Labour Shortage Due to Ridiculously High Tea Plantation Wages, Importing Labour Not the Solution
Posted on August 30th, 2016
Dilrook Kannangara
There is no shortage of labour in Sri Lanka as a whole. What is being experienced is shortage of labour in certain business sectors while excess labour in other sectors. This shifting of labour between industries should happen and the government must facilitate it. Importing more labour will worsen the situation with rising unemployment and unrest and worsening of balance of payment. Local businesspersons with poor economic knowledge argue importing labour is the solution without realising the economy-wide impact it creates though it will give them higher profit. The government must take a national view of the economy than only look after profit concerns of UNP voters.
The Unprofitable Tea Industry Draining Out the Economy
Tea plantations is an unprofitable industry today. A collective of plantation companies lamented that they are making loses repeatedly mainly due to lower tea prices in world market and very high labour costs. This is only the tip of the problem. Real losses of tea plantations are much higher when massive government subsidies are taken into account. Annual direct subsidies to tea plantation industry is about $300 million (45 billion rupees) and indirect subsidies in terms of workers’ welfare is another $100 million (15 billion rupees) a year, at the very least. Added to the losses, tea plantation industry is a $600 million (90 billion rupee) loss making industry. When the cost of destruction of catchment areas, heavy water usage by plantations and the resident population to man the plantations and opportunity cost of cultivation of edible crops factored in, the real losses will be even higher.
All this is for a $1.3 billion foreign currency earning from tea exports. It is not worth it. When direct imports (fertilizer, machinery, fuel, shipping, vehicles) and indirect imports (goods and services of workers and executives) by the tea plantation industry are factored in the net export value is significantly reduced.
Due to both these factors – tea industry creating losses for the economy and its real net foreign earning being low – the government must forthwith withdraw all subsidies, direct and indirect, to the tea industry. Allow unprofitable companies go bankrupt. This will move factors of production now tied into an unprofitable industry into profitable ones. Land will be released along with labour, capital and entrepreneurship. Profitable companies (without government subsidies) will survive. Their net export earnings will be significant.
Shifting of Labour
Labour force released by the collapse of unprofitable and environmentally destructive tea plantations will be absorbed by labour-short profitable industries. This cannot happen today because loss-making plantation companies continue to operate under government (taxpayer) subsidies paying the highest labour rate in the country to plantation workers. Even their social welfare is paid by the government and companies! These ridiculous benefits (the highest in the world in US dollar terms in the tea industry) have tied these workers to this bankrupt industry. Once these companies stop operations, they will search for labour jobs elsewhere. This is the solution to labour shortages in other industries.
However, not all conceivable industries are profitable. Some are not profitable given available factors of production. Government intervention (including importing labour from India) will only worsen their losses and the burden on the economy. These industries should be allowed to go into bankruptcy so the factors of production tied by them will be released for profitable industries.
The Middle East provides huge economic opportunities for women currently working in the plantation sector. That can also boost the balance of payment and external reserves of the country without any burden on the economy. Their net earnings will also be higher than now.
Importing Labour Makes No Economic Sense
Although Indian labour is cheaper than local labour, they take the earnings with them to their families in India. Sri Lanka’s foreign reserves will drop and balance of payment will worsen as they take money from the country. This will worsen the current balance of payment crisis and the debt crisis. Although there is money to be made for unemployed Indian workers in Sri Lanka thanks to their cheaper rate, in the long term this diminishes. Flight ticket cost is significant and cost of living in Sri Lanka is higher than in India. Taxpayer funded government hospitals, roads and other facilities will have to cater to Indians which will be an added cost burden. All these added costs will make it unprofitable for Indians to work in Sri Lanka in the long term. Proposed rail link may reduce the cost to Indians but the loan, interest and running losses of the railway will have to be paid by Sri Lanka.
Professional labour imports make better economic sense to both Indian workers and Sri Lankan employers. There is a severe shortage of doctors, construction engineers and ICT professionals in the country (due to brain drain). However, Indian imports will worsen the situation. Even more locals will leave the country and will be unable to find suitable employment. Drain on foreign reserves will be even higher as they earn and repatriate more than labourers. Sri Lanka and and India have a double taxation treaty which means Indian workers and companies in Sri Lanka will have a different more favourable tax regime. Transfer pricing will be used to create losses in Sri Lanka while showing a profit in their Indian head office.
