by Piet Coetzer

New minimum wage triggers restructuring

Wage increase prompts mechanisation

Farm mechanisation.jpg

Within the week that it was announced, the new nation-wide minimum wage for farm workers triggered the start of a fundamental restructuring process in the agricultural sector. There are already signs that it is going to be a volatile and painful process that will suck in the retail and related sectors involved in the national food supply chain. 

Barely two days after the minister of labour, Mildred Oliphant, announced on Monday last week that the minimum daily wage in the agriculture sector is to be increased from R69 to R105, it was reported that some farmers had already started procedures to reduce their workforce.

In response the Western Cape secretary of the Congress of South African Trade Unions (Cosatu),Tony Ehrenreich, immediately picked up on his “war talk” during the recent violent farm labour protest, warning that “bad farmers who now want to dismiss workers ... (should) get out of agriculture and out of the country”.

He also announced that “there will be protests in major retail stores on 27 February 2013,” claiming that “research has shown that retailers are setting ridiculously low prices for products that they buy from farms”.

Exposing the ad hoc-nature of the minister's announcement in reaction to the recent protests, the swiftness of the response by some farmers should not have come as a surprise. The hike in the minimum wage amounts to a 'sudden death' event for them since it comes into effect on March 1. It is in the middle of most farmers’ crop season for which cost/profit calculations have been done long ago.

If the farmers did not take immediate steps, they would have had to pay remuneration according to the new wage determination, resulting in additional unforeseen costs. It is also likely to have a knock-on effect on the remuneration for those workers above the minimum scale.

Farmers over recent years have had to contend with steeply rising fuel and electricity costs and increased water tariffs. They are also, like most other industries, facing the prospect of further steep Eskom electricity tariff increases in the near future.

The other side of the coin (and illustrating that a more holistic fundamental restructuring strategy for agriculture is needed) comes from recent research by the Bureau for Food and Agricultural Policy, released early in January. It found that even if workers received the minimum R150 per day, as originally demanded by them, it would not have been enough to ensure a nutritionally adequate diet.

At the same time it was also reported that the highest minimum wage affordable to the agricultural sector was in the order of R104, creating a classical dilemma. 

What has now started to happen with employment in the sector seems to be at odds with the aims and strategies of the government’s own National Development Plan (NDP). The NDP envisions that agriculture can create an additional one million jobs by 2030.

The extent to which the present one-size-fits-all approach to agriculture, as encapsulated in the single minimum wage, fails to accommodate the full realities of the sector is illustrated by the fears that it will hit the smaller, emerging farmers the  hardest. It is especially small and medium-size farmers, among whom are the majority of black farmers, who will not be able to afford the new minimum wage. This is likely to impact negatively on the agricultural transformation process.

From widely disparate quarters, from the deputy-minister of agriculture and leader of the Freedom Plus Party, Dr. Pieter Mulder, and Tony Ehrenreich of Cosatu to the Democratic Alliance, there seems to be a notion developing that the way out of this dilemma is government subsidies to the sector. 

While one of the challenges that South African agriculture faces is the competition on international markets from other jurisdictions, notably the European Union (EU), it is also not a simple matter. 

In the EU for instance agricultural subsidies comprise a massive €60 billion, or about 40%, of the entire EU budget in the present financial year. However, the sector generates less than 2% of the EU’s gross domestic product and, tellingly, accounts for less than 6% of employment opportunities. 

As is often the case, these subsidies cause all sorts of distortions in the market and the whole system of agricultural subsidies is presently the subject of a fierce debate within the EU.

If ever there was a need for all stakeholders in the agricultural sector in South Africa to engage in a rational, thorough and well structured dialogue on the future of the sector, it is now. Without proper intervention the present situation could develop into a crisis not only involving the viability of the sector, but also threatening such fundamentals as food security and social stability.

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