A national minimum wage and the potato industry

Transcription

1 A national minimum wage and the potato industry Pieter van Zyl: Potatoes South Africa A panel of experts 1 tasked with determining South Africa's proposed National Minimum Wage (NMW) came to an amount of R20 per hour. They believed that this would not lead to job losses. According to the panel extensive research showed that introducing a NMW could lead to economic growth. The panel also recommended a two year freeze on the NMW to give companies and businesses enough time to introduce the transition. The agricultural and domestic sectors are given separate minimum wages to avoid job losses in these sectors. For agriculture, the proposed minimum wage for the first year (2018) is 90% of R20 or R18 per hour (currently R14.25 per hour), while the proposed minimum wage for the domestic sector is 75% of R20 or R15 per hour. A critical issue that the panel considered is the adjustment or transition period. Since the adjustment period should allow enterprises and workers to adjust to the new policy in a systematic manner and be as non-disruptive as possible, the panel suggested the following: The legislative and institutional arrangements be finalised as early as possible in The recommendation level of R20 per hour should be effective as soon as the legislation is enacted at the latest 1 January Page 34 CHIPS Januarie/Februarie 2017

2 Ekonomiese Nuus Economic News Over the period , compliance with the NMW should be based on technical assistance and persuasion, rather than penalties. Beginning in 2020 (2021 for small businesses), enforcement of the NMW should be based on financial penalties for non-compliance. The Panel recommended that changes to the level of the NMW should be based on evidence and can only be feasibly undertaken in 2020, after the initial level has been implemented and sufficient time has passed for an assessment of the evidence. Potatoes South Africa acknowledges the important role that farm workers play in the sector. The agricultural sector is unique in the sense that a farm is a place where farm owners, managers, workers and their families live and work together on the same property. In many instances, close relationships exist between farmers and workers (for generations). Sound relationships ensure a harmonious and productive workforce. Potatoes South Africa also acknowledges government s goal of creating one million additional jobs in the agricultural sector by 2030 as set out in the National Development Plan (NDP). Background to the potato industry Between and hectares of potatoes are planted annually with a total production of between 2 million and 2.5 million tons during the last three years. Potatoes are grown twelve months of the year with approximately 80% under irrigation. The primary potato industry supplies work to an estimated labourers (permanent and seasonal) on approximately 560 commercial potato farms. In 2011 the number of labourers were approximately which means that potato producers are shedding labour 2. Eighteen thousand labourers lost their jobs on potato farms since Furthermore, it is estimated that between and small holder farmers cultivate potatoes, meaning that to households produce potatoes for own consumption, and they are probably selfsufficient in terms of food security as they can easily realise between five to 30 tons of potatoes per hectare (i.e. they can also sell surplus production to generate income). The potato industry contributes 3% of the total gross agricultural product and 58% of total vegetable production. Total consumer spending on potatoes and potato products is estimated at between R20 billion and R23 billion. The per capita consumption of potatoes is almost 40 kg and growing. A hectare of potatoes under irrigation can easily produce 50 to 70 tons of fresh food, meaning potatoes can make a significant contribution to food security. On average the potato producer in South Africa produces 47 tons of potatoes per hectare (average for dryland and irrigated land) compared to one hectare of maize which can produce four tons of maize. The direct production cost to produce one hectare of potatoes is however four to six times higher than to produce one hectare of maize. Recent studies have shown that out of the total consumer expenditure on staples (potatoes, maize meal, bread, rice and pasta), 10% is spend on potatoes, making potatoes part of the daily diet of consumers. When comparing food retail prices it is clear that potatoes are highly affordable when compared to other starches. Consequently, potatoes comply with all three tiers of the food security equation, i.e. availability, affordability and nutrition. Hawkers, or informal traders, not only buy 55% of all potatoes on fresh produce markets, they also buy directly from producers. In total informal traders buy between 65 and 75 million 10 kg bags of potatoes (+/ kg Consumer prices per unit of different food items (urban areas) July 2014 July 2015 July 2016 Loaf of brown bread 700 g R10.40 R10.64 R11.86 Loaf of white bread 700 g R11.18 R11.89 R13.01 Super maize 2.5 kg R18.51 R20.50 R27.98 Rice 2 kg R22.94 R23.24 R24.81 Potatoes fresh per kg R9.55 R9.59 R12.57 Source: NAMC, 2016 CHIPS January/February 2017 Page 35