Post-ETCA Economic Disaster
After ETCA, the balance of payment will worsen as more profit and wages are repatriated to India. Reciprocal benefits won’t be available to Sri Lanka as current trade balance with India indicates. More will be borrowed from foreign sources to close the trade deficit. State expenses will rise sharply to sustain these borrowings, cater to Indians patronising state hospitals, administrative services, roads, etc. ETCA is all about shifting India’s burden to Sri Lanka. No successful Indian worker or professional will want to work in Sri Lanka as they must be already employed in India. Alternatively, suitably qualified Indian professionals migrate in drones to developed countries. That leaves only fraudsters and unproductive people to seek work in Sri Lanka. Hosting and housing them will be a burden for Sri Lanka. Soon after ETCA, Sri Lanka will end up in a worse situation than Greece.
Lankan businesses that hope to thrive by imported Indian labour are in for a crude shock. Indians will set up rival businesses in Sri Lanka that will have tax advantages not available to Lankan companies. They will be closer to better quality Indian imported workers than Lankan companies. They will soon takeover the market from local businesspersons. It will be game over for most local entrepreneurs.
Unemployed, severely taxed on both consumption and earnings, hopeless of getting jobs at desired salary levels and socially marginalised, the local population will protest. If their interests are not regarded and democratic means of change of policy cannot be achieved, violence will erupt. Unlike 1971 and 1989, this level of violence cannot be put down by war crimes and excesses. In previous instances, only a fraction of the population supported JVP’s bankrupt political and economic policy. ETCA will turn most of the population against the government. Pro-Indian stance will isolate the country from its largest donor and investor – China. It will be one horror story if ETCA is signed without regard to these.
August 30th, 2016 at 5:28 pm
Dilrook, Thank you for this eye opening article. I agree that even though the tea industry was profitable at one time now it should be reviewed. As JVP said long ago we should uproot the tea bushes and plant Bathala! I agree with you about the ETCA too. Hope you saw the article on “Indian invasion and colonization of Sri Lanka – A concern for all Sri Lankans”. As Dr. Padeniya points out the most unqualified doctors from India had come and had been working in a Private Hospital and a Cabinet minister had died as a result of their malpractices.
August 30th, 2016 at 6:18 pm
Thank you Cerberus.
In addition, what is not discussed is the huge economic drain on account of heavy water usage upstream and catchment areas. Four major rivers start from a large single catchment basin. Plantation and other human activity must be restricted in these places. People in North Central and Eastern provinces in addition to western and southern provinces suffer in drought. British exploitative planters could not care less about paddy farmers! But that should not be the case today.
Yes I saw that article. Obviously crooks and useless doctors will come to Sri Lanka. All others have much better economic prospects in India itself and if not in western countries. It will be the Indian medical council that will administer them. It is a disaster waiting to happen. Indian doctors are already involved in kidney heist. After ETCA, Sri Lanka will be a choice destination for Indians for kidney transplant. Poor and unemployed locals will have to sell their kidneys to survive.
August 30th, 2016 at 7:48 pm
Dilrook,
Thanks for writing this article which supplements Dr. Chandana Jayalath’s recent article on the same topic, and my comments on his article.
Responding to Nimal’s comment on the shortage of construction labor, I presented the tea plantation industry as an example of how I would address the shortage of labor.
Briefly, rather than abandon the tea growing business, I proposed REDUCING the current reliance on poorly paid manual labor, using fewer but highly-trained and well-paid workers to INCREASE the PRODUCTIVITY of labor by supporting the labor with additional investments in labor-saving greatly more-efficient power equotient and INNOVATIVE tea growing and processing methods.
The basic idea was that the INCREASE IN PRODUCTIVITY would more than offset the investment in equipment and payment of higher wages.
I also proposed DIVERSIFICATION of the PRODUCT MIX in each business to protect the business against downturns in the markets for the main product, in this case TEA.
By doing that, we enable the workers to earn higher wages, hopefully comparable to those that they would earn elsewhere, perhaps as unskilled workers in foreign countries.
