Cablegate: Agreement Ends Tea Plantation Strike for Most

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SUBJECT: Agreement Ends Tea Plantation Strike For Most

1. Summary: Sri Lankan tea trade unions have been striking for the
last two weeks to demand an increase in wages. On December 19, most
unions, representing 80-90 percent of the tea plantation workforce,
entered into an agreement for a moderate increase in wages. Some
unions, however, did not call off the strike, continuing to demand a
larger increase in wages. As tea is one of Sri Lanka's most visible
export industries, continuation of the strike and increased
international awareness of the terms under which the tea estate
workers labor, could jeopardize current exports and the country's
reputation for having acceptable labor standards.

TERMS OF THE AGREEMENT
-----------------------

2. On December 19, the Plantations Collective Agreement was signed
between 21 regional plantation companies, and the following trade
unions: Ceylon Worker's Congress (CFC), Lanka Jathika Estates
Workers' Union (LWEWU), and the Joint Plantation Trade Union Center
(JPTUC). The terms of the agreement includes a wage increase of 33
percent amounting to Sri Lankan Rupees (Rs.) 65 (USD 0.60), for a
total wage of Rs. 260 (USD 2.40) per day. This constitutes a Rs.
1,625 (USD 15.04) increase for each 25 working-day month. The
inclusive-package of Rs. 260 includes the basic salary of Rs. 170
(USD 1.57), guaranteed price share supplement of Rs. 20 (USD 0.18),
and an attendance incentive of Rs. 70 (USD 0.65) for those who
report to work not less than 75 percent of the 25 working-day month.
The agreement, backdated to November 1, 2006, will be effective for
the next two years. Following the agreement, President Mahinda
Rajapaksa reiterated his intent to appoint a commission to look into
the problems of the estate workers.

3. To meet the extra expenditure of the wage increase, the
companies will incur a cost of Rs. 3 billion (USD 27.7 million) per
year. The 21 regional plantation companies maintain a direct
employable workforce of approximately 400,000 persons. This amounts
to approximately 50 million man days, and thus an increase of Rs. 1
amounts to Rs. 50 million. According to the Employer's Federation
of Ceylon (EFC), due to the wage hike, the cost of production per
will rise to Rs. 21 per kilo, increasing all costs to approximately
Rs. 200 (USD 1.85) per kilo.

NON-PARTICIPANTS OF THE AGREEMENT
---------------------------------

4. A total of 12 unions, representing 80 to 90 percent of the total
plantation workers, participated in the December 19 talks. The GSL
expects that six other trade unions will follow suit and call off
the strike. The JVP-led All Ceylon Estate Workers Union, the
National Union of Workers and the Sri Lanka United Workers Front,
however, chose not to rescind their demand for a Rs. 300 wage
settlement. The strike action over the last two weeks has produced
a growing rift between the trade unions.

BACKGROUND OF THE DISPUTE
-------------------------

5. Since December 4, trade unions representing over 250,000 tea
estate workers have been on strike. Wage negotiations between
employers and trade unions, which were under a three-year collective
agreement, broke down in late November 2006 when workers began a
go-slow that hampered production in the mid- and up-country estates.
The crux of the issue between the tea estate workers, the
plantation companies, and the GSL was the demand to increase the
daily wage of the estate workers which was set at Rs. 195 (USD
1.80). As this wage included the Rs. 60 allowance that was tied to
attendance, workload, and prices for tea, many workers did not
receive the full Rs. 195 even on days they worked the entire agreed
24 working-day month. According to the Central Bank, however, the
average daily wage in the informal private sector in tea cultivation
was Rs. 304 (approx USD 2.81) in 2004 and Rs. 300 (approx USD 2.77)

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in year 2005.

