Contract Farming Could Save Sri Lanka’s Tea Industry – Analysis
Posted on December 26th, 2022

By  courtesy  Eurasia Review

High production costs, poor practices and low labor productivity call for a paradigm shift in the management system 

Sri Lanka’s tea industry is in crisis. The cost of production of the brew that cheers” is higher and labor productivity is lower in Sri Lanka as compared to other tea-producing countries like China, India, Vietnam and Kenya. 

The cost of production in Sri Lanka is US$ 3.11/kg, while it is US$ 1.35 in Bangladesh, US$ 1.25 in India, US$ 1 In Kenya, and US$ 0.75 in Vietnam. Labor productivity Lanka is about between 18 and 22 kg per day in Sri Lanka, in contrast to 30 to 60 kg per day in the competing countries. In 2018, the average productivity of tea in Sri Lanka was 1500 kg/ha/year, while in India it was 2227 kg/ha/year and 2104 kg/ha/year in Kenya.

Managements of plantations in the corporate sector (called Regional Plantation Companies or RPCs for short) blame the workers’ lack of commitment to putting in their best before demanding higher and fixed wages. They cite the high cost of production in Sri Lanka for their inability to pay higher wages. 

But representatives of the workers say that labor productivity is low because of low wages, low motivation and bad working conditions besides the low yield from the land due to the very slow rate of replanting. Old tea bushes contribute to low labor productivity.

After a long struggle, the workers were granted a wage of Rs.1000 per day in 2021. But Prof. A.S. Chandrabose and Dr. R. Ramesh allege in their article entitled: Tea Plantations At Crossroads: Rs 1000 Wage Hike & Emerging Dilemmas that the grant of Rs.1000 as the minimum daily wage has proved to be a mirage because the RPCs have not implemented it.

According to the new wage, those who work for 20 days in a given month should get around Rs. 17,000 to Rs. 18,000 with all the statuary deductions. Thus two people from a family working in the estate will have a combined monthly income of around Rs.34,000 to Rs.36,000. This represents a 40% increase in monthly income. But managements in several estates are not in a position to provide the sufficient number of working days for workers to get the maximum benefit from the new wage, Chandrabose and Ramesh point out. 

According to the authors, the RPCs calculated the worker’s wage rates based on their productivity. Payments were calculated based on the harvest collected at the rate of Rs.40 per kilogram. Thus, the total payment for 437 Kilograms of green leaves plucked by the worker in the month of May 2021 was (Rs.40 x 437 Kgs) Rs.17,480 which was the total payment for that month. But deductions were Rs.6,960 for food items that were purchased from the corporative shop, bank loan etc. and the final take home money was merely Rs.10,520.” 

This is less than the Sri Lanka minimum wage. According to Institute of Policy Studies researchers Manoj Thibbothuwewa, Priyanka Jayawardena and Nisha Arunatilake, in 2019, the minimum living wage was set at Rs.23,785.  

However, an encouraging aspect of the situation in Sri Lanka is that labor productivity is much higher in the smallholdings compared to the corporate sector-managed estates. Most smallholdings are doing better because they use family labor, which keeps the costs low and ensures the personal involvement of the owner in cultivation. The latter attribute ensures greater care and higher yields follow.

Former MP and diplomat, R.Yogarajan, has suggested leasing out unused land in the RPC estates to workers to produce tea for their respective companies. The ownership of the land will rest with the company concerned but the worker will earn a living by cultivating it, he explains. In March 2021, the then Labor Minister, Nimal Siripala de Silva, had proposed that the 39,000 hectares of uncultivated and abandoned lands with the RPCs should be distributed among estate workers and others for cultivation.

It is felt that such a contract farming system” will ensure the workers’ commitment to the tea industry, encourage them to work hard and also stay put in the estates. Given the bad conditions in the plantations workers (especially youngsters) tend to seek work outside the estates. The vexed wages issue in the RPCs will also be mitigated.      

In their paper Social Development and Labor Productivity: The Problem and a Solution for the Tea Plantation Sector of Sri Lanka, Sajitha Dishankaa and Yukio Ikemoto of the Department of Business Economics, University of Colombo, and the Institute for Advanced Studies on Asia, The University of Tokyo, strongly argue that if the workers are not producing enough it is due to their poor socio-economic condition. Therefore, there is an immediate need to uplift the social well-being of tea estate workers, they argue.

According to the survey carried out by the Census Department in 2016, the percentage of people living in poverty was 1.3% in the Urban sector while in the Rural sector it was 3.3 % and in the Estate sector it was as high as 6.8%. Clearly, the wage increases for estate workers in the last 27 years have not reduced poverty. 

Although there are more wage earners in a typical estate worker’s family (2.1 per household), the total income is not much when compared with the mean household income and household size in other sectors. Low income is an insurmountable obstacle for estate workers when accessing quality education, health and nutrition, and housing. 

47.8% of heads of estate households have only five years of school education and 12.2% of the estate population are categorized as having ‘no education’. This adversely affects family well-being, the authors say.  Estate housing is of abysmal quality and sanitation is virtually non-existent. Health is poor because of lack of nutrition. The widespread drink habit among both men and women, and also lack of access to medicare complicate matters, severely affecting labor productivity

As a way out, Dishankaa and Ikemoto suggest the adoption of a small-scale contract farming” system that would ensure equity, efficiency and empowerment” that are lacking in the existing system. 

Contract farming might prove to be a game changer in these circumstances, they suggest. It will liberate the tea estate worker from the thralldom of the estate managements, lift his spirit of adventure and motivate him to progress in life.

Some RPCs in Sri Lanka have a contract farming system but in a limited way. Studies of contract farming in Kenya, China and Senegal found that it significantly increased the incomes of farmers, raised their standard of living, improved their health and created surpluses for investments. 

 The literature and responses from estate workers suggest that it will be a successful and a sustainable solution to the socio-economic problems faced by the estate community. Further, it reduces the burden of labor and production management of RPCs to a greater extent as contract farmers employ their own labor. Importantly, with the introduction of this new system, estate workers will have the freedom of choice either to get engaged in contract farming or to remain in regular RPC employment,” the authors say.

Be that as it may, small-scale contract farming, needs inputs from outside agencies, both in terms of expertise and finances. If it is not tied to an RPC, the contract farmer has to integrate himself with a marketing network. State agencies should step in and help. Many small-scale contract farmers are part of an informal network, but this has to be formalized for effective functioning. 

P. K. Balachandran

P. K. Balachandran is a senior Indian journalist working in Sri Lanka for local and international media and has been writing on South Asian issues for the past 21 years.

Leave a Reply

You must be logged in to post a comment.



Copyright © 2024 All Rights Reserved. Powered by Wordpress