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Wine Dispute Shows Up Farmer’s Money Pressures

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.

Published by Cape Business News

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