Minimum wages: testing agriculture to the max

A report compiled by the Bureau for Food and Agricultural Policy, under the leadership of Dr Ferdi Meyer, argues that recent labour unrest in the farming sector is not about minimum wages,
but unemployment and rural poverty in South Africa.

- Advertisement -

After violent wage protests erupted in De Doorns at the end of last year, farmer and farm worker representative bodies requested the Bureau for Food and Agricultural Policy (BFAP) to produce a report examining the viability of increasing minimum wages in the farming sector. In response, BFAP has compiled a detailed analysis of the farm-level impact of incremental increases in the minimum wage for selected industries, weighed against workers’ need to make a living and cope with rising food prices. The report also outlines the key features of the country’s agricultural industry, which is in transition.

Agriculture is changing
South Africa’s agricultural sector has long been dependent on cheap, unskilled labour. However, it is becoming clear that this system will not survive, and will be replaced by one with fewer, better skilled and better paid workers. Unfortunately, this transition is taking place against a background of very high levels of unemployment and rural poverty, which is creating tension.

These two issues, not minimum wages, lie at the heart of recent unrest, the report argues. Role players constantly miss this fact; public policy is not geared to handle the transition and it is obvious from media reports that the problem is not generally recognised. Making statements such as “farmers are paying starvation wages” is a typical example of such misunderstanding and could lead to unintended consequences.

- Advertisement -

If the minimum wage increases to  R150 per day, seasonal jobs in agriculture would be cut drastically and mechanisation would kick in. The costs of production would increase, feeding into food prices and worsening food security of rural households even more.

The farmer’s dilemma

The BFAP report provides a balanced view of the farmers’ dilemma through the projection of economic sustainability at various minimum wage levels. From the farm-level analyses, it is clear that labour-intensive farms will be unable to pay a minimum wage of R150 per day. Increasing wages to this figure will push up the cost of labour for the 10 biggest agricultural industries (ranked by employment) by R3,5 billion.

And it will increase the total compensation bill of agriculture by 53% – from R13,6 billion to R20,8 billion. All this, however, does not mean there is no scope to increase the minimum wage. The analysis reveals that most industries could absorb an increase of approximately R20 per day, but even this will mean that some of the smaller farms will be unable to cover their operating expenses or repay loans.

Impact on the wider economy
Increasing the minimum wage for farm workers by R20 per day would also have an impact on the wider economy, especially in rural areas. The resulting real decrease in demand for unskilled agricultural labour could be between 10% and 28% and the demand for unskilled non-agricultural labour would also decrease slightly because of the general dampening of the economy. Moreover, if the wages of all unskilled agricultural workers increase, the income of skilled agricultural labour could decrease as farmers try to make ends meet.

The wages of non-agricultural skilled labour could also decrease due to the slowing of the economy. Increasing the minimum wage is likely to lead to a general contraction of agricultural industries that will be reflected in a decrease in production. Exports of agricultural and food products could decrease while imports increase, negatively affecting the trade balance.
Also, net government income could decrease because of the loss in income tax revenue.

At a R20 per day increase, welfare estimates for poor agricultural households could increase slightly, but decrease for all other households, including poor non-agricultural households, as they face higher food prices without wage increases. But the real problem is that even R150 a day would not be enough to provide a typical household with enough essential nutrition.

The farm worker’s dilemma
The report illustrates the obvious fact that the minimum wage of seasonal labourers is insufficient to provide a healthy diet. These households are therefore more dependent on a basic staple food diet. (The permanent agricultural workforce, who enjoy other benefits such as food rations, housing, schooling and transport, provided by the farmer, present a completely different picture.)

Agriculture can, to some extent, help with the food security of seasonal labourer households, but cannot be expected to solve rural poverty and unemployment on its own. The gap between what farmers can pay and what consumers require for a basic living is large, and a creative policy framework, together with extremely efficient farm management, is required to avoid what currently seems inevitable – the shedding of jobs in agriculture.

To accommodate higher wages, structural adjustments will have to be made. These include mechanisation and consolidation of farming units to become more efficient. On-farm mechanisation will in most cases result in the shedding of seasonal labour. It was calculated that about R3,7 billion is spent annually on seasonal agricultural labour wages. If 50% of these workers are removed from the system, the economy would lose R1,8 billion annually.

But, if agriculture were to intensify and expand under a favourable economic and political environment, mechanisation could result in increased efficiency and productivity. Seasonal labourers could be placed as permanent employees, increasing the total remuneration bill, which will have an enormous positive impact on rural communities. Before any of this takes place, however, the necessary supportive mechanism needs to be put in place. This includes infrastructure development, tax breaks and similar interventions.

A simple example would be for government to increase the minimum wages for farm workers, but at the same time reduce the taxes for farms where jobs are retained.

Mechanisation without shedding jobs
In a report to the National Planning Commission (NPC), which was assimilated into the 2030 strategy published by the commission, BFAP highlighted the natural and economic resource potential of the country to expand its agricultural output. It identified the winning industries and the potential to expand and intensify South African agriculture, thereby creating close to 1 million jobs.

South Africa has uncultivated arable soil, as well as additional sources of water under efficient water management systems. In short, the country undoubtedly has the potential to expand and intensify its agricultural output, and mechanisation could well be part of this process. Mechanisation should not be seen as a threat to manual labour, but as an opportunity to increase the output per worker and stimulate the agro-economic sector.

In turn, increases in production could result in building human capital, where agriculture will employ more skilled, well paid and young workers. – Denene Erasmus 

This is a short excerpt from the report entitled Farm Sectoral Determination: An Analysis of Agricultural Wages in South Africa, compiled by BFAP under the leadership of Dr Ferdi Meyer of the University of Pretoria. For the full report, visit Contact the Bureau for Food and Agricultural Policy on 012 420 5021 or email [email protected]
The views expressed in our weekly opinion piece do not necessarily reflect those of Farmer’s Weekly.