The Planters’ Association of Ceylon (PA), which represents the leading body of Sri Lanka’s plantation sector, has urged an immediate reassessment and optimization of cost structures within the industry due to the ongoing crisis in West Asia and the Strait of Hormuz.
At present, nearly 45% of Sri Lanka’s annual tea exports—approximately US$ 680 million out of a total US$ 1.5 billion in tea export revenue—are reliant on markets in the Middle East, including Iran, Iraq, the UAE, and Saudi Arabia.
The PA expressed serious concerns regarding the significant challenges the plantation industry is facing, particularly for Regional Plantation Companies (RPCs) and smallholders involved in tea and rubber production. These challenges have arisen from various supply and demand constraints that have developed since the beginning of the year.
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Wages currently make up around 70% of the overall Cost of Production (COP) for both tea and rubber. The remaining costs, which contribute to the COP, encompass essential inputs such as fuel, fertilizers, chemicals, firewood, and packing materials.
Before the recent wage increase that took effect on January 1, 2026, wage issues had been a longstanding and contentious topic within the sector. Although RPCs generally support the idea of increasing worker wages, they have consistently advocated for sustainable financial mechanisms to facilitate such increases, given the rising production costs and declining productivity rates in the industry.
Since the transition from nationalized management and the move toward privatization in 1992, plantation wages have been determined through a collective bargaining agreement involving RPCs, trade unions, and the Employees Federation of Ceylon. However, in 2021, trade unions opted out of this process and successfully petitioned the government to implement a mandated daily wage of Rs. 1,000 from 2021 to 2023, which is set to rise to Rs. 1,350 by September 2024.
In a notable development, the current government has intervened to partially subsidize the latest wage increase after discussions with Regional Plantation Companies and the broader corporate sector. As a result, workers will see their daily wages increase by Rs. 400, reaching Rs. 1,750 starting January 1, 2026, with the government contributing Rs. 200 per worker per day.
Over the last ten years, Sri Lanka’s plantation industry has faced a multitude of crises stemming from the inconsistent policies of previous governments regarding fertilizers, agrochemicals, and crop diversification. These challenges have been compounded by disruptions caused by COVID-19 lockdowns, the economic crisis of 2022, and the recent impact of Cyclone Ditwah, all of which have significantly affected the sector.
As production costs, particularly wages, continue to escalate, the plantation sector is under unprecedented pressure. It appears that previous constraints may converge simultaneously on Sri Lanka, even if tensions in the Gulf were to resolve quickly. Concerns regarding fertilizer availability persist, raising doubts about the industry’s capacity to achieve its target of producing 300 million kilograms of tea by 2026. With the ongoing conflict jeopardizing global fertilizer supply lines, proactive measures are crucial to ensure input security and meet production goals for 2026 and 2027.
In response to these mounting challenges, the PA has called for coordinated efforts in several key areas. These include urgent measures to secure fertilizer stocks, providing working capital support—especially for smallholders, effectively managing and storing unsold stocks, and intensifying efforts to diversify markets where Ceylon Tea’s premium status can yield higher profit margins.
