Plantation Companies set future direction for worker wages with ‘revenue sharing’ as the only solution

Says archaic and economically unviable attendance-based wage cannot continue

In a significant progressive step in the ongoing plantation sector wage discussions, the Regional Plantation Companies (RPCs) have put forward their recommendation for a revenue sharing model for the remuneration of estate workers. This bold initiative is the only sustainable solution and way forward, which would see a drastic change not only in increased incomes through improved productivity, but a radical change in the lifestyles and mindsets of the plantation workers.

“This is an important step that the industry is taking to set the future direction for sustainability in the plantation industry,” says Planters’ Association Chairman, Roshan Rajadurai. “We are conscious that almost 1 million people are dependent on the Regional Plantation Companies although only 183,000 are registered workers and this system will be a win-win situation for both workers and us.”

With the RPCs incurring a staggering loss of Rs. 4,000 million on tea and rubber last year, the new proposal enables high labour costs to be mitigated by improving worker productivity through performance-related pay – similar to the smallholder model – while enabling workers also to earn well beyond their present income. Thus it represents a win-win, especially with an increase in the daily wage with no link to productivity being economically infeasible. Prices received at both rubber and tea auctions are now lower than in 2013 when the last wage hike (of 20%) was given to estate workers, indicating that even the present wage is unaffordable to the plantation companies.

In the new model, remuneration depends on the worker’s output as opposed to the archaic attendance-based wage used at present, which provides little incentive to increase productivity and the new model thus also gives workers greater control over their earnings.

Based on the proposal, the harvesting operation – which is the only revenue generating operation in the estate – is to be executed in this manner initially and the harvesters will be paid a predetermined value as already done in the Bought Leaf Formula, based on the prices realised at the Auction. All the other agricultural, agronomic and management practices and inputs, supervision, support services, logistics and the traditional services, facilities and benefits will be continued in the usual manner without any change. In addition, the Employees’ Provident Fund (EPF) and Employee’s Trust Fund (ETF) contributions will be made jointly based on the income earned. Fundamentally this model is to enhance and to increase the ability and the opportunity for the workers to earn as much as they wish to work for, instead of being confined to a daily wage purely based on attendance.

An agreement will be signed between each registered worker and the company for six months and each worker shall be allocated to pluck a specific number of tea bushes from all categories/yields.

“The revenue sharing model is now clearly the only viable, mutually beneficial and sustainable solution for the country’s plantation industry and its workers, particularly considering that there is room for significant improvement in the daily plucking average of tea even without increase in overall plucking time,” Planters’ Association Chairman, Roshan Rajadurai added. “Clearly, persisting with the present model – which has resulted in labour costs spiralling to unviable levels and has dragged the industry further downwards – cannot be sustained and all stakeholders must break away from the redundant thinking of the past and accept the present-day reality.”

“We must have the courage to move out from the current attendance based wage model which under the current prevailing conditions will only lead the industry to disaster and to eventual dissipation,” Rajadurai said further. “We must be wise enough not to persist in a system that we know will cause harm to both constituencies; the workers and the estates that provide their livelihood. Saner counsel and the spirit of partnership must prevail in order that long term interests of the one million or so dependents are protected, by ensuring that the estates are in operation for years to come and are in sustainable business.”

The Revenue Sharing Model is widely used in the plantation industry across the world and even in Sri Lanka it has yielded positive results. The country’s 400,000 tea smallholders, who produce nearly 75% of the nation’s total amount of green leaf, function on a similar basis and have more than doubled the extent of their cultivations between 1992 and 2012 – reflecting the viability, the success and the attractiveness of this model for all the parties involved and in the process have bettered their quality of life as well.

The Revenue Share Model proposed by the companies however is far more beneficial and advantageous to the workers than the current model employed by the 400,000 plus smallholder operators as the RPCs will manage and supervise the total operation of the estate while only the harvesting operation and the earnings earned therefrom is divested to the workers. The smallholders are largely not entitled to any of the statutory benefits and the facilities and services that the RPC workers enjoy currently.

Even at Regional Plantation Company (RPC) managed estates, experiments with ‘contract plucking’, which is similar to the revenue sharing model, has been successful in enhancing incomes of workers and their productivity, as well as increasing worker satisfaction and morale etc.

At present, while the production cost of a kilo of tea for RPCs is often in excess of Rs. 450 – primarily due to the high labour cost which constitutes 67% – 70% of the total cost of production (CoP) – average revenue earned from the sale of a kilo of tea at the Colombo Tea Auction was only Rs. 368.30 in the first week of October 2015, which represents a loss of more than Rs. 80 per kilo. These cost structures are in fact lower than that of the non-RPC managed sectors of the industry. If those sectors are in such a crisis compelling the government to come to their assistance by way of granting guaranteed prices for Green Leaf and for RSS 1 in Rubber, it is clear that the magnitude of the difficulties faced by the RPCs, in not only managing the plantations but also providing sustenance for over one million people resident in the plantations, are far greater.

The industry was previously suffering from low labour productivity – with the plucking average of local workers being woefully low in comparison with tea pluckers of Kenya and India etc. particularly as only around 40% of the overall working time is spent on the act of plucking tea – and the downward spiral of tea prices. However plummeting natural rubber prices combined with military conflict and political turmoil in the Middle East and economic crisis in Russia and Ukraine – which collectively represent 70% of the traditional buyers of Ceylon Tea – have reduced tea prices too and exacerbated issues.

The RPCs also proposed a productivity-based wage model earlier which however did not receive the consent of estate sector trade unions.