Are we playing with fire?
It is plainly irresponsible to underestimate the role of agriculture!
The role of agriculture in the economy is often underplayed in so far as its monetary contribution to the GDP is concerned. The real value of agricultural in South Africa, however, hinges on the following three major aspects, namely:
· Its ability to earn foreign exchange (i.e. it contribute to the current account which in turn assists to increase currency stability).
· Its ability to employ people, especially unskilled and semi-skilled people in rural areas where employment is scarce.
· It contributes to food security. Food insecurity transpiring through high food prices has resulted in food riots in many countries in recent years, and most importantly was the catalyst for the Arab Spring events.
Neglecting to acknowledge the aforementioned is playing with fire. If we look at the strikes and resultant anarchy in the Western Cape:
· It affects the country’s ability to earn foreign exchange since a large component of the agricultural sector in the Western Cape is export orientated.
· Workers, especially seasonal workers, are set to lose their jobs and therefore earn no income to buy food to support their families (i.e. a compounded food insecurity problem). A large number of these workers are from other provinces and hence the events will also have spill-over effects to other parts of the country.
· There is a serious breakdown in trust and work relations that has been nurtured for years. This could prove to be the most difficult bridge to build again once things settle down. The negative implications could be potentially long lasting.
If these strikes manifests in the regions where foodstuffs such as grains and fresh vegetables are produced it would have a major impact on food security with resultant higher prices and job losses further fuelling the instability.
A potato industry view point
The potato industry is labour intensive which means that potato farmers will always be hard hit by strike action. In addition, potatoes have a limited ability to keep which means that a delay in the harvesting process could have dire consequences for the viability of the farming operation. On those farms where the potato component is rather small compared to the other farming enterprises it is quite possible that the famer could close the potato operation and concentrate on other enterprises that are less labour intensive. In those regions where potato farmers are not in a position to switch over to other crops in the short run the problem is more serious as far as job losses are concerned. The aforementioned is not only applicable to the commercial sector, but will impact equally on the smallholder sector, as well as new initiatives to introduce aspirant smallholders to potato farming and existing community projects.
As far as the potato industry is concerned workers in general receive more than just a salary. Perceptions regarding wages in the agricultural sector are seriously misguided by only taking into account the monetary value of wages. There are several other benefits that farm workers (permanent and seasonal) qualify for by either having access to it for free or is being subsidised by the producer. These include for example free housing that has electricity, running water and flush toilets. Water usage is free and as far as electricity is concerned it is subsidised by 25% by the producer. Transport is free, including transport to clinics.
The debate regarding farmer worker wages and benefits is furthermore impeded by oversimplifying the scope and nature thereof. For example, as with any normal business salaries differ because of the type of work the worker does, the responsibilities involved and years of services. The deductions also differ. The salary and benefits will also differ from region to region and farm to farm. In some regions farmers has to compete with other industries, such as the mining industry, for their labour component and are consequently forced to pay wages way above the wages promulgated in the sectoral determination applicable to farm workers. A blanket approach to determine the optimal wage level (inclusive of in kind benefits) could potentially have the opposite impact that taking into account the intrinsic characteristics of different regions.
The graphs to the right show the possible effects of increases in labour cost. For example, based on a typical potato farm in the Sandveld region, the normal labour cost (only the cash cost) for 2013 will be R4788 per hectare. In Scenario 1 the assumption is made that the daily wage is increased from R80 per day to R110 per day, an increase of 38%. If the permanent labourers` wages also increase by 38% the total labour cost will increase to R6583 per hectare. On the typical farm 151 hectares of potatoes are being planted which means the total labour cost for the farm will increase by R271000. This may have serious consequences for the farm as profit margins are already under pressure. If Scenario 2 will play out the total labour cost for the farm will increase by more than R630000.
The same applies to the typical potato farms in KZN and the Eastern Free State. If Scenario 1 will play out in KZN the total labour cost for the farm will increase by more than R277000. If Scenario 2 will play out the total labour cost will increase by more than R645000. If Scenario 2 will play out in the Eastern Free Sate the total labour cost for the typical potato farm will increase with R1.02 million. On this farm 239 hectares of potatoes are being planted annually.
(In all the above cases the assumption is made that the no workers are laid off)
Looking at actual wages: An example
In the Ceres production region the average entry salary for a permanent worker is R1850 per month (there are no deductions from this amount, this is what they get out). During harvest time payment is based on output. During this period workers can up their basic salary by 25%. The mentioned labourer is doing unskilled work. The skilled labourers earn twice of even three times more than the mentioned unskilled labourer.
In respect of casual workers they work between four and eleven months on the farm. The average daily wage is R99.23, but for the hard worker the incentive exists to increase his/her daily earnings to R156 per day. The prescribed wage in terms of the sectoral determination is R69.40 per day.
In the Ceres region it is possible to cut the worker corps in the vegetable section by as much as 40% should the farmers be forced to further mechanise due to the strike action and resultant damage. Apart from these job losses the situation could be further aggravated if the farmer introduces the latest technology in the sorting and packing facilities. It is estimated that around 15% of workers in this segment of the farming business could also be laid off. Real vegetable producer prices, especially those of potatoes, are on a declining trend for three years in a row now. Also the production costs for potatoes are escalating, faster than inflation. It, therefore, means that producers are increasingly confronted by the cost price squeeze phenomenon which in turn asks questions about the future sustainability of the sector (i.e. its social, ecological and economic contribution).
Where to from here
A review of the minimum wage should be welcomed in order to increase transparency. However, as important is that the minimum wage should not be seen in isolation. A total package approach should be considered to get a real picture of the remuneration package of farm workers. Also of vital importance is the social assistance and cohesion dimensions of farming communities, i.e. where the farming community is stepping in to provide services that should be provided by government and are taken for granted by many stakeholders, e.g. city and town dwellers, government, unions and party politicians.
It is also of vital importance that responsibility is taken for the outcomes of a review of the minimum wage. Should a review result in an increase in minimum wages at higher levels than what is actually being paid it could result in job losses. In other words, there is a high probability of higher wages with associated job losses. The latter is not only a result of higher wages, but also due to the militant events that has transpired, which has seriously impeded on the trust relations between stakeholders. Thus, a highly probable outcome is fewer, but better paid workers on farms (producers will increase mechanisation) to mitigate against the economic and social risks associated with wage disputes in South Africa. Shedding labour from agriculture is, however, not unique to the South African agriculture, it is a worldwide phenomenon. However, if this happens the structure and level of development of the manufacturing and services sector should be evolved to the stage where such labour can be absorbed, which is not the case in South Africa, as pointed out by studies by the Harvard University. The latter is due the inability of government to create an environment where the manufacturing and services sector can thrive, as well as the education system that has and is failing our youth.
The tragedy of the current strike actions and the violent nature thereof is that those workers who will lose their jobs/employment opportunities are those that can least afford it. It will furthermore add to the millions of poor, vulnerable and food insecure people in many rural areas of South Africa. The latter outcome is in direct conflict to presidential outcomes and the National Development Plan objectives. Another question that begs to be answered is whether the current status quo of ensuring better wages is the most efficient, especially in a country where the social grant system is putting a tremendous burden on the government's budget. New innovative ways must be explored to utilize the social grant system to supplement the social security safety nets in farming communities, e.g. wage rebates, housing subsidies, provisions for medical aid and pension funds.