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Takeover of Unilever’s tea division makes living wage for tea pickers unlikely

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After years of abusive practices in the supply chain and disappointing turnover, Unilever decided to sell off its tea division, featuring brands like Lipton and Pukka, to CVC Capital, a private equity firm. The vulnerable tea pickers in the supply chain lost out. ‘This can exacerbate the major problems that already exist in the tea sector, such as poverty wages, exploitation and abuse.’

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  • What’s the news?

Last year, Unilever sold off Ekaterra, its tea division boasting brands like Lipton, Pukka and PGTips, to the private equity firm CVC Capital. Since its takeover, Ekaterra has been purchasing ‘drastically’ less tea sourced in Sri Lanka.

  • Why is this relevant? 

Unilever’s former tea business is one of the largest in the world. Time and again, Unilever would promise its tea pickers that their lives would improve. If the tea pickers are to be paid a decent wage, tea prices need to go up.

  • How did we investigate this? 

Follow the Money spoke with tea pickers, trade unions, plantation managers and tea brokers in Sri Lanka. This allowed Follow the Money to see for itself what circumstances are like on the plantations, and led to the discovery that Ekaterra has been purchasing less tea in Sri Lanka since being taken over. Follow the Money also spoke with private equity experts, NGOs and human rights experts, in order to gain an understanding of CVC and the effects of its takeover.

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The inland hills of Sri Lanka are covered in fields full of low bushes. Colourfully clad women move between them, carrying large sacks on their backs. They are known as the Tea Tamils. 

Their name refers to the fact that their ancestors were brought over to Sri Lanka from the Tamil Nadu region in India by the British colonial powers in the nineteenth century. They were promised well-paid jobs on the overseas tea plantations. In reality, wages were low. And when workers were no longer able to cope with the hard physical labour, they were dumped by the roadside.

Many Tamils are the third generation working at the same plantation. ‘This is my only option,’ a tea picker told Follow the Money. The conversation took place in April, the hottest month of the year. While telling her tale, Jeeveranjani methodically picked the small leaves from the tea bushes, putting them in the bag she had tied to her head with a piece of cloth. She paused from time to time to wipe her brow.

‘It’s hard work. We work in the blazing sun and streaming rain. We don’t drink anything because there are no toilet facilities, and if we feel unwell and want to go home, the supervisors threaten to cut our pay.’

Jeeveranjani has worked at the Pitaratmalie plantation in the village of Haputale since she was 18, and picks tea that is auctioned to international brands. One of these brands is Lipton, the plantation owner confirmed.

The amount of money that Jeeveranjani earns depends on how much tea she picks. The government raised the minimum wage on the plantations last year. This means that officially she should be making at least 1000 Sri Lankan rupees per day (2.87 euros). But if she fails to meet her daily target of 18 kg of tea, she only receives half her wages.

Even if she does manage to hit her target, her income is still too low to meet the daily needs of her family. According to Sri Lanka’s National Institute of Social Development, she would need more than double her current wages to be able to afford decent food, accommodation, healthcare and education. Jeeveranjani laughed at this. ‘We’ll never get that.’

Unilever: Doing well by doing good’ 

The ridge of hills reaches its summit 12 kilometres away. Dozens of tourists enjoy the vista there every day, gazing down on the tea fields. A statue of a moustachioed man in a hat sits on a steel bench: Thomas Lipton. The namesake and founder of the famous brand purchased his first tea plantations here. He wanted to make tea affordable to all, although it was then still a luxury.

He succeeded. At the end of Lipton’s career, the tea that was served in millions of American and European households came from bright yellow boxes bearing his name. Six years after his death, a recently formed Anglo-Dutch company took over American sales of his tea in 1937. The company was Unilever. When it also acquired the European division and the tea plantations in the 1970s, the tea brand became one of the largest in the world.

In 2006, Lipton was still one of Unilever’s best performing brands, although its popularity was on the wane. Lipton director Michiel Leijnse wanted to improve the brand image, acknowledging that market research showed that sustainability was growing in importance among consumers. This provided a commercial opportunity which was well suited to the company. Since its very first days, Unilever followed the motto Doing well by doing good’. In other words, being successful by assuming social responsibility.

