elevation produce is said to be most affected.

However, the production impact could well spill-over to 2007 as plantation managers recon that even in the event of a settlement before Christmas, full recovery will take several weeks as over-grown bushes will need to be pruned and other maintenance matters will need to be attended to. Moreover, the annual Thai Pongal festival is also around the corner and typically between three to five days will be lost during mid-January 2007.

The ‘go-slow’ situation has been compounded by heavy rains that fell until mid-November affecting crop intakes on estates. Consequently November’s tea production figures are expected to show a dip from 25 million kilos to around 21 million kilos.

Under the hammer

At last weeks Colombo tea auction, some 5.5 Mkg came under the hammer of which 0.6Mkg consisted of ‘ex-estate’ teas where excellent demand was witnessed. Improved Westerns appreciated on a margin of between Rs50 – 100 whilst other grades gained significantly by up to Rs40. These upward movements spurred by rising concerns on Sri Lanka’s supply capacity were described as unprecedented by commentators and sellers alike at the auction. Nuwera Eliya teas were also unusually dearer whilst Uva and Udapussallawa gained by a significant margin of Rs30-40 on the day.

The low grown sale witnessed a similar trend with BPO1’s of all descriptions selling at dearer prices whilst OP/OPA’s also gained. Below best remained fully firm as did other sorts whilst OP1 was marginally easier. Poorer sorts remained firm whilst PEK’s of all descriptions were marginally dearer. With regard to the FBOP’s, they closed at higher prices with below best following the same trend. The same pattern was experienced in the BOPF/FBOPF1’s, below bests and other sorts (Bartleet Produce Marketing (Pvt.) Limited).
The world renowned auction located at the Ceylon Chamber of Commerce comes under the operational realm of the nine major brokers that in the island. These are Forbes, Sommerville, Bartleet, Asia Siyaka, Ceylon Tea, Mercantile, John Keells, Commodity and Eastern. Bartleet started operations in the local tea sector in 1904 and recently marked its 100th year in operation.

Tea exporters at the auction also complained of having to react to the unprecedented surge in the in the market whilst also having to meet the urgent shipping requirements of foreign buyers. The key markets of UK, Japan and the CIS support particular varieties of teas like select best brokens whilst BOPFs is supported by the CIS market and other shippers of tea bags. Whilst good demand can be banked on from Saudi Arabia, Dubai, Iran, Turkey and Syria, any persistent supply and/or price issues could lead to the substitution of Ceylon tea by a competitor country.


TEA PRODUCTION OF MAJOR EXPORTING COUNTRIES in Million Kilos
MARCH MARCH JAN/MAR JAN/MAR FEB FEB JAN/FEB JAN/FEB
2005 2004 2005 2004 2005 2004 2005 2004
Sri Lanka 24.80 23.20 72.60 72.20 21.80 24.30 47.80 48.90
North India 38.40 30.90 47.40 38.70 1.30 1.00 9.00 7.80
South India 14.00 10.80 37.20 35.40 11.80 11.50 23.20 24.60
Kenya 24.80 28.80 84.80 88.10 25.80 28.10 59.90 59.20
Malawi NA NA NA NA 6.70 6.30 13.90 11.80
Bangladesh

Total 102.00 93.70 242.00 234.40 67.40 71.20 153.80 152.30
Source: Asia Siyaka

Hard cheese

Faced with a deteriorating supply constraint, the Colombo Tea Traders Associates released a media statement on 14 December 2006, claiming that up to date an estimated Rs1 billion in revenue had been lost due to the go-slow and the obstruction of the transportation of produce to Colombo.

Furthermore, the statement listed out a number of additional consequences of the industrial action that included the jeopardizing of the country’s credibility as a major international tea exporter, negative impact on the quality of teas, the danger of international packers and consumers being compelled to substitute the Ceylon tea with other teas, and serious impacts on the island’s export earnings. Additionally, the situation will have adverse impacts on the cash flow of plantation companies, interfere with the small holder sector by impeding the manufacture of ‘bought leaf’ and will result in serious difficulties in meeting employee wage commitments according to the statement.

For their part, the plantation companies say that they have stretched themselves to the maximum extent by offering a 28 per cent hike, well over the previous wage adjustment average of around 22 per cent. The plantation companies describe the union demands for a 50 per cent hike as intransigent and unviable as it would cost over Rs5 billion per annum.

The short-term impact is that of distorting the market, where exports are facing losses due to their export commitments under contractual obligations, whilst producers also face escalating losses. Any benefit from the short-term price hike is off-set by prohibitively high cost of production resulting form the abnormally low productivity.

From the estate workers point of view, their plight is one that has placed them amongst the most economically marginalized and socially disadvantaged in Sri Lanka since their arrival from South India during the British colonial rule. It is also a fact that the plantation workers have over the years contributed to the national economy through their toil and sweat. Up until the post-liberalization period, tea was Sri Lanka’s number one export.

Politically, the estate workers are backed by a number of political parties and three trade unions, the largest of which is the CWC. The Tamil National Alliance (TNA) party has also thrown some support behind the plantation workers cause. In a recent statement the TNA said that the government of Sri Lanka and the plantation companies must act responsibly to address the plight of the sector workers, expressing solidarity with the workers. The TNA also backed the demand for the workers contribution to be adequately recognized and paid a salary that is commensurate with their work, bring them in line with wages received by other similar workers.

Workers claim the current salary is insufficient for their material survival. Sri Lanka has the largest participation of women workers in tea estates in the world, accounting for around 55 per cent of the work force, followed by India and Malaysia. With regard to children, the legal minimum wage for estate work is 16 years. In addition to income disparities, a number of other dimensions of disadvantage prevail in the sector. These are related to occupational hazards, housing, health, education and social issues. Recent times have witnessed greater activity and support in these areas from government, INGO’s and some plantation companies to alleviate living conditions.


Fall-out

Falling tea exports along with apparels and textiles accounted for a drop in the islands export earning from $607 million in September to $537.3 million in October 2006. Export earnings from tea fell 4.3 per cent in October despite 9.1 per cent growth for the year according to the latest trade data. Earnings for the first ten months of 2006 is estimated at $729.6 million.
Analysts expect the current industrial action and consequent supply drop to impact export figures and foreign exchange earning within the next three months following a time lag. The islands Census and Statistics Department reported this week that the $24 billion economy had grown by 7.4 per cent during the third quarter whilst the rupee hit an all time low of 109.15 per US$, giving exporters a competitive edge. However, cost of living has continued to rise sharply despite the stabilization of global oil prices in recent months. It is this latter issue of high inflation that has forced the estate workers to demand such an unprecedented and sharp wage hike.

Copyrights Reserved (RIU 2006).