THE spat between Western Cape wine producers and farm labourers about wages has shown up interesting financial aspects at work in the sector.
VinPro reports the following:
• The total spending on basic labour at primary wine production level (excluding supervision and management) already amounts to close on R800 million a year . As from next month the minimum daily wage will increase from R69 to R105.
• 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 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,” says Rico Basson, executive director, VinPro.