In order to market Lipton credibly as a sustainable brand, the entire supply chain would need to be overhauled, Leijnse thought. He convinced upper management and in 2007, Unilever promised that in just eight years’ time, all Lipton tea would be produced sustainably. 

Promising to do better

Later that year, violence erupted on a Unilever plantation in Kenya. Eleven people were killed and at least 56 women and girls were raped. Unilever could have anticipated the violence, victims would later state, saying that the company had done too little to protect its employees. Despite repeated requests for compensation, Unilever – under the leadership of Paul Polman since 2009 – refused this.

This was not the only scandal that Unilever became embroiled in over the years. The media and NGOs have repeatedly established that human rights are not ensured on Unilever tea plantations.

Sexual intimidation, discrimination and corruption are all prevalent, according to SOMO – a Dutch foundation that investigates multinationals – after interviewing hundreds of tea workers in Kenya for its 2011 publication. A BBC documentary which aired in 2015 showed underage workers at a Unilever supplier in India, emaciated children with flooded sanitary facilities.

Time and again, Unilever promised to do better. Its goals became increasingly ambitious. In 2010, Unilever launched its Unilever Sustainable Living Plan (USLP), intended to ensure that the multinational would double in size by 2020, while also improving the income of 5.5 million farmers and retailers in the process. And in 2021, Unilever promised that all of the workers in the supply chain would be earning a ‘living wage’ within a decade.

For Jeeveranjani that would mean finally being able to afford a decent home. She lives with her husband and four children on the plantation. The walls and tin roof of her house are riddled with holes. When it rains, the water leaks in everywhere. But when there is no rain, the nearby stream dries up, leaving the family with no water to drink, or to cook and wash with. There is no water system to supply them.

These are the exact circumstances established by Tomoya Obokato, a United Nations Special Rapporteur on modern slavery. In his report dated July 2022 on Sri Lanka he wrote: ‘These substandard living conditions, combined with the harsh working conditions, represent clear indicators of forced labour and may also amount to serfdom in some instances.’

Polman felt that because so many people were dependent on the plantations, Unilever should retain the tea brands. In his book Net Positive he wrote: ‘[I] kept the tea business in the Unilever portfolio, not only because it serves a growing health drink market, but because it supports many thousands of tea farmers.’

Unilever’s shareholders, however, felt that Polman was placing too much emphasis on his sustainable ambitions and neglecting the bottom line. He had to go. After Polman had left, Unilever reconsidered the importance of its tea business.

In 2021, the year that Unilever had promised all of the workers would be receiving a living wage, the tea division was responsible for 2.6 billion euros in turnover for the company, which amounted to 5 per cent of total revenue. But while other major Unilever brands like Dove, Ben & Jerry’s and De Vegetarische Slager all saw strong growth – with their turnover increasing on average by over 10 per cent – the tea division did not manage to break 5 per cent.

This was under par, according to the new Unilever management led by Alan Jope. The tea business needed to be sold off. There was only one party willing to purchase it: the private equity firm CVC Capital.

Turbo-charged capitalism

CVC Capital was founded as a Citibank spin-off in 1993, by Dutchman Rolly van Rappard, among others, and quickly expanded to become Europe’s largest private equity investor. The company is currently preparing an Amsterdam market flotation.

CVC manages 133 billion euros in assets divided across 16 investment funds. Its institutional investors include major pension funds such as the Dutch ABP, PME and PMT pension funds. Per fund, CVC investment usually takes a majority interest in 10 to 20 companies, where it can then dictate management. Its portfolio includes many tech firms, but also hospitals and the Spanish football competition La Liga.

With its motto ‘Building better businesses’, CVC claims that it will run companies better than their previous owners, increasing the companies’ value. After five years or so, CVC sells off the companies intending to make a profit, enabling it to pay out a minimum 8 per cent annual return to its investors.

One of the ways such firms generate high returns is by having companies in their portfolio incur massive debts

In reality, the profit that a private equity firm makes is not just a result of the changes it makes to operations of companies, such as hiring new managers or simplifying the company structure, according to private equity researcher Peter Morris, when speaking to Follow the Money. Morris worked as a banker at Goldman Sachs and Morgan Stanley for 25 years and has been studying the investments made by private equity firms since 2010.

