National Minimum Wage: Agri-SA submission

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Employment and Labour

17 September 2014
Chairperson: Ms L Yengeni (ANC)
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Meeting Summary

Agri-SA, a federation of agricultural organisations, representing a diverse grouping of individual farmers in the country, said in principle it accepted a national minimum wage but emphasised that the sectoral determination needed to be taken into consideration and it should be applied on different levels. The implementation of a national minimum wage which was not in line with what the market dictated, would have tragic consequences for the millions of unskilled farm workers whose only hope of regular employment was a more labour-intensive growth approach.

Members questioned whether the decline in employment in the agricultural sector was a result of the           implementation of the minimum wage or other factors. They stated that the implementation of the national minimum wage needed to be taken against the backdrop of the 2012/13 report conducted by the Bureau for Food and Agricultural Policy (BFAP) that pointed out that workers earning even R150 per day could not afford a balanced daily diet for a household of two adults and two kids. Members felt that the comparison to the national minimum wage in agriculture in the neighbouring countries like Zimbabwe and Mozambique failed to take into consideration the socio-political situation of those neighbouring countries.

A trade union representative said the shedding of jobs in the agricultural sector could also be attributed to the neo-liberal policies in the country, where employers were not willing to employ workers permanently. A COSATU representative pointed out that the Free Market Foundation (FMF) said employment in the agricultural sector had declined by 2.5 million but this was controverted by 1.8 million figure presented by Agri-SA and asked why there was such a discrepancy. A Food and Allied Workers Union (FAWU) representative asked about the percentage deducted from farm worker wages to pay for accommodation provided by the farmer. A trade union representative remarked that Agri-SA attempted to defend the privileged farmers who benefited massively from the apartheid regime but the concern of trade unions was always for the desperate workers who continued to live in squalid conditions.

Meeting report

Open remarks by Chairperson
The Chairperson noted that following President Jacob Zuma’s request in the State of the Nation Address (SONA) that a national minimum wage needs to be investigated, the Committee was hosting a series of workshops in Parliament on the matter. She handed over to Agri-SA to hear its views on the implementation of the National Minimum Wage (NMW) in South Africa.

Agri-SA submission
Mr Hendrik Ackermann, Chairperson of Agri-SA, said Agri-SA acknowledges that farm workers play a crucial role in the sector. The Agri-SA 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, a close relationship exists between farmers and workers for generations and this ensured that there was a harmonious and productive workforce. The Agri-SA was of a view that the imposition of a higher national minimum wage than what is currently applied in agriculture, presents a challenge with a number of unintended consequences and this may led to fewer jobs in the sector and probably more import competition from neighbouring countries.

Mr Hans van der Merwe, Executive Director, Agri-SA, indicated that Agri-SA, a federation of agricultural organisations, represents a diverse grouping of individual farmers. Its affiliates have well established farmers, as well new entrants as members who have added value to the federation. Agri-SA’s advocacy work includes trade negotiations, industrial policy, taxation, financing and land reform. The federation also raised concerns around farmer development, labour laws, farm safety, water pricing and other in-put related matters

Agri-SA is a member of high-level business, trade and agricultural entities, including Business Unity South Africa (BUSA), the World’s Farmers’ Organisation (WFO) and the Southern African Confederation of Agriculture Unions (SACAU). BUSA was in the process of developing a position paper on the national minimum wage which will inform the position of business in this regard.

Mr van der Merwe mentioned that in chapter 6 of the National Development Plan (NDP) government has set the goal of creating one million additional jobs in the agricultural sector by 2030. This will require a major turn-around of the current job-shedding trend which is currently prevalent in the sector. The NDP refers specifically to expanding irrigation agriculture in such a way that it will benefit upstream and downstream industries, but also commercial agriculture with a potential for creating jobs. Special reference was made to the potential of horticultural products like table grapes, citrus, subtropical fruits and vegetables as they were all dependent on irrigation to contribute towards this objective, considering their growth potential and labour intensivity. He recommended a policy that is supportive for job creation to achieve such objectives and in this regard, the NDP recognises the importance of favourable labour market practices and other imperatives which contribute towards growth in the sector. It is, however, necessary to note that the National Planning Commission’s assumptions were based on a lower minimum wage (R67/day) which was applicable at that stage.

