The impending wage negotiations for plantation sector workers which are expected by mid-2013, coupled with recently imposed cess on exports of bulk tea, which led to much controversy, are expected to have a negative impact on the tea sector, which managed to show a slight improvement in 2012, according to a head of a leading plantation company.

“Any prognosis on the viability of the local industry (tea), at least in the short term also needs to take into consideration the impending worker wage increase which will impact on production costs, particularly in the absence of a direct link to productivity,” said Kelani Valley Plantations PLC (KVPL) Chairman Mohan Pandithage.

Further, Pandithage raised concerns of the recently imposed cess on exports of bulk tea, which according to him, in due course is bound to affect the producer with the buyers discounting auction prices proportionately unless exporters respond to the challenge posed by the cess, by making a concerted effort to minimize bulk tea exports and supplementing the deficiency with value-added tea.

“However,” he noted, “this is an improbable expectation in the short to medium term.”

On February 21, Mirror Business quoting plantation sector stakeholders forewarned of the possible repercussions of the impending wage hike in the plantation sector as the two-year collective agreement struck between the regional plantation companies (RPCs) and estate sector labour unions back in 2011 is expiring on March 31 this year.

Speaking on the matter, Planters’ Association Chairman Lalith Obeysekara said, “We (RPCs) are not in a position to grant another increase in wages at this juncture.”

The 2011 collective agreement which resulted in a 20.7 wage increase dented bottom lines of plantation sector companies as wage comprised of at least 60 percent of the total cost and thus analysts warned of similar ramifications of a similar move.

Speaking further on possible challenges Pandithage said, “The continuing turbulence in the European Union economies and the political volatility, following the populist uprisings in countries in the Middle Eastern belt will affect all commodity prices adversely.”

The country’s tea production almost remained flat last year with 326 million kilograms with average auction price increasing to Rs.391.64 assisted by the rupee depreciation. Tea, still amongst the top five foreign income earners saw its earnings declined by 5.3 percent to US$ 1,412 million in 2012.