One of the ways such firms generate high returns is by having companies in their portfolio incur massive debts, Morris says. He draws a comparison with mortgages: if a buyer takes out a higher mortgage while making a low down payment, this increases both the risk and the return for the owner. ‘This part of the profit has nothing to do with running companies better,’ Morris says.

Just like at other commercial companies, cutting costs is an important way for private equity firms to increase their profits. ‘But because private equity firms are so invisible, they don’t have to worry as much about any reputational issues that may arise,’ says Morris. ‘For example if the choices made lead to social or legal concerns.’

This is exactly what CVC counts on.

It has already shown that it is willing to take risks that other private equity firms prefer not to. They were the only ones who wanted to buy Formula 1, for instance. The deal was extremely risky because of the controversial affairs its CEO Bernie Ecclestone was constantly embroiled in, and ultimately led to legal proceedings. It would end up becoming one of CVC’s most lucrative deals ever.

CVC’s Formula 1 deal

It was a gamble for CVC to take over Bayerische Landesbank’s stake in Formula 1 in 2006, paying 2 billion dollars for the privilege.

The deal was extremely risky. Some of the racing teams were dissatisfied with the way the revenue was shared and a business conflict seemed imminent. The owner of Formula 1, Bernie Ecclestone, was also constantly caught up in an incessant stream of controversial affairs.

CVC clinched the deal and promised to retain Ecclestone as CEO.

Six years later, the public prosecutor’s office in Munich charged Ecclestone with making a 50 million dollar payment to a risk officer at Bayerische Landesbank. In exchange, the latter had undervalued the bank’s shares in order to expedite the sale to CVC. The risk officer disappeared behind bars, while Ecclestone settled by paying a 100 million dollar.

CVC was never accused of playing a role in the bribery. The deal would be one of the most lucrative CVC was ever to make. Estimates put the firm’s profits on Formula 1 at over 8 billion dollars.

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In 2010, the Dutch Authority for the Financial Markets (ACM) fined a company in CVC’s portfolio, a flour producer called Menaba, for its price fixing arrangements with other flour producers. Initially, CVC was able to avoid becoming involved, but after complaints from Menaba’s management, the ACM charged CVC with joint responsibility.

‘CVC may believe that by taking on risks in this deal that other investors found unpalatable, it will have the opportunity to make a higher return,’ says Morris.

The takeover 

It’s thus not surprising that CVC was the only party interested in taking over Unilever’s tea division.

Initially, the American private equity firms Carlyle and Advent International had shown interest, but they pulled out at the last moment. According to the Financial Times, they found the risks related to human rights too substantial.

Carlyle and Advent International preferred not to be held responsible for the people dependent on the plantations: this was deemed to be expensive and complex. If anything went wrong on the plantations, there was a major chance of reputational damage.

Prior to making any investment, CVC promises to do due diligence on the human rights, environmental and corporate governance issues (also referred to as ESG). If it encounters risks that are ‘manageable or can be remediated immediately’, CVC promises to address these in the first 100 days after investing. If it concludes that the ESG risks are ‘too great and cannot be appropriately mitigated in a reasonable timeframe’, CVC promises that it will not make the investment.

After the takeover, Ekaterra’s debt was nine times higher than its annual income

Nevertheless, the harsh living and working conditions on the Unilever tea plantations did not deter CVC. The deal went through. Despite repeated queries from Follow the Money, CVC has still not answered why the deal was indeed made and what has been done to alleviate the problems by now.

The deal was concluded on 1 July 2022, with CVC paying 4.5 billion euros for Unilever’s tea division. It then placed 34 tea brands (including Lipton, Pukka and PGTips), 11 production facilities and tea plantations in Kenya and Tanzania under control of a new company. Name: Ekaterra. Head office: Rotterdam.

The 4.5 billion euros that CVC paid did not come from its own coffers. CVC Capital Partners Fund VIII furnished 2.4 billion euros, which included between 200 and 250 million from the Dutch Zorg en Welzijn pension fund. CVC also borrowed 2.55 billion euros and loaded Ekaterra with this debt.