3 of potatoes), which is 25 % to 30% of the total potato harvest. In 2016 the estimated worth of potatoes bought for reselling by the informal trade was between R3.0 and R3.5 billion. All these potatoes were marketed through the various marketing structures in local communities, which emphasises the fact that the potato industry has a huge social footprint, as well as an informal labour multiplier in local communities. Furthermore, informal traders contribute to job creation as they also depend on employees. As mentioned earlier, potato producers employ an estimated labourers of which qualify as being seasonal workers (most of which are women 4 ). The seasonal labourers are mainly employed during planting, lifting or in the pack houses for a number of weeks during the production and harvesting seasons, which can last between one month (small producer) to ten months (large producer) per year. This, in many potato production regions, is the only income for many of these seasonal labourers. During 2016 an estimated R409 million ( seasonal labourers x R128 minimum wage per day x 80 work days) was paid to seasonal workers alone which was predominantly redirected to their local communities. If, for example 10% of these seasonal workers lose their labour opportunity as a result of mechanisation (unintended consequence of an increase in minimum wages), less money will flow back to mostly poor local communities. Such a loss will be equal to R40.9 million in wages. Therefore, the potato industry has a huge influence on the economy of many local communities. Indirectly this will also impact on other employment opportunities in these local communities which stem from the loss of income suffered by seasonal workers (and potentially permanent workers). Table1: Labour costs on potato farms - 4 regions (based on case studies done): 2016 versus 2012 Limpopo irrigation Sandveld irrigation 1. Labour cost per hectare of potatoes (exclusive of management): KZN seed production Eastern FS dry land Total 2012 R R R R Seasonal - mainly women (2016) R R R R Permanent (2016) R R R R Total 2016 R R R R Total 2017 (estimated) * R R R R (increase = CPI + 1, as per Sectoral Determination) Total 2018 (90% of NMW) * R R R R (increase to 90% of R20/h - National Minumum Wage) Increase: (labour cost) Increase: (CPI index) 25% 53% 34% 63% 46% (increase in 2013 alone = 51.2%) 2. Labour cost as percentage of total cost (excluding land rent & owner remuneration): % 5% 17% 11% % 4% 11% 8% 3. Rank: Labour cost in terms of single largest cost item rd largest 5th largest 2nd largest 3rd largest th largest 6th largest 2nd largest 6th largest * Assumption: Producers will keep all their labour25% Page 36 CHIPS Januarie/Februarie 2017

4 Ekonomiese Nuus Economic News Current realities Potato growers are experiencing the following: Real production costs show an increasing trend over time, meaning that production costs have increased faster than inflation. Potato farming is also exceptionally capital intensive. The three large input cost items (seed, chemicals and fertilisers) are easily more than R per hectare planted while the value invested in machinery and implements alone is worth between R and R per hectare of potatoes, depending on the region and size of the operations. The trend in real potato market prices is downwards (CPI Food as deflator). The increase in real production costs and decline in real market prices have resulted in a much tighter cost-price squeeze situation over the last number of years and consequently the sustainability of potato production in many regions is increasingly being threatened. Some potato growers are already finding it difficult to survive financially and will be forced to leave the industry. More than 100 potato growers (17%) left the industry since Moreover, in order to remain sustainable, producers will have to either increase output and/or cut back on expenses. Depending on the production region, labour costs vary between R7 000 and R per hectare on irrigated land (see Table 1), which makes cutting back on labour costs a major consideration in managing the costprice squeeze effect on potato farms. From Table 1 it is clear that labour costs on potato farms are increasing at a much faster rate than inflation. The labour cost on KwaZulu-Natal farms increased by 63% for the period , while at the same time inflation (CPI) was only 25%. Labour cost as percentage of total cost has also increased in the under-mentioned regions. In KwaZulu-Natal labour cost as percentage of total cost increased from 11% in 2012 to 17% in Labour cost was also the 6th largest cost item in the Eastern Free State in In 2016 it became the third largest cost item. Clearly, labour cost is getting more significant over time. From Table 1 it is clear that producers in both Limpopo and KwaZulu-Natal will realise labour cost of more than R per hectare in 2018 when the National Minimum Wage is expected to be implemented (R20 per hour, but for 2018 agriculture will only pay 90% of R20). Calculations are that the minimum wage will then increase by 17.4% from In 2013 the minimum wage increased by almost 52% which started a wave of mechanisation in the potato industry, leaving thousands of especially seasonal labourers (= women) jobless. The 17.4% increase in labour cost next year will see more seasonal workers CHIPS January/February 2017 Page 37