In that way, we not only address the shortage of workers in the plantation industry, but also prevent the displacement and permanent export of our citizens abroad, and the importation of foreign unskilled workers to our country. The latter will in time become domiciled in Sri Lanka creating a new problem for Sri Lanka similar to that crested by the British when they imported Tamil laborers willing to work for a pitgance into Sri Lanka.
As YOU have said, those tea estates that cannot, or are unwilling, to change their business model SHOULD BE ALLOWED TO GO OUT OF THE BUSINESS without burdening the economy with Govt subsidies, or being allowed to import even more poorly paid foreign workers to the country to CREATE a NEW UNDERCLASS and aggravate our ethnic problem and political situation.
BASICALLY, if a business cannot afford to pay a GOOD WAGE sufficient to ATTRACT CITIZEN WORKERS without importing foreign replacements, then it SHOULD NOT SURVIVE.
INSTEAD, those resources should be converted to an ALTERNATIVE USE that is NEEDED, PROFITABLE, STAFFED by CITIZEN WORK FORCE, and consequently is VIABLE.
Importation of large numbers of foreign workers into Sri Lanka to further displace and replace our citizens in the workplace is an EMINENTLY ASININE POLICY!
August 30th, 2016 at 11:20 pm
Exactly Ananda.
But I don’t share your conservative view on tea industry. There are enough reasons to cut down all subsidies to the industry and let them survive or go out of business. Many tea smallholders will survive as they maximise labour productivity. I also want catchment areas, and surrounding areas and upstream water users cleared as water becomes increasingly valuable and droughts become harder. For that the tea industry must be substantially reduced.
It will also reduce the political clout of powerful political parties that claim to be kingmakers. Although they are not extremists unlike their dry zone cousins, they do enforce the Indian view from within the government. When these people are dispersed, their political clout will weaken.
August 31st, 2016 at 3:09 am
Dilrook,
you said: “But I don’t share your conservative view on tea industry. There are enough reasons to cut down all subsidies to the industry and let them survive or go out of business. Many tea smallholders will survive as they maximise labour productivity. I also want catchment areas, and surrounding areas and upstream water users cleared as water becomes increasingly valuable and droughts become harder. For that the tea industry must be substantially reduced.”
In addition, the hitherto completely neglected problem of the upcountry peasantry must be addressed at the same time. It has been neglected far too long. The forced demographic change made by the British has made the descendents of the people dispossed by it still in a pitiable predicament.
August 31st, 2016 at 8:33 am
There’s no simple solution to this labor shortage in the tea industry.Two of my friends who own two estates,just less than 50 acres in the finest tea growing area are struggling to break even and one of them mare working for me in Kandy,keeping an eye on my building complex,collecting the rents,maintenance etc just to cover up their shortage of income.Yet he needs money for the estate maintenance and hope to give him an interest free loan to put better accommodation for the three working families or they will leave for middle east and that what’s some are doing,coming back to SL to open their own little shops. Today I was amazed there were 3 such chemist shops in Katukelle kandy within 50 yards,own by the young of the former tea workers,when we went to buy some medicines.Shops are very busy and in one shop employed nearly 20 young and my manager who also own the small tea estate was able to communicate in Tamil to find out.They too sell hardware,whole sale etc.So there’s no incentive for them to work as laborers.
Sadly we are yet to see our Sinhalese matching them and we must blame our own stupidity and lack of ambition.More I think about I get very angry…
I am hoping to open a small tea shop in the expensive belgravia using Polish,and Rumanian people,perhaps a Portuguese and sell our kokis,athiras,and even halape pretending that it was one time remnants of the Portuguese colonial times in Sl.Hope my con will fool the people as the Indian government opened a grand tea room next to their visa office with their own people,sadly hardly the locals patronized it and they had to close.
My ultimate aim is to help my two tea holders.I will also give them a bit to put at lest 3 guest rooms in their lands that may occupy by my friends all over the world and locals in UK.I will bs to say some important past colonial leader set foot in the place to entice them to the guest house and even at this small teas shop. in London.At the same time I will sell their packeted tea to the locals with more bs.At least I could help two small holders.
If all you patriots get together in their own adopted countries to sell our tea would be great,sadly the tea sold in the super market is very good and only a bit of bs to touch their emotions will have an edge.My burger friends who just visited me from Australia might help another small holder.
I made a offer to buy the tea centre in London but was sidelined or ignored due to the usual obvious reasons.