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Kwanalu

The voice of agriculture . Die stem van landbou . Izwe lezokulima

The Cost Burden On Farmers Not Slowing Down

8 February 2022

The Department of Employment and Labour has published the increase of the National Minimum Wage (“minimum wage”) effective from the 1st of March 2022. The minimum wage is set to increase from R21.69 to R23.19, which translates to a 6.9% increase. Agri SA appreciates the important balance maintained by the Minister of Employment and Labour in ensuring workers are earning a wage that contributes to the alleviation of poverty, reduction of wage differentials and inequality in South Africa.

 With that being said, the increase in the minimum wage draws concern to the ability of many farmers to continue operating their businesses profitably and contribute towards employment creation in labour-intensive sub-sectors. Reflecting on the sectors financial resilience, farmers have absorbed extraordinary increases in input costs ranging from fertilisers, fuel prices, electricity price hikes and the double-digit increase of the minimum wage in 2021 as illustrated in the table below.

Agricultural input cost inflation: Calendar y-o-y percentage change from 2020 – 2021 Source: BFAP & Grain SA, 2021

This is against the backdrop of the dilapidating conditions of our rural and some provincial roads which have been rendered impassable. Farmers will struggle to get their crops to the silos, which may have knock-on effects such as temporary supply problems and a decrease in quality. Farmers cannot bear the additional cost of repairing these gravel roads.

To add to their woes, large-scale locust outbreaks have occurred in parts of the Northern Cape and Western Cape. Torrential flooding and hailstorms in provinces such as North West, Free State, Limpopo, KwaZulu-Natal and Mpumalanga had a devastating impact on some farmers who have lost in some instances 100% of their crop.

South African farmers do not enjoy the production support that their counterparts in the USA and Europe enjoy. Farmers, in general, are price takers who often have to contend with an average profit margin of 5.97% depending on the type of activity. The likelihood of our farmers operating at a loss is becoming more evident day after day and the government must create a conducive policy, cost and infrastructure environment to ensure profitable farming in South Africa.

The looming alternative of the adoption of technology for farmers to reduce costs and remain afloat is becoming more attractive. As mechanisation leads to improvements in processes, productivity, and a reduction in labour intensity, this may prove devastating in a country with an unprecedented unemployment rate. More concerning is the risk this presents to the employment of low-skilled workers. This was evident during the pandemic where employment of lower- and semi-skilled workers decreased while employment levels amongst high-skilled workers remained statistically unchanged.1

It is vital to stress that the alleviation of poverty does not solely rely on the increase in wages but should be designed in a way to supplement and reinforce other social and employment policies.2

 Therefore, without an enabling environment for farms and farming businesses to remain sustainable and profitable, we run the risk of increasing unemployment and food insecurity.

 Enquiries

Christo van der Rheede

Agri SA, Executive Director

Lebogang Sethusha

Agri SA Head: Labour and Development

1Timothy Köhler, Haroon Bhorat, Robert Hill, and Benjamin Stanwix (2021). COVID-19 and the labour market: Estimating the employment effects of South Africa’s national lockdown. DPRU Working Paper 202107.

2 ILO, 2014 Minimum wage systems, International Labour Conference, 103rd Session