Minimum wage triggers warning signs for Orange River Wine Region

Friday, 15 February, 2013
Orange River Cellars
The new sectoral minimum wage increase for farm workers will have an irrevocable effect on agriculture in the Orange River Wine Region. 
The new minimum wage of R105 per day, which comes into effect on March 1 this year represents a 50% increase on the previous amount of R69 and is widely considered to be unsustainable.

According to Herman Cruywagen, manager of Orange River Cellars, the wage increase comes at a time when wine farmers are already struggling financially due to increased power tariffs, fuel prices, inflation and the annual increase in other input costs.

“For most farmers the wage bill already represents their primary expense, and the sudden increase has triggered warning signs for the future of wine production in the Northern Cape,” he says.

According to Cruywagen this situation may prompt farmers to replace their wine vineyards with raisin grape varieties for which prices are currently higher so as to absorb the impact of the increased labour costs.

“Farmers may also stop grape production altogether to concentrate on other crops,” he says. “It is thus highly possible that the farming character of the Orange River Region, which has been built over the past hundred years, can change irrevocably due to an ill-considered decision made without proper broad consultation."

Cruywagen says the uprooting of wine vineyards due to the increased labour costs will have an enormous impact on the government’s excise income.  “The government has now literally slain the goose which lays the golden eggs,” says Cruywagen.  

“If a hectare of vineyards produces 30 tons of grapes and 600 litres of wine is produced from a ton of grapes, this means that at an excise of R2,50 per litre of wine, the state will lose R45 000 annually for each hectare of wine grapes uprooted.  The decreased excise income will necessitate the government to recover this loss from the public in other ways, heaping more pressure on the already punch-drunk tax-payer."

He also expressed concern over the impact of increasing mechanisation and dismissals on the local community of the lower Orange River Region.  "There are approximately 15 000 workers permanently involved in the wine vineyard industry, and another 50 000 temporary workers during the harvest period.  Dismissals will have a tremendous social ripple effect on the community of Upington and surrounding towns, but due to the wage increase such layoffs are unavoidable," says Cruywagen.

Albert Brink, chairman of the Orange River Cellars Board of Directors and himself a farmer outside Keimoes, thinks that the wage increase will force each farmer to take a radical approach to his business and that the local wine industry will have to reposition itself accordingly.

"The survival of the region's wine industry has been placed under immediate pressure with this one-sided increase," says Brink.  "Farmers will replace wine grapes with more profitable raisins, which will undo all the good work that Orange River Cellars has done in the past years to establish its reputation as quality wine producer."  

According to him wine farmers will also have to mechanise and find ways to utilise labour more efficiently.  "This will particularly have an effect on people employed as harvest workers on a temporary basis, which in turn will have a negative effect on the social profile of the Upington region."

"It is a great pity that the decision regarding the sectoral wage increase was carried out in such a partisan manner and so abruptly.  On March 1, when the increase takes effect, the Orange River farmers will be totally immersed in the harvest and all their planning from last year will be nullified by the escalated input costs.  I think that more consultation and planning should have been done - as there are certainly two sides to every situation, and the farmers side has not been heard whatsoever."

According to Brink the increased wages may have an effect on the prices of Orange River Cellar products, which could hamper the cellar's competitiveness.  "Marketing initiatives and improved wine quality have opened various new markets for us in South Africa and abroad during the past few years, and our excellent quality versus price ratio is one of Orange River Cellars' outstanding qualities as producer.  Increased input costs, like labour, could overthrow this scenario and the impact thereof will not be experienced in the wine cellar only, but also in the community at large."

"This has particular ramifications for foreign markets, as Orange River Cellars has to compete against countries in Europe and South America where wine industries receive significant subsidies from their governments, who realise and acknowledge the full value of their wine industries."


Herman Cruywagen
Herman Cruywagen

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