6. Discussions between the respective parties initially broke down
as trade unions refused to accept the GSL's proposed daily wage of
Rs. 165, plus an increased allowance of Rs. 87 that would include
the infrequently-received attendance allowance of Rs. 60. The trade
unions maintain that their wages should reflect increasing commodity
prices and the high cost of living. The tea companies, represented
by Sri Lankan business chamber Colombo Tea Traders Association
(CTTA), contend that the increase in wages would cost Rs. 5 billion
annually, making the industry unviable. As wages comprise 70% of
production costs, CTTA argues that such a wage increase would make
Sri Lankan tea uncompetitive in the international market.

NGOS ALLEGE WAGE DISPUTE REFLECTS HUMAN RIGHTS ISSUE
--------------------------------------------- ------

7. Several NGOs argue that the low wage rate is a human rights
issue rather than exclusively a labor problem. On December 15, the
Asian Human Rights commission issued a statement on Sri Lanka's tea
plantation workers calling for a resolution. They contend that
current daily wages do not reflect the rising inflation and that
workers are not given the access to the GSL's 2005 Budgetary Relief
Allowance of Workers Act. According to national data, 30 percent of
the estate population lives below the poverty line, as compared to a
national average of 19.2 percent of households. A representative
from the American Center for International Labor Solidarity stated
that the plantation workers are among the lowest paid and most
oppressed sectors of Sri Lankan laborers. A majority of the tea
workers are descendants of "hill country Tamils" who were brought by
the British in the 19th century to work in the plantations. This
subgroup is looked down upon by other Sri Lankan Tamils, who trace
their roots to the Jaffna region and arrived centuries before the
cultivation of tea in Sri Lanka and the resulting migration of hill
country Tamils.

BACKGROUND ON THE SRI LANKAN TEA SECTOR
---------------------------------------

8. Sri Lanka is presently the world's largest tea exporter, with 21
percent global export market. It is a supplier of bulk teas to the
world and competes primarily on the basis of price. The CTTA warns
that the strike has a number of serious implications for the tea
industry and the economy as a whole. These include a loss of
several million dollars revenue to the government and the tea
companies; significant loss in export earnings; negative impact on
the quality of teas; adverse impact on the cash flow of plantation
companies; difficulty in meeting employee wage commitments; and
ultimately, jeopardy to the country's credibility as a major
international tea exporter and its reputation for good labor
practices.

9. The losses incurred to date will make it difficult for the tea
industry to reach production export targets set for 2007. When the
2007 budget was announced in mid-November 2006, the GSL proposed key
initiatives that would enable the industry to reach a revenue target
of Rs. 150 billion (approx USD 1.39 billion). The tea industry is
the country's second highest exports earner after apparel with 92%
of tea exports going to Russia, U.K., Japan and the U.S. The
industry will face major setbacks in the beginning of 2007, due to
production losses incurred during the strikes. Further, the
industry will face an increasing challenge from rival tea producing
nations such as India and Kenya, and new competitors such as
Vietnam.

ADDITIONAL CHALLENGES FOR THE TEA SECTOR
----------------------------------------

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10. In addition to the strike action, the tea industry is faced
with other challenges. Heavy rains hampered the November
production. Further, companies struggle to cope with high
fertilizer prices and escalating power rates, with the former
adversely affecting the quality of the crop as planters are less
inclined to apply the right dosage of fertilizer to the estates.
Other increases in the cost of production include the process of
upgrading their factories to meet high international standards and
other quality assurance practices.

11. Comment: Although Sri Lanka is famous for its "Ceylon Tea,"
which is recognized for its quality, the global market is largely
price-based, and significant increases in costs could have a
negative impact on Sri Lanka's competitiveness in this sector.
Despite the compromise on the already-low compensation for the tea
workers', it is encouraging that the government and many key trade
unions were able to agree on a wage increase. Further, the contract
appears to eliminate the prior requirement that laborers work 24
days in order to receive a significant portion of their paycheck,
replacing it with a comparatively generous requirement of working
75% of the up to 25 days that work is available.

BLAKE

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