The impact that the South African agricultural sector on the economy-

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The impact that the South African agricultural sector has on the economy, is far greater than just its contribution to the country’s gross domestic product (GDP) and also has a major impact on unemployment figures, particularly in rural areas.

According to the Bureau for Food and Agricultural Policy (BFAP), the five major agricultural industries contributing to the employment of workers are the citrus, sugarcane, grape, tomato and potato production industries, all of which are easily influenced by a change in the minimum wage. Collectively, these sectors provide jobs to approximately 267 000 people. Of this number, approximately 189 000 are seasonally employed in these sectors, while approximately 77 000 workers are permanently employed.

A minimum wage was first introduced in 2003 and is generally perceived as having been the first major wage shock the agricultural sector experienced over the last two decades. The second wage shock came in March 2013, when the minimum wage increased by just more than 50%.

Wages vs number of workers

It is evident that a strong negative correlation exists between the minimum wage and the number of people working in agriculture. With the increase in the minimum wage from 2008 to the beginning of 2011, there was a decrease in the number of people working in the sector.

The weakening of the exchange rate in 2011 created a competitive export market for farmers growing vegetables and fruit, among others. This resulted in an increase in the demand for farm workers. Other than mild seasonal effects, the number of workers employed in the agricultural sector increased steadily until early 2013.

Lower number of workers

Looking at the increase in the minimum wage in 2013 (from R7,71 to R11,66 per hour) it is clear that the agricultural sector employed fewer labourers. According to these figures, the number of agricultural workers fell by nearly 100 000 between the first quarter of 2013 and the second quarter of 2014.

Employment in the agricultural sector showed a positive trend from mid-2014 to the end of 2016, despite the rise in the minimum wage. However, since 2017 statistics reflect a negative, creating uncertainty about what the impact of the new R20 per hour minimum wage proposal on the agricultural industry will be.

At the time of writing this article, a bill had already been approved by the National Council of Provinces (NCP), but had not yet taken effect. If the minimum wage is implemented, it will cause this wage to increase at a higher rate than was the case over the past few years. This would likely lead to more workers being laid off by agricultural producers, who would rather mechanise to reduce input costs.

What are the options?

Dominique van Deventer, a legal adviser at Small Enterprise Employers of South Africa (SEESA), believes that if the Act is implemented it will lead to large-scale job losses in agriculture. He reminds producers to make sure they utilise the permitted deductions.

Employers can deduct up to 10% of a worker’s wages for housing and food, respectively. However, certain requirements are set as to how these benefits should be provided to employees and may not be neglected.

He is of the view that, if labour becomes more expensive, agricultural producers will use more project-specific service contracts where employees are appointed only until the end of a certain activity or project, after which the employment contract automatically expires.

Shortened working hours

During financially demanding times, employers can also apply for shorter working hours. This means that rather than letting workers go they will remain employed, but for fewer hours. The affordability of labour may be investigated in such cases.

Lastly, if employers are considering applying for a waiver of the minimum wage, Dominique warns that it is best to first consider all options and to take the opinions of experts into account. According to reports, the application system will be online and will be integrated with institutions such as the South African Revenue Service (SARS).

How does SA labour compare?

The Agri Benchmark group compares agricultural sectors in different countries around the world at farm level and also compares, among other things, the cost and productivity of agricultural workers. The productivity of different sizes of ewe production farms are compared in Figure 2.

Farming practices in South Africa (ZA) can be compared with countries such as Australia (AU), Namibia (NA), Brazil (BR) and Colombia (CO). With productivity, expressed in kilograms live weight produced per hour of work, a large difference can be seen between Australia and South Africa. Australia recorded a minimum of 47,1kg and a maximum of 80,8kg per hour, while South Africa’s productivity ranged between 2,5kg and 5kg.

Namibia’s labour force also seems to be applied more efficiently, with productivity in the country ranging between 5,7kg and 10,2kg. South Africa’s productivity is better than Colombia’s, although herds in that country are smaller, which also affects productivity.

Cost of labour

Labour costs in a ewe production unit in South Africa ranges between 10% and 20% on different sized farms. In Australia labour costs constitute only between 1% and 5% of overall costs, and in Namibia it ranges from 6% to 31%.

Regarding the cost of labour, there is a significant difference between South Africa and Australia, which is one of the best paying countries in terms of agricultural labour. They pay their workers between 19 and 28 US dollars per hour, while South Africa only pays 1 dollar per hour.

Cattle branches

In the case of cattle farming (a cow-calf production system) a similar scenario is observed, with labour productivity in Australia eclipsing that of South Africa. In Australia, production is measured between 45,5kg and 203,9kg live weight, produced per hour of work, compared to between 3kg and 12kg in South Africa. In most cases, Brazil and Colombia also fare better than South Africa, while Namibia’s productivity falls to within the same values as South Africa.

The labour costs in cow-calf production systems as part of total farming costs range between 10% and 57% in South Africa, which even exceeds the maximum for sheep. If we compare it to that of Australia, which ranges between 10% and 22%, South Africa is somewhat more competitive with its cow-calf systems than in the case of sheep farming.

In conclusion

When comparing data from South Africa and Australia there appears to be a strong correlation between worker productivity, the number of workers and wage per hour. With this in mind, the solution is simple.

If agricultural producers are forced to pay more for labour, they will use fewer but more productive workers. This situation will be a challenge for government, which has a dual purpose of increasing the minimum wage while simultaneously reducing unemployment. – 

WA Lombard, Walter van Niekerk and Mario van den Heever, Department of Agricultural Economics, University of the Free State

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