Employment conditions commission

Recommendations of the Department

During the strike of the farm workers in the Western Cape, the Department initiated a negotiation process facilitated by the CCMA in which the first negotiation meeting took place on the 22 November 2012. The objective of the negotiations was to first try to find a solution to the on-going strike in the Western Cape and secondly to try and ensure that parties make a joint negotiated agreed submission to the ECC in relation to the new level of the minimum wages prior to the ECC making its recommendations to the Minister. During the negotiation meeting parties agreed that the research process need to be undertaken by an independent institution to analyse the impact of the R150 in relation to the job retention and creation in the agricultural sector. Furthermore the research institution had to provide information relating to the impact of different scenarios which the minimum wage increase would have on the job retention and other factors as required by law. Parties agreed that the Bureau for Food and Agricultural Policy (BFAP) should be given the responsibility of producing such a report. BFAP is a network linking individuals with multi-disciplinary backgrounds to a coordinated research system that informs decision making within the food production system. The core analytical team consists of independent analysts and researchers who are affiliated with the Department of Agricultural Economics, Extension and Rural Development at the University of Pretoria and the Department of Agricultural Economics at the University of Stellenbosch. BFAP has become a valuable resource to government, agribusiness and farmers by providing analyses of future policy and market scenarios and measuring their impact on farm and firm profitability.
In its report, BFAP applied economic modelling tools to simulate the impact on the total wage bill of agriculture if the minimum wages were to rise to R150 per day. The total impact of an increase in minimum wages to R150 per day amounts to an increase in the cash costs of labour of R3.5 billion for the top ten agricultural industries ranked in terms of total employment. The impact of an increase in the minimum wage to R150 per day will increase the total compensation bill of agriculture from R13.6 billion to R20.8 billion. This represents an increase of 53% or R7.2 billion.
From the farm level analyses it is evident that the labour intensive farms will not be able to pay a minimum wage of R150 per day according to BFAP. The report argues that most industries could absorb an increase of approximately R20 per day without any major implications on the employment levels. The report further argues that the gap between what farmers can pay and what workers require to make a basic living is large, and a creative policy framework together with extremely efficient management on farms is required to avoid shedding of jobs in agriculture. BFAP further argued in their report that the process of mechanisation in any industry is a given, but the way in which this materialises is key to unlocking the growth potential of the particular industry. With the given time frame in the current wage negotiations, representing industries may not have enough time to respond to the sudden cash flow shock due to a rise in wages, whilst the demand for an increase in compensation is unlikely to be accommodated by increased returns, efficiency, productivity and profitability in agriculture.

They further argue that industries could argue that equity spend on increased wage rates should rather be spend to increase efficiency, whilst increasing human capacity (more skilled labourers), this in turn could result in higher returns.

The BFAP report argues that the average base wage for farm workers is R84.90 per day and according to the current sectoral determination, the base would have been increased as from 1 March 2013 with the CPI, lowest quintile plus 1,5%. Secondly, the report further argues that if the current base was to be increased with R20 per day, the impact on job retention would be minimal and not comparable to an increase of R70 to R150 per day.
The Department also supports the report in arguing the fact that if wages were to be pegged at R150 per day, the impact will be huge as this will translate to more than 100 percent increase and it would result in job losses.
According to BFAP, there was a significant increase on food inflation from October 2010 to October 2012 (+18% on CPIF and +23% on basic food basket; +28% on BFAP Poor person’s index). The report argues that in actual values the cost of the basic food basket increased from R394 to R486 during this period, while the weighted food plate of ‘5 most commonly consumed food items’ increased from R3.33 to R4.26 per person per day.

The report further argues that during the period 2010 to 2012, the inflation experienced by poorer consumers (as measured by the basic food basket index and the weighted ‘5 most commonly consumed food items was more severe than the trend of the CPIF, mainly attributed to the significant inflation on staple foods (maize meal and bread). The spike in the weighted ‘5 most commonly consumed food items’ index around late 2010 to early 2011 can be attributed to particularly high bread prices during these months and this affected farm workers.

BFAP in its report also surveyed a typical rural Western Cape wage earning households where they discovered that a household with two adults earning a wage of R150 per worker per day cannot afford a relatively diverse daily food intake (‘balanced daily food plate’), which only provides about 61% of ideal energy content.
Considering the findings from BFAP report and also inputs by workers during the public hearings, it is clear that workers have a strong argument in demanding R150. However; consideration should be made on how the worker’s demands could have a negative impact on both job retention and also the ability of employers to continue operating.
In addition, during the public hearings, it was also clear that some farmers are not aware of the Ministerial Determination process which they can utilize when facing difficulties in paying the prescribed minimum wage as they argue that the economic scales of the sub sectors within the broader agricultural sector are not the same as ostrich sector was cited as an example. This process if utilized would ensure that those farmers, who cannot pay the prescribed minimum wages during difficult times, will get temporary relief from the Minister to pay lower than the prescribed wages.
Under the provisions of the current SD for farm workers, the increase as from 1 March 2013 would have been determined by CPI (December quintile 1), which is 7.1%, plus 1.5% - an increase of 8.6% in total. The new wage would have been R75.35 per day. Considering the inputs received during the public hearings from the workers who demanded R150.00 per day and the result of the report from BFAP which argues that the average wage base currently paid by farmers is R84.90 per day and further that if wages were to be increased to more than R105.00 per day, there will be negative implications on the employment levels and the sustainability of the sector, the Department recommends that the new minimum wage as from 1 March 2013 be pegged at R105.00 per day. Compared to the recommended increase of the wage as per the current determination, the DoL’s recommended wage of R105 is an increase of 29, 65%.

It is therefore recommended that the new minimum wage for the farm worker sector be pegged as per the table below.

Table 1:Minimum wages for employees in the farm worker sector
Minimum rate for the period				Minimum rate for the period			Minimum rate for the period
1 March 2013 to 28 February 2014				1 March 2014 to 28 February 2015			1 March 2015 to 28 February 2016
Monthly	Weekly	Daily	Hourly	Monthly	Weekly	Hourly	Monthly	Weekly	Hourly
R2274.82	R525.00	R105	R11.66	Previous years Minimum wage +CPI Q3 + 1.5%			Previous years Minimum wage +CPI Q3 + 1.5%

According to the table above, farm workers hourly rate will increase from R7.77 to R11.66; daily wage from R69.39 to R105.00, weekly wage from R347.10 to R525.00; and the monthly wage from R1503.90 to R2274.82.

The Department therefore recommends that the current approach of setting wages for three years be maintained and that the minimum wage increases be determined by utilizing CPI (quintile 1 as published by Stats’SA six weeks prior to the increase date) plus 1.5 %.