WB Report: A damning Indictment of leading Sri Lankan companies
Dr. Vijaya Kumar President,
Lanka Estate Workers Union

The World Bank report "Sri Lanka Poverty Assessment" shows that in 2002, the poverty headcount in the estates was 7% points higher than the national average. In 1991 the poverty headcount in the estate sector had been 5% lower than the national average. Over the 10 year period, there has been an increase in poverty of 12% in the estates. The powerful team of World Bank economists who produced the report goes on to state that "no clear picture emerges as to why consumption poverty in the estate stagnated or worsened slightly (sic) over the past decade" and suggests that this could be due to a fall from 2.3 to 1.7 in the average number of income earners in estate households. The World Bank shows a remarkable degree of irrationality when it fails to relate the increase in poverty with the privatisation of management of estates which took place coincidentally in 1992, an event which it forgets to mention although it was the prime mover in the privatisation agenda.

Poverty in the estates can be directly ascribed to the strategy of privatised management to slash estate wages in real terms and maintain them at subsistence levels.

What did happen to estate wages after 1992 ? The real wages of estate workers according to Central Bank data had increased by 20% during the thirteen years of nationalized management, 1978-1991, an increase similar to that obtained by another low salary group, government minor employees. It is well known that the Central Bank deflator is routinely underestimated and the increase in real wages may have been much less. The main reason for this increase had been a cost of living increment which increased wages by 4 cts. per day for every 1.5 point increase in the Cost of Living Index up to 1984 and 4 cts. per day for every point increase from 1984 to 1993.

With the privatisation of management of the estates in 1992, the daily wage of estate workers which was Rs. 61.82 was increased to Rs. 72.24 in 1993 at which level it was frozen until 1995. It was increased after long drawn negotiations to Rs. 83.00 for 1996 and 1997, Rs. 101.00 for the period 1998 to 2000, Rs. 121.00 for those with 75% attendance and Rs. 116.00 for those without in 2001 and Rs. 147.00 for those with 75% attendance and Rs. 135.00 for those without in 2002. Between 1992 and 2002, wages had risen by 138 % for those with 75% attendance and 118% for those who did not. If we apply the GNP deflator of 132.6% for this period it is seen that real wages of estate workers had increased by 2.2 % for those who had 75% attendance and decreased by 6.5 % for the rest in 2002 based on 1992 wages. When based on with 1993 wages, these became decreases of 4.4% and 13.6% respectively.

However these figures do not give the full picture. Apart from the fact that the Central Bank GNP deflator is routinely less than the rate of inflation, collective agreements covers two to three years and this means that the drop in real wages becomes greater in the second and third year of the collective agreement. Real wages decreased by over 17% in 1997 and 2000, 11.1% in 1995 and between 8 and 0% during 1996, 1999 and 2001 based on 1992 wages. If 1993 is used as the base year real wages declined by nearly 10% in 1994 and was consistently more than 15% less until 2001 except for the 12% decline observed in 1998. In 1997 and 2000, the decline in real wages was around 25%. With the attendance bonus being introduced in 2001, the real wages compared with 1993 of those with 75% attendance decreased by 14.4% based on 1992 wages and 22% based on 1993 wages. This became 4.4% and 13% in 2002 and 9.7% and 19.4% in 2003 respectively for those entitled and not entitled for attendance incentive. For real wages to be maintained at 1993 levels, an estate worker had to earn Rs. 176.06 in 2004, Rs. 193.49 in 2005 and Rs 208.04 in 2006.

Although a wage of Rs. 260 was negotiated last November 2006 this includes a substantial attendance component of Rs. 70 per day. The attendance incentive has been doubling as a percentage at each negotiation rising from Rs. 5 (4% of pay) per day in 2001, Rs. 12 (8%) in 2002, Rs. 25 (13%) in 2004 and now to Rs. 70 (27%). An attendance incentive which raises pay only from starvation levels to subsistence levels smacks of a strategy to reduce the status of estate workers to bonded labour. An estate worker who is unable to show 75% attendance will receive a wage of Rs. 190 per month during 2006 to 2008 in real terms far below what she was paid in 1993. Of this wage Rs. 20 is arbitrarily called a Price Share supplement and like the attendance incentive not considered for consequential benefits like provident fund. A variable price share supplement which provided workers with a small increment in wages (between Rs. 5-15 for tea workers and Rs. 20-30 for rubber workers) with rise in commodity prices has been removed this time.

Further the collective agreement which expires in December 2008 will keep estate wages constant for over two years ensuring that estate workers will plunge into even deeper poverty by then given current rates of inflation.

Poverty in the estates can be directly ascribed to the strategy of estate management to keep wages at subsistence levels - a strategy which has the dual purpose of keeping profits up and of weakening the estate workers ability to fight for a living wage.

The shameless part of the story is that estate management is controlled by some of the biggest corporate players in Sri Lankan business - Aitken Spence, Hayleys, Forbes, James Finlay, Lankem, Mackwoods and Richard Pieris to name a few.

The claim by management companies that if they pay workers a living wage, the industry would be plagued with losses and its future doomed is totally unacceptable given questionable practices in transferring estate funds through inordinately high management fees and unmonitored transactions between estates and companies within the same group.

The companies portrayed themselves as having the management expertise to transform the industry and the sector into a mainstay of national development. Government policy of reducing tea export taxes and welfare expenditure prior to privatisation itself contributed to improve profit margins in the estate sector. But sadly, private sector management expertise cannot visualise any strategy for the upliftment of the industry without pauperizing its workers.

Taxes on the export of tea were greatly reduced when ad valorem taxes were removed shortly before privatization. Estate welfare which was a function, although ineptly carried out, of the corporations which ran the estates was transferred with privatization to a state promoted Welfare Trust largely funded by foreign agencies with hardly any contribution from plantation companies.

Plantation companies often complain of their inability to convince workers and trade unions of the need to improve labour productivity and thereby increase estate wages. How has the productivity of tea estates fared with privatization ? The average yield per hectare rose from around 1300 kg per hectare prior to 1992 (discounting years affected by drought and political turmoils) to 1645 kg per hectare in 2005, an increase of 27%. Tea production of 232 million kg in 1992 was enhanced by 33% to 310 million kg in 2002. Worker’s plucking norms have been arbitrarily increased by about 14% after privatization. The number of workers per hectare of tea has been reduced from 3.15 to 2.75 since 1992 contributing to the observation in the World Bank report that the average number of income earners in estate households had fallen from 2.3 to 1.7 between 1996 and 2004. Nobody can deny that there has been a remarkable increase in productivity in the plantations. Unfortunately the poor estate worker’s contribution to improved productivity is ignored and she is denied any share of the additional surplus generated, a surplus that is voraciously devoured by a management forced by the stock market to constantly embellish its balance sheets.

Sri Lanka’s corporate sector takes great pride in reporting projects which reflect its corporate social responsibility. It is indeed ironic that estate management companies upholding a policy of maintaining estate workers in abject poverty are permitted to sanctimoniously claim their corporate social responsibility with the widest possible publicity through a few such projects. On the other hand, it may not be so ironic, and may merely reflect the twisted thinking of corporate Sri Lanka which only a few years ago made its first-ever award for corporate social responsibility to a company best known for its manufacturing and aggressive marketing of products contributing to disease and death.


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