The deciduous fruit industry is one of the largest export sectors within the agricultural sector. It employs on average 63,145 permanent equivalent farm workers per annum with an estimated 252 579 dependents.
The National Minimum Wage Commission recommended to the Minister of Employment and Labour an increase in the national minimum wage of farm workers from R18,68 to R21,68 per hour with effect from 1 March 2021. The deadline to comment on the recommendation was 20 December 2020. This reflects a 16,1% increase based on a cost of living adjustment and to equalise the agricultural minimum wage with the national minimum wage.
Hortgro obtained inputs from the independent advisory group BFAP (Bureau for Food and Agricultural Policy) to utilise the agricultural economic models for our respective crop types at industry, regional, and farm level to quantify the impact of the proposed increases on the affordability and sustainability of this proposal. The results from this assessment can be summarised as follows:
- Wages of farm workers amounts to between 30% and 45% of on-farm production costs.
- Fruit sector farm workers have the potential to earn, and often do earn, on average, between 20% – 35% above the minimum wage linked to productivity targets and job rating scales.
- Annual increases in the fruit industry (+7% on an annual basis) have also been substantially higher than the CPI inflation rate (4.7% over the last 5 years).
- Production costs (including labour) have seen above inflationary increases of the same period with a 30% increase recorded in the weighted average production costs per hectare since 2016.
- There was no real growth in labour efficiencies and current production levels are below the long-term average. This implies that the ability of produce to pay for these increases are under pressure especially if production costs and employment costs continues on this trajectory given the production challenges faced in recent years.
- A wage increase of 16.1% at the entry level (mostly unskilled seasonal workers) will have a direct knock-on effect on higher job grades which will effectively disincentivise permanent employees to sustain productivity levels.
- Given the economic constraints within the industry we have witnessed that over the last 3 years permanent employees decreased whilst the temporary component increased. This is not just as a result of the increase in employee costs but a direct result of the impact of the drought on production in many areas and profitability levels from which many of our producers have not yet recovered.
- All the various scenarios that were analysed by BFAP on the various typical farms across the major producing areas indicated that the increase in the minimum wage with 16.1% results in the likelihood of negative farm gate profitability of at least 30% for the next 3 pome fruit seasons. The probability of these typical farms to remain profitable and in a position to reinvest and grow under these scenarios in the initial 3 years is limited to only 30%.
- On the stone fruit side, with producers still financially trying to recover from the effect of a number of consecutive years where weather conditions severely affected yields and fruit quality, improvement in profits over the next couple of years will primarily be applied to recuperate and replace orchards. As with most perineal crops, yields are only realised after a number of years and only after 5 years are orchards able to cover their own cost. This minimum wage increase will exacerbate the realisation of negative profits by at least 20%.
- The fruit industry is export orientated with an average of 45% of total production being exported on an annual basis. The majority of the inputs used in the fruit industry is also imported rendering the fruit industry very vulnerable to exchange rate fluctuations on an income and expenses level. BFAP also analysed the impact of the increase in minimum wage linked to a strengthening of the Rand against the Rand:Dollar exchange rate. The results on a farm level clearly illustrates that under these circumstances the probability of a negative Net Farm Income could be as high as 45% in some regions, where the impact is quantified with consideration for the unique characteristics of pome and/or stone fruit production in that area. This will result in disinvestment at sector level, contraction of the industry, job shedding and reduced Foreign Direct Investment.
Hortgro recognises the importance of job creation and retention and has over the years invested substantially in economic development and capacity building initiatives to promote employment opportunities.
We have managed to maintain employment levels whilst many other industries went through job shedding since the start of the Covid pandemic. This situation will change should the proposed wage increase be effected in March 2021. We currently await feedback from the Commission.