Mr van der Merwe said South Africa’s agricultural industry is known as a very diverse sector with farming activities ranging from intensive to less intensive labour practices. The modern commercial farming employs the majority of workers and also applies technologically advanced farming systems. This exists alongside small-scale farmers with few if any hired workers. Some sub-sectors rely mainly on low-skilled workers for seasonal activities. He emphasised that the trend in the sector was changing in favour of having fewer but higher skilled worker and this complies with the challenge of providing quality jobs - albeit fewer jobs including that of higher minimum wage and complementary benefits.

According to the results of the Census, the number of farming units in 1993 was estimated at 57 980 and this figure declined to 45 848 in 2002 and even further to 39 982 in 2007. Employment trends also showed a decline between from 1 093 265 in 1993 to 796 806 in 2007. Whilst the decline of farming units continues, roughly 20% of commercial farms are responsible for 80% of total production. This does not imply that the larger farms are always more cost-efficient, but rather larger farming units have the ability to mechanise and, as wages rise, mechanisation becomes more attractive. This is a general phenomenon in global agriculture and it should be expected that this trend of an increase in the consolidation of farming units and higher levels of mechanisation will continue. He warned that this would lead to further unemployment but increased employment for staff with higher skill levels of remuneration.

Mr van der Merwe stated that the sectoral determination for both farm and forestry governs the wages and conditions of work in the sector. According to the Department of Agriculture, Forestry and Fisheries, agriculture’s wage bill amounted to approximately R14.5 billion or 13% of total costs in 2013/14. Farmers in many cases provide their workers with other services, including housing, transport, water and electricity (the so-called social wage), which are not fully factored into the wage bill. Government was also considering the introduction of a statutory provident fund for farm workers, which can escalate the wage bill and non-farm cost structure. In most other sectors, there is often no compatible solution as the fact remains that there are hidden costs in relation to labour in agriculture which should be taken into account when dealing with adjustments to wage levels.

The ability of farmers to pay higher wages should be considered against the backdrop of a sector that is a price taker not a price maker. Minimum wages have gradually increased every year. In a study examining the impact of the minimum wage on the agricultural sector, done by Prof Haroon Bhorat from the University of Cape Town, he concluded that the minimum wage had a negative impact on employment and that employment declined by 17% the first year after the imposition of the minimum wage in 2002. The significant increase of 52% in the minimum wage in 2013 had a major impact on the sector. In 1996, the producers applied for relief thereof in terms of Section 50 of the Basic Conditions of Employment Act and many jobs were lost in the process. It should be noted that this happened, irrespective of favourable climatic and market conditions, for which in agriculture, there is no guarantee. In adverse conditions, the affordability of a structurally higher pay bill may be detrimental for many farmers as it does not take time to bring about structural adjustments in the sector. The 73 000 job losses recorded by Statistics SA for the second quarter (2013/14) year-on-year, nevertheless, signals an enhanced downward trend.

Mr van der Merwe indicated that apart from the unintended consequences, a national minimum wage that is set higher than the current minimum wage in the agricultural sector will impact heavily on the sector and could result in even more job losses. Such an intervention would most probably only benefit workers already employed but will exacerbate the already high levels of unemployment, especially for new entrants (including youth) in the labour market. The higher national minimum wage could be highly attractive to foreign workers resulting in an increase in foreign workers entering the country for better economic prospects. He indicated that the monthly national minimum wage in Namibia was R888.00, in Botswana was R5470.00, Zimbabwe R590.00 while in South Africa was as high as R2 420. He remarked that the national minimum wage will, most probably; also enhance the attractiveness for South African farmers and others to invest in neighbouring countries where vast comparative advantages exist in terms of cost and quality of land, water and labour. The country will also witness an increased substitution of local production by imports from neighbouring countries. Imports of products such as sub-tropicals, sugar and vegetables are most likely to narrow the opportunities of local producers, including that of growing the employment capacity of agriculture.

