Minimum wage strangling agricultural sector – AgriSA

[Nat Quinn]

Agri SA said the rapid national minimum wage increase is throttling South Africa’s agricultural sector growth.

The organisation said it would be making a submission to Parliament that demonstrates the negative impact of the national minimum wage on the growth and sustainability of the agricultural sector.

“Unless the increases of the minimum wage in the agricultural sector are aligned with inflation, there is a real risk of the agricultural sector contracting with devastating effects for employment in the sector.”

The agricultural sector has proven remarkably resilient despite facing numerous crises – including the Covid-19 pandemic.

However, Agri SA warned that the pressure on the sector is beginning to show.

The sector grew by 17.8% in 2020 but only 7.4% in 2021 and a marginal 0.9% in 2022.

This slower pace of growth is reflected in the labour statistics recently released by Stats SA, which showed only a 0.8% quarter-on-quarter increase in employment in the agricultural sector.

The organisation said the decline in the agricultural sector’s profitability is the result of rising input costs.

Labour is the most significant of these costs, constituting 25% of all production costs.

“For this reason, the national minimum wage constitutes a tremendous burden on the sector that is exacerbating the already crippling external pressures on farmers,” Agri SA said.

“Industries like the sugarcane sector, for example, already face enormous increases in the cost of fertiliser due to the Russian invasion of Ukraine.”

“At the same time, industries like citrus also face financial strains in relation to the cost of shipping for export goods due to South Africa’s failing road, rail and port infrastructure.”

All these pressures have led to a rapid increase in the total farming debt burden on farmers.

In 2006, farming debt stood at R37.7 billion. By 2022, the debt stood at R205 billion. This is a 442% increase over 15 years.

Agri SA explained that this debt burden has risen due to one fundamentally misunderstood dynamic in the sector. Farmers are price takers with no control over prices beyond the farm gate.

Therefore, local and international retailers set the prices, and cost increases such as the national minimum wage are not part of their considerations.

Farmers are forced to absorb those additional costs if retailers do not increase prices as input costs rise.

Agri SA said this dynamic is exacerbated by market access challenges that result in a greater surplus of produce on the local market, lowering the price producers can obtain.

Therefore, the result of these accumulated challenges is greater pressure on South Africa’s food production.

“This compromises both the ability of the agricultural sector to guarantee the country’s food security and its ability to maintain and expand employment opportunities in the sector,” Agri SA said.

“The only way to protect food security and promote employment in the sector is to control the cost pressures on the sector.”

“While many of the contributing costs are out of our control, the national minimum wage is firmly within the government’s control.”

Minimum wage in South Africa

The chart below shows the increase in the minimum wage in South Africa over the last five years.

source: tradingeconomics.

 

source:Minimum wage strangling agricultural sector – AgriSA – Daily Investor

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