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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Margins of RPCs under threat

Margins of RPCs under threat

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1Margins of RPCs under threat Empty Margins of RPCs under threat Sun Apr 07, 2013 1:35 am

CSE.SAS

CSE.SAS
Global Moderator

By Azhar Razak

As linking wages to productivity fails

The twenty Regional Plantation Companies (RPCs) in Sri Lanka are likely to witness a 10%-12% increase in cost of production with the industry players expected to bear around Rs. 5.2bn as additional wage costs following the new Plantation Workers Wage Agreement signed last week, a top industry official said.

According to Chairman, Plantation Services Group of the Employers Federation of Ceylon (EFC), Sunil Poholiyadde the tea industry will feel the pinch of the wage revision compared to the rubber sector whose prices have been far healthier.

“With the structure of the wage agreement once again being modeled similar to those of the previous years, we have not been successful in linking wages to productivity despite several calls by the employers due to protests by the trade unions. However, what has changed this time is that we have been able to give prominence to attendance with a labor attendance incentive component being introduced,” said the
Managing Director of the Plantations Sector of the Richard Pieris Group, Poholiyadde,

The industry veteran noted that the tea sector is likely to face a production cost increase of Rs. 40 per kg with the recent wage revision.

The Plantation Workers Agreement, which will be effective from April 1, 2013 for a period of two years was signed by the Employers’ Federation of Ceylon( EFC) and the Ceylon Workers Congress, Lanka Jathika Estate Workers Union and the Joint Plantations Trade Union Centre on April 4, 2013 at the EFC office.

“The daily basic wage package of a plantation worker has been increased from Rs 515 to Rs 620. This amounts to a 20% increase up front for a period of two years. 20 Regional Plantation Companies subscribed to this Agreement through the EFC”, the EFC said in a statement on Friday.

The Director General, EFC, on behalf of the RPCs stated that the Companies which subscribed to this Agreement to grant a revision had done so with lot of expectation and confidence on the part of the Trade Unions and the workers.

“Most of the Companies will not find it easy to sustain the impact of this revision. They have agreed to it on the understanding that the workers will cooperate with them to increase productivity and efficiency”, the statement added.

The new wage package will ensure payment of a sum of Rs 15,500 for 25 days work per month provided the worker has an attendance record of over 75% for a month. In addition, the Agreement has also revised the rate of over kilos by Rs 3. This would mean that anything above the norm plucked will be paid at Rs 20 per kilo.

“The last wage revision in FY12 caused a 28% increase in wage rate however the cost of production rose only by an average 15%. It was in a period where global tea prices were dwindling. This resulted in a serious concern over protecting tea sector margins”, TKS Securities (Pvt) Ltd had said in a recent research report.

Sri Lankan tea sector is labor-intensive and the cost of production is higher compared to other tea producing countries. Labor cost in Sri Lankan tea forms about 60% of the total cost of production whilst other countries face a lesser labor cost.

“One main reason for this is more focused on Orthodox tea as opposed to CTC tea which is a more mechanized and low labor consuming technique. However, CTC tea is of inferior quality to that of Orthodox tea which forms 92% of the total production”, the report further highlighted.
http://www.nation.lk/edition/biz-news/item/17072-margins-of-rpcs-under-threat.html

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