Mr van der Merwe stated that it was evident from an analysis done by the Bureau for Food and Agricultural Policy (BFAP) in 2012/13 that a negative Net Farm Income (NFI) is generated under scenarios where wages rise more than R105 per day and that structural adjustments will have to be made to accommodate the higher wages. In an analysis of different scenarios with higher wages ranging from R70 to R150 per day, it was found that most farmers cannot afford more than R105 per day without compromises on employment levels. The analysis showed that alternative mechanisms would need to be found like mechanisation, more skilled labour and the consolidation of enterprises to become more efficient. It was difficult to estimate how much labour will be shed throughout the industry if a national minimum wage were to be introduced and wages increased significantly above the current wage levels in the sector. However, the trend in job losses has shown that the sector cannot absorb more significant wage increases. On the other hand, the BFAP report also pointed out the worker's dilemma by which a worker earning even R150 per day could not afford a balanced daily diet for a household of two adults and two kids. In this regard, a compromise would be needed between the relevant nutrition and energy provided by staple food portions.  

Mr van der Merwe said it was important to consider that productivity sets the level of prosperity and not demand stimulation through merely higher wages. Therefore, adjusting minimum wages or wages in general will, if not accompanied by productivity improvements, aggravate the challenges, i.e. lack of investment, balance of payment pressure, cost of doing business and high levels of unemployment which the economy is already facing.

Competitiveness, according to the World Bank, can be defined as the set of institutions, policies and factors that determine the level of productivity of the country. Productivity determines competitiveness, return on investment and eventually economic growth. Lacking competitiveness will ultimately defeat the noble goals of social upliftment and employment creation if minimum wages are set out of context. The context is also described by the World Competitiveness Report of 2014/2015. The efficiency and flexibility of the labour market are critical for ensuring that workers are allocated to their most effective use in the economy and provided with incentives to give their best effort. Rigid labour markets were an important cause of high youth unemployment, especially in Arab countries. South Africa is currently ranked 56th out of 148 countries in terms of world competitiveness with Brazil, often viewed as the epitome of labour relations at 57. In terms of labour market efficiency, South Africa and Brazil are ranked 113th and 109th respectively. The health of the work force in South Africa was currently ranked 132nd out of 144 economies – as a result of communicable diseases and poor health indicators more generally. Higher education and training remains insufficient (86th) and labour market efficiency (113th) was still affected by extremely rigid hiring and firing practices (143rd), wage inflexibility (139th) and continuing significant tensions in labour-employer relations (144th).

Mr van der Merwe emphasized that it was clear that the “labour context” is viewed as extremely problematic which will require circumspection for a national minimum wage not to proverbially break the camel’s back, especially given the current unemployment rate of 25%. Sectoral considerations, rural vs urban labour characteristics, skills availability, employer contribution to the social wage and differing minimum wages currently will have to be factored into a national minimum wage to avoid unintended consequences. The possibility of such was still considered. The level at which a national minimum wage can be established will also require careful scrutiny like the minimum wage in agriculture and forestry is currently set at R2 420 per month whilst for a wholesale and retail shop assistant is set at R3 063. The level at which the minimum wage is fixed could entail drastic increases for certain sectors and likely to be unaffordable

Mr van der Merwe concluded that a minimum wage set at a higher level as the current wage determination for agriculture will result in more structural adjustments to accommodate the higher wages. This happened in the past and was likely to do so again. These adjustments include the shedding of jobs, increased mechanisation and the consolidation of farming units endeavouring to maintain competitiveness and profitability. The collective effect of such an intervention together with other risk factors for agriculture should be carefully considered. The objective of a million additional jobs to be created in agriculture by 2030 will be the result of decisions of this kind taken by the government.

