Employment conditions commission

Submission from CANEGROWERS

CANEGROWERS is the national organisation representing the 27 000 cane growers who produce approximately 20 000 000 tons of sugar cane in an average season off about 378 000 hectares. The cane growing regions are situated through the Eastern seaboard and midlands of KwaZulu-Natal, into the Pongola region of Northern KwaZulu-Natal and in the Komati and Malelane regions of Mpumalanga.

According to CANEGROWERS, the scale of operation of individual cane growers range from less than one hectare to extensive large-scale operations. Cane farming is undertaken on freehold, leasehold and communal tenure land holdings. Cane farming operations employ approximately 80 000 persons on a permanent, seasonal or temporary basis. As an organisation, CANEGROWERS also indicated that they have actively promoted labour intensive production, as opposed to mechanisation. Cane growers have generally shown a willingness to follow a practice of providing employment opportunities in the rural areas.

1. 
   Determination of the Minimum Wage Level
   

The Sectoral Determination provides for the minimum wage levels to be determined for a period of time, currently three years. The objective of the Department to achieve one level of minimum wage in the agricultural sector has been achieved as at 1 March 2008. It is CANEGROWERS’ understanding of the comments made by the then Minister of Labour, Mr MMS Mdladlana MP, at the inception of the Sectoral Determination for Farm Workers, that once the course of adjustment to minimum wages at rates significantly above prevailing rates of inflation had achieved this purpose, that factors influencing the farming business would be taken into account in future minimum wage level determinations.
They indicated that agricultural sector has faced significant increases in its farm input costs such as fertiliser, fuel, transport and herbicides. Electricity tariffs were also raised significantly above inflation levels by Eskom in recent years and there is a further proposed 16% per year increase for five years on the tariff currently under consideration. Canegrowers indicated that Cane farmers are unable to pass on increased production and labour costs through to the consumer, as can be done with many manufactured products.

They argue that these factors must be taken into account in determining wage levels which impact substantially on the sustainability of a business. In relation to the minimum wage increases, Cane growers indicated that although it is difficult to accurately predict inflation rate levels in advance, future minimum wage levels should be realistically linked to the Consumer Price Index (CPIX) determined by Statistics SA as this provides a degree of consistency and credibility to the process.

Furthermore, they pointed out that it is acknowledged that in many of the farm labour categories, the farm worker earns in excess of the published minimum wage. However, it is a reality that the adjustment of the level of minimum wage has a domino effect on other wage levels. It is very difficult to implement differentiated levels of increase for the various job categories within the farming business. This adds increased pressure on the sustainability of the farming operations as the percentage of labour costs increase significantly ahead of inflation and revenue levels.
On the value of deductions, cane growers indicated that whilst deductions are not directly related to the minimum wage level, the value of deductions has a significant impact on labour costs. They indicated that the principle of a clean wage being paid to employees is encouraged by CANEGROWERS. This is understood to mean that an employee will receive a cash wage, with only statutory or authorised deductions being processed by the employer. The employee assumes payment responsibility for accommodation, food, services, etc. However, while this concept may work in theory, it does have many practical difficulties, particularly in the more rural environment. This has meant that payment in kind has remained a reality in the farm worker sector.
CANEGROWERS argued that the current levels of permissible deductions stipulated in the sectoral determination are unrealistic when compared to the actual cost of provision of the benefit. A consequence of this provision has been for many employers to consider not to provide benefits, such as food, loans and services, but to rather pay the minimum wage in cash. As stated, this does lead to practical problems for the employee, which may be summarised as follows:
• Logistical difficulties and high transport costs related to shopping in the rural regions.

• Loss of security of supply of food for the employee’s household.

• Inability to secure short-term loans.

• Much limited credit facilities at conveniently located stores near the farm

• Lack of services, e.g., electricity, direct into the household.
Furthermore cane growers, indicated that whilst a level of protection must be provided for the employee against potential exploitation by the employer, it must be balanced against the unintended consequences of the intervention imposed by the sectoral determination related to deductions. They therefore submitted that any deduction that is made from an employee’s wage that is not required by other legislation or order of court, should be authorised by agreement between the employee and employer. This will allow the parties to negotiate practical and realistic remuneration packages, whilst retaining the option for the employee to receive the wage in cash, or a portion of the wage in a specified benefit.
In addition, they indicated that if it is considered necessary to limit the maximum permissible level of deduction, consideration must be given to determining a maximum total percentage and allow the parties to agree how this will be allocated between the various benefits on offer. Cane growers also submitted that the provision of credit or loan facilities by the employer to the employee should be in the form of written agreement between the parties and that the terms of repayment be stipulated in such agreement. They further pointed out that objective of the review by the Employment Conditions Commission should be to reduce the instances of practical difficulty for the employment relationship in the farm worker sector and thereby minimise the need for employers and employees to apply for ministerial variation in this regard.
According to the study conducted by CANEGROWERS in relation to Cost Survey Proportions of Operating Expenditure for the period 2010/11 farm staff and mechanical costs continue to dominate the average grower budget, together accounting for 53% of Operating Expenditure. They argued that the overall proportion was marginally higher than in 2009/10 due to above inflationary growth in expenditure on farm staff.

