Drastic wage increase will seriously affect wine producers

Tuesday, 5 February, 2013
VinPro expresses its serious concern that the sectoral wage increase has been determined without full consideration of economic realities at production level or productivity benchmarks.
The drastic daily increase from R69 to R105 will undoubtedly have a serious negative impact on the financial position of wine producers – especially smaller farming units, the majority of which will simply not be able to bear the brunt. Job losses and structural changes will definitely be consequences of the wage increase in this labour-intensive agricultural industry, if government does not urgently become involved as a partner and make meaningful contributions towards rectifying the imbalance between economic realities and socio-economic pressure.
  • The total spending on basic labour at primary wine production level (excluding supervision and management) already amounts to close on R800 million a year – which will increase by about R190 million from 1 March.
  • Wine producers have already suffered a cost-price squeeze over the past few years, with income not keeping up with cost hikes. The current net farming income (NFI) in the industry is more than 50% lower than is necessary to ensure long-term sustainability.
  • The wage increase represents a 52% hike of the current minimum wage for workers in the agricultural sector.
  • The average wine producer’s NFI is currently R8 583/ha. The increased wage will lead to a hike in labour costs from R7 941/ha to R9 815/ha, and a 60% decrease in profitability.
  • Taking this wage increase and production factors such as electricity, fuel and water hikes, as well as excise duties into account, the cost inflation for the 2013/14 year will be 15%. 
According to VinPro, the drastic minimum wage increase will have the following impact on the farming approach of wine producers:
  • Producers will have to critically re-evaluate the use of resources such as soil, labour, water and energy.
  • Smaller, marginalised units will probably have to be sold – and face liquidation.
  • The 52 empowerment projects in the wine industry will undoubtedly be seriously affected by the new wage levels. 
  • Medium and larger farming units will have to consider consolidation to benefit from economy of scale; consolidations or mergers such as these usually lead to job losses.
  • Workers' remuneration will increasingly have to be linked to productivity and performance assessments.
  • The implementation of mechanisation to decrease production costs and improve productivity will probably accelerate. 
  • Despite the wine industry’s ability to create jobs, play a socio-economic role, promote tourism and generate foreign currency, the sustainability of the industry is now under serious threat. 
It is critical that a strategic framework be urgently formulated within which the wine industry, government and other role players can consider social, economic and environmental factors for future sustainability; if not, many wine producers may abandon the industry.

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