Mr M Bagraim (DA) welcomed the submission by Agri-SA and asked whether the loss of jobs in the agricultural sector was directly linked to minimum wage setting. He indicated that it was concerning that the farmers viewed mechanisation in the sector as an alternative as opposed to finding other alternatives to create employment.

Mr van der Merwe responded that mechanisation was probably the only solution for the farmers in order to make profit in a competitive sector like agriculture.

Mr Neil Coleman: Strategist at the Congress of South African Trade Union (COSATU) said the Free Market Foundation (FMF) claimed that the agricultural sector employment had declined from 2.5 million and this was controverted by 1.8 million presented by the Agri-SA. He asked whether there was a reason for such discrepancy. The graph on employment in commercial agriculture started from 2007 and omitted that there was a major employment increase in 2013 as a huge number of farm workers were absorbed in the sector. The biggest loss for employment in the agricultural sector was between 1959 and 1963 and not after the democratic government came into place. The BFAP report had already indicated that a worker earning even R150 per day could not afford balanced daily food for a household of two adults and two kids, meant more than half of farm workers and their families were nutritionally deprived. It was strange that the Agri-SA said the collapse of the agricultural sector after 1994 was caused by the withdrawal of government subsidies, but this was part of liberal policies favoured by the Agri-SA. What were other factors that had an impact on the decline in employment in the agricultural sector?  

Mr van der Merwe responded that indeed there were other factors that led to massive decline in employment in the agricultural sector and these included trade liberalisation, structural adjustments and market deregulation. He admitted that since 2010 to 2013, there was a parallel and slight increase in employment in the sector.  

Mr P Moteka (EFF) asked Agri-SA to explain why farmers that were still mistreating farm workers. He mentioned that the comparison to the minimum wage in agriculture in the neighbouring countries failed to take into consideration the socio-political situation in the neighbouring countries. The R2 420 per month was still a meagre salary to sustain a nutritional diet and warned that this had the potential to lead to a revolution of the farm workers as this was the case in Zimbabwe.

Mr van der Merwe agreed that comparing the national minimum wage of neighbouring countries would not change the fact that the salary of R2 420 was not able to meet adequate nutritional needs. However, this needed to be looked at in the context of an increasing number of farming enterprises from South Africa moving to countries like Mozambique. Zimbabwe had the highest number of farm workers and this number was likely to increase if the national minimum wage was to be raised to the level of R150 a day.

Mr Ackerman responded that indeed there are still farmers who were not complying with the regulations of the labour laws and this included working conditions and remuneration.

Mr I Ollis (DA) said there was no person in the country who wanted the workers to remain poor and the aspiration should be to improve the conditions of the workers. The graph on employment in commercial agriculture in the country was encouraging considering that after 1994 the employment remained stable compared to what was anticipated. The submission clearly showed that the national minimum wage was desperately needed in countries like Zimbabwe, Mozambique and Namibia before it was needed in South Africa. He was disappointed that Prof Ruth Hall from Poverty, Land and Agrarian Studies (PLAAS) contested the 73 000 job losses recorded by Statistics SA for the second quarter (2013/2014) and he remarked that it showed that she was not a good academic.

The Chairperson interrupted and said it was unfair to insult the integrity of Prof Hall while she was not present in the Committee meeting.

Mr Raymond Mnguni, Deputy President: Food and Allied Workers Union (FAWU), indicated that it was an insult for Agri-SA to compare the national minimum wage from neighbouring countries as it made no difference to the “poverty wage” that was earned by farm workers in this country. Agri-SA painted a picture of farm workers as a liability instead of an asset. It was disturbing that when workers complained about their rights, there was always the threat of mechanisation and loss of jobs instead of addressing the genuine concerns of the workers. He wanted to know whether the farm workers were liable to pay for the accommodation, electricity and water on a monthly basis.

