Rich farmer, poor worker?

During the recent farm worker unrest a lot was said about rich farmers who pay very low wages to their labourers. Yet, while it’s now emerged that farm workers aren’t as poor as they were painted by politicians and unions, little has been said about agriculture’s ability to pay more. The recently released Stats SA Agricultural Survey 2011 provides an official view of the state of the average farmer’s finances.

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And the profit and loss statement in Table 1 shows that the average farmer made a loss in 2011 and had a negative cash flow of R405 000. The figures are skewed by the presence of a few large farming units with an income of more than R3 million a year. Unfortunately, the most recent survey on large-scale agriculture was done in 2006. It showed 5 693 farming units with a turnover of more than R3 million.

These farmers had a total gross farm income of R49,7 billion. Adjusted for inflation to 2011, this is equal to R84 billion, or more than 60% of total gross farm income. The third and fourth columns of the table divide farmers into two groups – those with an income of more than R3 million and those who earn less than this. Small units made a larger loss than the average-size farm in 2011. Larger farmers made a profit of R931 208.

Out of the total number of farmers – estimated at 39 966 – only 5 693 had a turnover of R3 million-plus in 2006. From this we can assume that 34 200 (85%) of all farmers have a turnover of below R3 million. According to the 2011 survey, salaries, wages, bonuses, purchases and current expenditure exceeded total gross income by R110 000/farmer for 85% of farmers that year. There was also a negative return on capital in 2010.

Profitability
The average investment per farmer in 2011 was R3,16 million. A risk-free return on this investment would have amounted to R158 000. This shows that agriculture is a low-profit business for the average farmer. Their turnover is far below BEE cut-off rates.

In spite of this, farmers succeeded in increasing wages in 2011. Salaries and wages contributed 13% to total current expenditure and increased by 17,9% from 2010 to 2011, while the number of workers decreased by 5,1%. Salaries per worker thus increased by 24% from 2010 to 2011. In other words, while farmers made a loss they still managed to increase wages per worker by 24%.

Implications
The terms of trade in agriculture have weakened to such an extent that very few farmers are currently making a profit. They don’t have any spare cash or excess land they can provide free-of-charge for BEE projects. In any case, 85% of all farmers have a turnover of less than R3 million, far below the current BEE threshold. Farmers won’t be able to afford higher wages without a sharp reduction in the number of labourers. 

The fact that farmers still spent money on capital equipment in spite of a low profit year is a clear indication that they’re moving towards more mechanisation. The current wage demonstrations will accelerate this process.

Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and don’t reflect MPO policy. Contact Dr Coetzee at [email protected] with ‘Global farming’ in the subject line.