A study conducted by VinPro, a service organisation for 3600 South African wine producer members focusing on their commercial sustainability, shows that the increase in the new minimum wage by 52% will reduce the profitability of wine producers by 60%, ‘the sustainability of the industry now being under serious threat‘, reports Cape Business News.
An analysis of the impact of the daily minimum wage increase from R69 to R 105, resulting from recent farm labour unrest, revealed:
* The basic labour bill is currently R800 million per year
* The wage rate will increase labour costs from R7941 to R9815 per hectare
* Added to the increases in electricity, petrol and water, the minimum wage increase will lead to cost inflation of 15%
* This will result in a 60% decrease in profitability.
This will lead to wine farmers re-evaluating their cost structure, not just of labour, but also of all input costs, some already having announced that they will look at greater mechanisation. Smaller farms may go bankrupt. Medium and larger farms may merge, potentially leading to reduced employment. Empowerment projects, of which there are 52 in the wine industry, will be ‘seriously affected‘. Employment may in future have to be linked to performance and productivity assessments.
Rico Basson, Executive Director of VinPro, concluded: ‘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’.
Chris von Ulmenstein, Whale Cottage Portfolio: www.whalecottage.com Twitter:@WhaleCottage
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