Ms P Mantashe (ANC) asked if there was a strategy in place to ensure that the move towards mechanisation did not lead to job shedding. What was the input of Agri-SA in up-skilling farm workers? She remarked that foreign workers were still allowed to work in the county as they also contribute to the economy. What was the alternative to the national minimum wage so as reduce the gap between the rich and poor?

Mr van der Merwe responded that low-skilled workers were likely to be vulnerable and receiving meagre salaries and in most cases the introduction of mechanisation in the sector would affect these vulnerable workers while proving to be beneficial to skilled workers. There was a need for a minimum wage but it should be applied on different levels. He also responded that the issue of income inequalities in the country was multifaceted and needed different sectors to work together to raise the standard of living for the majority. The most sustainable way of reducing poverty, inequalities and unemployment was to grow the economy.

Mr Matthew Parks, Deputy Parliamentary Co-ordinator, COSATU, said that the explosion of violent protests by farm workers in Cape Town two years showed clearly the exploitation happening at the hands of farmers. Agri-SA attempted to defend privileged farmers who benefited massively from the apartheid regime. The concern of trade unions should be focused on the desperate workers who continue to live in squalid conditions. Agri-SA needed to focus on the impact of national minimum wage in this country instead of neighbouring countries. The country still needed to address the historical disempowerment of black people and this was evidenced by farm worker evictions throughout the country. There was a need to accelerate the slow pace of land reform in the country as the land needed to be shared by everyone.

Ms F Loliwe (ANC) asked about the strategy to balance the requirement for higher skills with the current remuneration. What was the plan in place to ensure that the sub-jobs were retained in the sector? Agri-SA needed to be clear on its stance on the national minimum wage.

Mr van der Merwe responded that the Agri-SA had already accepted the national minimum wage but there was a need to take into consideration that some farm workers lived and work on farms and this required a differentiated approach.

The Chairperson asked about the kind of accommodation that was provided to the farm workers and the amount of money that was deducted for utilising electricity and water.

Mr van der Merwe responded that 30% was deducted from the farm workers for the services they were offered. The majority of accommodation provided to the farm workers was in a bad state.  

Ms M van Schalkwyk (ANC) said it was worrisome that there were no figures presented on the profit that had been accumulated by farmers as this needed to be compared in relation to the income of the employees.

Mr van der Merwe responded that the fact that a large number of farmers were leaving the country to invest in neighbouring countries was an indication that they were in economic hardship and the running of the business was becoming expensive.

The Chairperson wanted clarity on the statement that the farmers were in economic hardship.

Mr van der Merwe explained that farming was a very competitive sector, with a lack of adequate assistance from the government in the form of a subsidy and compliance to government legislation made things worse for the farmers. The deregulation of marketing had had an impact on some farmers who decided to invest in neighbouring countries.

Ms T Tongwane (ANC) repeated that the BFAP report already pointed out that worker earning even R150 per day could not afford balanced daily food for a household of two adults and two kids, meaning the current remuneration of the farm workers needed to be reviewed in the context of the rising cost of food.

The Chairperson wanted clarity on how the process of mechanisation would be beneficial to skilled workers.

Mr van der Merwe said the agricultural sector needed to do formal and informal training and the skilled would be those who have an adequate knowledge and understanding of what is required to make a productive contribution towards the sector.

Mr Mhleli Mbana of South African Commercial Catering and Allied Workers (SACCAWA) stated that there were lot of people affected by the policies channeled BUSA. The workers in the farming industry were still exploited and this kind of exploitation could be equated to slavery. The structural adjustments are endemic to any business as a result of innovation and were not only taking place in the farming industry. The shedding of jobs in the agricultural sector could be attributed to the neo-liberal policies that are happening in the country, where employers are not willing to employ workers permanently. He suggested that Agri-SA needed to come up with something concrete regarding the national minimum wage. There were no initiatives from Agri-SA to up-skill farm workers so they could be promoted.

