By Uditha Jayasinghe
COLOMBO (Reuters) - Sri Lanka's tea producers on Monday condemned a government order to increase wages by 70%, saying it would make their tea globally uncompetitive and reduce dollar earnings essential for the island nation to emerge from a financial crisis.
The $1.3 billion industry produces popular Ceylon Tea and employs about 615,000 workers. The island annually exports about 95% of the 250 million kilos of tea it produces.
The government has ordered worker salaries be increased to 1,700 rupees ($5.66) per day from 1,000 rupees, which the industry says will increase tea production costs by 45%.
The fallout from Sri Lanka's protracted financial crisis, caused by a severe shortfall of foreign exchange in 2022, has also hit the tea industry, quadrupling fertiliser, fuel and power costs, the Planters' Association of Ceylon (PAoC) said.
"This is unsustainable and unfair. This decision was made without proper consultation and will result in the quality of Sri Lanka's tea declining," PAoC spokesperson Roshan Rajadurai told reporters.
"Sri Lanka's key rivals, India and Kenya, have lower prices and higher productivity."
The industry must start paying the salary increase from next month, Sri Lanka's Labour Ministry said on Sunday, warning that plantation companies refusing to comply could be taken over by the government.
Implementing the wage hike will cost plantation companies an additional 35 billion rupees, the association said.
Plantation companies and worker unions have been negotiating for months to increase salaries, which unions contend is essential as Sri Lanka's financial crisis plunged around a quarter of the population into poverty in 2023.
($1 = 300.4000 Sri Lankan rupees)