This means that Ekaterra’s debt is nine times higher than its annual income, according to estimates made by Moody’s rating agency in late 2022. Moody’s then gave Ekaterra a B3 rating. ‘That is at the risky end of the spectrum,’ says private equity researcher Morris. ‘Even for private equity.’

‘Incurring such high levels of debt for portfolio companies forces them to take cost reduction to the extreme’

Meanwhile, CVC openly advertises its claims of being a responsible investor. Its website is bursting with slogans like ‘creating sustainable value’, and with statements that signal that it takes human rights seriously, such as this one: ‘The Company is committed to maintaining consistently high business and ethical standards and seeks to prohibit any form of modern slavery or human trafficking within its own business and supply chains.’

‘Incurring such high levels of debt for portfolio companies forces them to take cost reduction to the extreme,’ says David Birchall, senior lecturer at the London South Bank University. Birchall recently published a paper on the human rights risks of the private equity business model. ‘The big risk for the tea pickers is that CVC will cut back on protecting human rights.’

More sustainable production, in Kenya

Nine months after the takeover by CVC, in late March 2023, the open-plan office of a major Sri Lankan tea broker was bustling. It was auction day. Groups of men in suits stared at their screens. In a glass-walled part of the office stood a table with small tin containers filled with dried tea leaves. Tea sommeliers judge the tea in a similar way to how wine is tested: first on appearance, then on aroma and finally on taste.

If the quality is the same as it was the previous week, the price remains the same too. But if the tea is not as fine or has a lighter colour, it will sell for a lower price. The bottom price is set by the plantation and is usually in the region of the cost price.

The price for a kilogram lies between 3 and 4.50 dollars in Sri Lanka. In order to pay tea pickers like Jeeveranjani a living wage, as Unilever promised them in 2021, this price needs to increase. But this objective seems less likely to be achieved than ever. Now that Ekaterra has been taken over by CVC, it has been purchasing more tea from Kenya, where a kilogram of tea only costs between 1.50 and 3 dollars.

The company announced on LinkedIn that Ekaterra will only be using Kenyan tea for Lipton’s Yellow Label, presenting this as a sustainability measure. ‘At ekaterra, we have a real opportunity to make a positive impact. This is why we’re [...] creating value for all our stakeholders; from the local farmers and tea pickers whose livelihoods depend on tea production to our consumers all over the world. [...] Kenya is the ideal place to grow the best tea leaves, thanks to [...] #sustainable agricultural practices of our #tea farmers.’

In February, the BBC and Panorama aired a documentary called Sex for Work – The True Cost of our Tea, which showed that managers employed by these very tea plantations in Kenya were forcing tea pickers to have sex with them to get work or to keep their jobs.

Moreover, the tea company is at loggerheads with the trade unions in Kenya ever since Unilever introduced harvesting machines on the plantations. This has made thousands of tea pickers redundant, with others having to deal with physical injuries caused by working with the 12 kg apparatus they have to strap to their waist.

The machines take two people to operate them and can replace 25 tea pickers. There are also mobile harvesting machines that can replace 100 tea pickers. The machines are unsuitable for the hilly Sri Lanka plantations.

Since being taken over by CVC Capital, Ekaterra has been purchasing ‘drastically’ less tea in Sri Lanka, four major tea brokers told Follow the Money. One of them said that this is 30 to 40 per cent less.

According to Ekaterra, the decline has nothing to do with the takeover by CVC Capital, but is related to ‘circumstances beyond Ekaterra’s control, such as activities in Russia being ended and social unrest in Sri Lanka’.

Bad news for tea pickers

Tea experts view matters differently, however. ‘This decision is purely driven by price,’ says Samantha Dodanwela. He is a managing director at Mercantile Producer Brokers, one of the Sri Lankan tea brokers. ‘Anyone who knows anything about tea knows the taste of Ceylon tea is special. Kenyan tea is not bad, it has improved a lot over the years. But if Ekaterra suddenly decides to source more tea from Kenya, price must be the reason.’