Mr Ackerman responded that the farm workers were offered skills programmes to ensure they get the opportunity to be promoted within the sector. He rejected with contempt the statement that farm workers were treated as slaves as it was an insult to Agri-SA which has ensured that there was monitoring of the treatment of farm workers.

Mr Ollis asked whether there was a strategy in place to ensure that agriculture could create 1 million jobs by 2030, as stipulated in chapter 6 of the NDP. The farm workers strike that took place in the past two years might have been politically motivated when considering that reports showed that Western Cape farm workers were amongst the highest wage earners in the country. He asked if Agri-SA preferred a minimum wage that was applied nationally or the one that was determined by local conditions.

Mr van der Merwe responded that there was a need to review the cost of doing business in the country as agriculture was a very competitive sector. In order for the sector to create the 1 million jobs, it needed infrastructural development and training and up-skilling of farm workers and for those who still want to venture into the sector. 

Mr Vusumzi Tyhalwa, Shop Steward: National Union of Metalworkers of South Africa (NUMSA), stated that it was unacceptable for Agri-SA to claim that the agricultural sector needed to absorb more people so as to keep them busy while farmers were generating massive profit. The farm workers in the country were exploited and given meagre salaries and the comparison of national minimum wage to other neighbouring countries did not change the fact that South African farm workers were given a “slave wage”. There was a need to introduce a regional minimum wage so as standardise the wage of the neighbouring countries. Agri-SA needed to reveal the profit margin of the agricultural sector. Agri-SA needed to address the issue of skills shortage in the sector and he asked from where the farmers would get skilled workers.

Mr van der Merwe replied that the example offered of national minimum wage of the neighbouring countries was to show that farmers were likely to invest in counties where there was a potential to make a profit.

Mr Coleman stated that the agricultural sector was important because of the need for food security and its ability to absorb a large scale of workers. He welcomed the fact that Agri-SA accepted the implementation of the national minimum wage in principle. There was a need for more detailed explanation on the sectoral conditions that are causing problems in the agricultural sector. He reiterated that the absence of a subsidy in the sector was the law of economics; the free market strategy is opposed to state intervention. He indicated that the official StatsSA figures for 2013 showed that the median wage for the agricultural sector was R1 730, meaning 50% of farm workers earned below the minimum wage. Employers needed to adapt in various ways to a higher minimum wage and not to resort to retrenchment, as it is easy to do so.

Mr George Warrington, Secretary: United Transport and Allied Trade Union (UTATU), asked whether it was possible to regulate prices in the system.

Mr van der Merwe responded that the regulation of prices was not possible in a market economy.

Mr Mnguni indicated that the reality was evident that farm workers were exploited and living under appalling conditions. He reiterated that farm workers were treated as slaves earning a meagre salary of R2 420 and this was made worse by the fact that most of the farm workers had no social security. It was concerning that some of the farm workers were working overtime with little or no time for their families. The quality of transport for farm workers needed to be take into consideration and he urged the Portfolio Committee on Labour to intervene on the issue.

Mr van der Merwe responded that those farm workers who worked beyond the regulated hours were earning overtime and the inspectors ensured that farmers were complying with these regulations.

The Chairperson asked Members to refrain from using “slave” when referring to farm workers as this was degrading.

Ms Mantashe appreciated the submission given by Agri-SA and asked if it was possible to provide Members with detailed written response on the training and up-skilling of farm workers and the figures available. She was disappointed that Agri-SA omitted the information on the profit made by the sector before the global economic crisis.

Mr van der Merwe said there were available figures on the training and up-skilling of farm workers and this information would be made available to the Members.

The Chairperson expressed appreciation to Agri-SA in its efforts to answer most of the questions posed by the Members and trade union affiliates.

The meeting was adjourned. 

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