Steep interim hike in wage for tea estate workers to result in higher cost pressures: ICRA

An interim enhancement of wages of tea plantation workers in India’s Assam state by a minimum amount of Rs. 30/day with retrospective effect from March 1, 2018 till finalisation of the revised minimum wages proposed earlier by the state government will have a significant adverse impact on the operating costs of tea companies, ratings agency ICRA said.

While formal notification of the interim hike is pending, said it understands that large tea players have commenced pay-out of wages at the increased rate from this month.

However, clarity on payment of arrear wages for the period March-July 2018 is yet to emerge. With wage rates increasing in Assam, West Bengal, the other major producer of bulk tea, is also likely to implement an increase shortly, given the historical alignment of wage revisions in the two states.

This steep increase is expected to have a significant adverse impact on the operating cost of bulk tea players, given that Assam and West Bengal are the two largest tea producing states in India, accounting for almost 80% of India’s bulk tea production, ICRA said in a statement.

“Bulk tea players have already witnessed pressures on operating margins over the last few years, driven mainly by increased labour costs and inadequate increase in realisations. With this sharp increase of around 22% in cash wages, organized bulk tea players are likely to witness further contraction in operating margins, unless there is a commensurate rise in tea prices,” said Kaushik Das, Vice President and Sector Head, Corporate Sector Ratings, ICRA Ltd,

Tea is a fixed cost-intensive industry, with labour costs accounting for around 60 per cent of the total cost of production. In Assam, the last wage agreement was applicable till December 2017. For Dooars and Darjeeling, in West Bengal, the last wage agreement expired in March 2017, and an interim wage hike of Rs. 17.50/day was implemented from January 2018.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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