5 being replaced by machinery. Cognisance should be taken that potato farming is very labour intensive and has the potential to absorb labourers. Potato producers, however, accelerated mechanisation after the introduction of the increase of 52% in minimum wages in 2013, since it is very difficult to cut back on seed and chemical and fertiliser application as this would result in sub-optimal production conditions. The following numbers indicate that labourers in the potato industry, especially seasonal labourers, can easily be replaced by mechanisation: Under normal conditions a potato producer will employ between 20 and 50 seasonal labourers during planting time (this is in addition to his permanent labourers). However, should such a producer decide to fully mechanise his planting operation only permanent labourers will be required. An average size planter (R to R ) can easily replace 20 to 30 seasonal labourers. The payback period is two seasons, meaning the savings in labour cost will then be larger than the initial outlay. A fully mechanical potato harvester can potentially replace 40 to 80 seasonal labourers during the lifting of potatoes (only five to seven seasonal labourers will then be needed). A mechanical harvester costs anything between R1.8 million and R2.8 million, but can easily replace 40 to 80 seasonal labourers. The payback period is two to four seasons. Expanding the level of mechanisation in a potato pack house can result in 30 to 40 seasonal labourers losing employment as opposed to the typical 80 to 100 seasonal labourers usually required in a pack house. There are currently examples of where producers have decided to fully mechanise their pack houses, and consequently they now employ less than 20 seasonal workers in their pack houses. Through such extreme mechanisation between 50 and 70 labourers can be replaced in pack houses. The payback period, depending on the level of mechanisation, is two to six seasons. Potatoes South Africa is cognisant of the fact that producers can never mechanise 100% and will hence remain dependant on labour, but the number of labourers needed/utilised can vary significantly. The initial cost of mechanisation is extremely high and as 50% of all potato producers plant less than 50 hectares, they will find it difficult to commit to large-scale mechanisation. Thus, should the cost of potato production result in unsustainable potato enterprises they will exit the industry. Potato producers are increasingly being contracted by processing companies which negates the need for pack houses as processing companies transport potatoes in bulk directly from the field to their facilities. Producing potatoes for processing also means that less labour is required on farms. Other benefits received by permanent labourers should also be taken into account, for example the cost of housing. Most households also have access to running water and electricity (sometimes these labourers have to pay a certain portion of the electricity cost). The point to be made is that these benefits will be lost should such a labourer be dismissed. Suggested way forward A recent study on the efficiency in pack houses done by Potatoes South Africa concluded that some producers can easily cut back 10% on the number of labourers in pack houses without having them be replaced by machinery. Producers, however, have indicated that they do not want to shed labour as they have a social responsibility. It is thus imperative that engagement with government aims to develop a policy environment which is supportive of job retention / creation in order to achieve the goals of the NDP. Any opportunity to further engage with government on this issue will be welcomed. Potatoes South Africa would like to see a value chain approach as the potato producer, the labourer and the informal trader (as well as many other role players, such as input suppliers) are dependent on one another. If a potato producer leaves the industry, not only will his seasonal labourers (and probably his permanent labourers as well) lose their jobs, but the related informal traders will probably not be able to source enough potatoes. Should the potato producer cut back on seasonal labourers in favour of mechanisation, less money will be directed to mostly poor local communities. Unintended consequences when changes are made to labour legislation should be considered at all times. C 1 A National Minimum Wage for South Africa: Recommendations on Policy and Implementation; National Minimum Wage Panel; November The number of labourers are derived from 2 nationwide surveys done by Potatoes SA, one in 2011 and one in Main reasons for shedding of jobs: About 100 potato farmers left the industry during this time (17%) & the sharp increase in labour costs. 4 It must be clearly stated that the people at the bottom of the wages and poverty picture are overwhelmingly women. It is women who are most vulnerable to unemployment, earn the lowest wages in the most vulnerable sectors, and who dominates the care-work and unpaid sectors. Page 7 of the Recommendations on Policy and Implementation: National Minimum Wage Panel; November Page 38 CHIPS Januarie/Februarie 2017