They are using the social unrest in Sri Lanka as an excuse, says Niraj de Mel, chair of the Sri Lankan Tea Board. ‘There is a lot of unrest in Kenya at the plantations as well. it is all about the bottom line. [...] Now that Ekaterra is owned by a private equity company they are looking at the numbers even more so.’

‘If a big buyer like Ekaterra was to start putting more pressure on prices, that would be very unfortunate’

‘This is bad news for Sri Lanka,’ says another broker, who prefers to remain anonymous due to his ties with Ekaterra. He explains that the decision will influence prices in Sri Lanka too, since they always knew that they would get a relatively good price for their tea if Unilever participated in the auction: Unilever mainly considered the quality. If Ekaterra sources less tea in Sri Lanka, it will become more difficult to cover the costs of certified tea, he points out. ‘For the quality teas, Unilever was one of the main buyers.’

In order to pay tea pickers a living wage, brands actually have to pay higher prices, Sabita Banerji says. She is the CEO of the British knowledge platform THIRST, which investigates the causes of human rights abuse in the tea industry.

‘At the moment, even certified tea is sold at extremely low prices,’ she says. ‘If a big buyer like Ekaterra was to start putting more pressure on prices, that would be very unfortunate. It would exacerbate the problems that are already existing in the tea sector, such as exploitation, poverty wages and abuse.’

Living wage ‘unrealistic’ 

Referring to private equity, researcher Morris says: ‘If Kenya has a lower cost of production, then that is the kind of opportunity you would expect capitalism in high gear to take advantage of. CVC may find it easier than Unilever to live with any reputational issues that arise, because being a public company makes Unilever more visible when it makes these kinds of decisions.’ 

Unilever claimed that the tea pickers would fare well after the sale to CVC. Unilever told the Financial Times that the promise to provide a living wage by 2030 would be kept under the new ownership.

But according to human rights researcher Birchall it is unrealistic to expect a private equity party to do so. ‘Unless it’s written into a contract and it’s binding.’

When Follow the Money asked Unilever whether it had included guarantees for a living wage in its sales negotiations with CVC, Unilever referred the matter to Ekaterra. The latter initially refused to say whether it will assume responsibility for the promise of a living wage. ‘We at ekaterra are committed to respecting human rights and improving the lives of workers in our supply chain. [...] However, wage issues in supply chains are complex and cannot be addressed by one stakeholder alone. [...] We’ll continue to collaborate with other stakeholders to achieve a living wage for tea estate workers.’

A few hours before publication of this article, Ekaterra added: ‘In addition to our responses, we confirm that ekaterra is committed to upholding its promise to pay a living wage to all workers in its supply chain, including tea pluckers and farmers by 2030.’

But Jeeveranjani is worried about the future. She is afraid that she will lose out if tea prices drop further. She is already struggling to keep her children in school. ‘I can’t afford their school supplies.’ She is begging for help. ‘Companies like Unilever and Ekaterra will never do anything for me.’


Every single specific question Follow the Money asked CVC went unanswered, with the company unwilling to say, for example, whether it planned to pay tea pickers a living wage or how it would be improving their working conditions. Instead, CVC issued a lengthy statement, which included the following: 

CVC is committed to working with ekaterra to address issues related to labour conditions within the supply chain and to ensure ekaterra has sound processes in place to audit and review the operations of suppliers to ensure they are conducted ethically and sustainably. 

CVC fully supports the statement provided directly by Ekaterra.’

When we asked Ekaterra whether it will provide tea pickers with a living wage by 2030, it responded:

We understand that achieving a living wage for tea estate workers is the responsibility of the entire tea industry. Working towards living wages is crucial, as it enables people to gain access to other human rights, such as education and healthcare. Unfortunately, there are numerous challenges, such as low minimum wage levels set by governments, the prevalence of informal, low-paid labour, the low retail price of tea, and business practices that result in downward competitive pressure. Moreover, the tea sector faces additional complexity as tea estates are often situated in remote locations where there is a lack of state investment in infrastructure.

Despite these challenges, ekaterra is committed to transforming the sector and driving this agenda. We're working alongside IDH Sustainable Trade Initiative and other peers towards a global industry commitment, and we'll continue to collaborate with other stakeholders to achieve a living wage for tea estate workers.’

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