THE BLOG
17/01/2018 04:58 SAST | Updated 17/01/2018 04:58 SAST

How The New Minimum Wage Will Affect The Agricultural Sector

The question is: will the imposition of a minimum wage have any effect on inequality in the sector?

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Seasonal farm workers pick and package strawberries. June 30, 2015.

The agricultural sector is home to 810,000 workers, of which 49 percent are employed for a limited duration or for an unspecified time. The sector has had a sectoral determination since 2008, which regulates wages, wage increases and conditions of service.

Against this background, it is acknowledged that South Africa has one of the highest Gini coefficients in the world, indicating that we are the most unequal society in the world in terms of disparity between executive remuneration and the remuneration of low-level workers. In South Africa, 10 percent of the population earns 58 percent of available salaries, leaving the remaining 90 percent to share what is left.

From May 1, 2018, all workers in South Africa will be subject to a national minimum wage –– R18 per hour in the agricultural sector. The national minimum wage was one of the strategies proposed to combat wage inequality.

The agricultural sector has shed 109,000 jobs so far this year, and was 71,000 jobs down from the same quarter in 2016. Various factors contributed to this decline, of which the drought affecting labour-intensive fruit farms in Western Cape is one. Fruit-growing organisation Hortgro estimates that a further 45,000 jobs could be lost directly due to the drought.

It is important to note that seasonal labour is included in the above-mentioned statistics, indicating exactly how informalised labour in this sector is, due to the nature of the sector. Farming is such that permanent job opportunities will always have to be supplemented by seasonal workers, for whom very little opportunity to become permanently employed exists.

The question is: will the imposition of a minimum wage have any effect on inequality in the sector? The agricultural sector has had a minimum wage, introduced via sectoral determination 13, since 2008. This minimum wage was increased by 17 percent following the De Doorns unrest in Western Cape in 2012.

Agriculture is considered a low-threshold sector, where even small changes can have a significant impact on employment levels.

The National Minimum Wage Commission acknowledged in its final research findings, published in 2016, that 200,000 jobs were lost due to the first implementation of a minimum wage, and that employment levels have never returned to the levels they were at before the minimum wage.

Although it is almost impossible to predict whether there will be job losses in the agricultural sector due to the implementation of an R18 per hour minimum wage, the fact that this will mean a wage increase of 17 percent in 2018 –– against the backdrop of huge job losses when the minimum wage was introduced ––makes job losses a fair assumption.

According to the research done by the commission, there seems to be a range of minimum wages that have a statistically negligible impact on employment levels, as illustrated by this graph:

DPRU 2016

Agriculture is considered a low-threshold sector, where even small changes can have a significant impact on employment levels. One of the reasons is small profit margins in farming operations, which means that fixed-cost pressures have a significant and immediate impact on the cashflow of a farm.

The problem is that there is no certainty whether the imposition of a 17 percent increase in minimum wages for farmworkers will have a statistically negligible effect on employment levels, which makes this decision a risk in a country that already has a 27.7 percent unemployment rate.

Given this uncertainty, the wiser option would probably have been to allow wages of farmworkers to increase in line with the sectoral determinations, which are significantly higher than inflation (the 2017 increase was 8 percent). These higher-than-inflation increases would have meant that the sector would have caught up with a national minimum wage, but in a natural, phased-in way. This would have recognised the peculiarities of the sector, including the high informalisation rate that cannot be reversed.

A recent census conducted in Western Cape showed that farmworkers are subjected to a whole array of social ills, including alcoholism, teen pregnancy, drug abuse and domestic violence. Only 8.5 percent of farmworkers in this province have finished school, and less than 1 percent have any sort of tertiary education.

This census confirms that workers in this sector are vulnerable, and even though wage inequality is an issue that needs to be addressed, it cannot be done at a rate that opens workers up to the risk of unemployment. Larger emphasis should be placed on community development, including farmworker housing and farmworker enterprise development, and entrepreneurial development that will enable farm workers to own a stake in their future and not be subject to seasonal work.

The effect of the national minimum wage on the agricultural sector has the potential to be dire. Only time will tell. Don't we owe a vulnerable sector more than subjecting them to such uncertainty?

Jahni de Villiers is the labour and development head at AgriSA.