CANEGROWERS pointed out that given the high proportion of expenditure on farm staff, farm expenditure and thus profitability is highly sensitive to increases in farm staff costs through either higher wages or reduced productivity. Furthermore they indicated that the study revealed that on the long-term trend in labour productivity, labour productivity has improved as indicated by fewer labour units per 1 000 tons of cane produced. Short-term variability is mostly due to changes in seasonal cane yield which has a direct impact on labour productivity. In addition, they indicated that for the past 15 year period, the trend shows that much of the gains in labour productivity have been achieved and that the rate of improvement has slowed or even stagnated. This could be due to prior adoption of labour saving technology – i.e. mechanization and/or improved herbicide technology and usage. However, mechanization beyond the current level requires significant capital investment (e.g. mechanical cane harvesters etc) and may be implemented when the relative cost of labour is higher.

CANEGROWERS further indicated that sugarcane farmers are faced with an extremely concerning scenario with higher key input prices, as well as pressure to increase wage rates. The proposed increase in electricity tariffs will also have a marked impact on growers’ profitability. In conjunction with the review of minimum wages, these outcomes could create a dire situation for sugar cane farmers. The following table provides an indication of the impact to an average sugarcane farm monthly wages by labour type.

Staff type	2010/11	2011/12	2012/13	2013/14
General staff Drivers Cutters and stackers Other harvesting staff Harvesting staff out of season Field workers permanent Field workers seasonal Other staff	R3948 R2475 R1802 R1602 R1690 R1444 R1317 R1667	R4086 R2562 R1865 R1661 R1749 R1503 R1376 R1726	R4331 R2716 R1993 R1789 R1877 R1631 R1504 R1854	R6078 R4463 R3740 R3536 R3624 R3378 R3251 R3601
Weighted Average	R1843	R1912	R2051	R3798
Increase % on farm staff cost		103.7%	107.3%	185.2%

They indicated that the above scenario is based on the mooted increase from R70 per day to R150 per day. The net effect is that other staff earning wages at rates which are higher than the current minimum wage will need an appropriate increase to reach levels above the proposed new minimum wage such that their relative skill levels receive commensurate remuneration. CANEGROWERS in their submission indicated that the table above provides an estimate of monthly wages obtained by the annual labour survey undertaken by SA Cane Growers Association. The surveyed data (2010/11) is then escalated in-line with the previous minimum wage requirements an inflationary trends, and the 2013/14 wage levels take into account a minimum wage of R150 per day.

They also indicated that other inputs are anticipated to increase at above current inflation levels (assumed to remain at 6% next year). Fertilizers and Herbicides are likely to increase by 12% as advised by Coastal Farmers’ Co-operative. If the fuel price remains at the current level for the entire year next year (i.e. no increase or decrease), then the average percentage increase compared with the current season will be at 6.4%. Cane Transport and Contracting services will also be impacted by minimum wage increases and thus are likely to rise at a rate which is higher than inflation. Contracting in particular will be heavily affected as a large proportion of contractor costs are labour wages. In addition to these inputs, the increase in electricity tariffs has been proposed at 16% per annum for the next 5 years.

Canegrowers argued that the proposed increase of R150 per day would put these farmers back into considerable debt and/or disinvestment in their farming activities. It will also result into contractors to small-scale growers transferring the cost to the small-scale growers. The small-scale growers have in turn had to rely on an industry “grant” called the supplementary payment to carry them through the past seven years.

They strongly argued that the implication is that given this scenario many farms will quickly go out of business or, where possible, invest additional capital in labour saving technology/machinery if economically feasible. In some areas, ignoring the capital and economic feasibility, current mechanisation technology conversion/adoption cannot be utilized due to unsuitable terrain such as steep slopes and technology will not be an option. The latter farms will undoubtedly go out of business given this scenario. At any rate there will be an extremely high degree of labour retrenchment in order for farm businesses to attempt to survive.

In addition they also argued that on a farm level, assuming an average farm size (of surveyed farms coastal, inland and irrigated combined average) of 208 hectares, harvesting 152 hectares (73%) to yield almost 11 000 tons per annum, the scenario outlined above would translate to a total additional (nominal) cost of R 900 000 for the farm (R 850 000 in real terms accounting for inflation at 6%). This means that a farm of this size would post a loss of approximately R 600 000 for the 2013/14 season.

It is clear that given the described parameters of this scenario, the average sugar industry farm will become unprofitable and farm businesses will have to take drastic measures if they are to survive, and in many cases may not be feasible to implement.

13. 
    Inputs from Lichtenburg employers
    

In Lichtenburg, employers indicated that workers get paid more than the minimum wages prescribed in the sectoral determination. They alleged that the payment in kind provided for by the farmers significantly exceed the minimum wage . They also indicated that farm workers’ lives are better that workers working in the retail sector because of the benefits which the farmer provides, this includes amongst others, transport to hospital located 600 kilometres away from the farm; rations which the farmer provides to farm workers; and wood which farm workers get from the farm. Farmers also argued that if government regards the current minimum wages as low, why pay pensioners almost the same grant. They strongly argued that should the minimum wage be increased, farmers will opt for mechanization and many workers will be retrenched. They therefore indicated that the current sectoral determination which prescribes minimum wages until 2015 should be considered and not be reviewed.

14.