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Farmers stretched to limits, banks say

Ann Crotty

TABLE grape farmers in the Hex River Valley were at the peak of their indebtedness and many would be pushed “over the brink” if they had to pay higher wages at this stage, bank executives told Business Report yesterday.

Ernst Janovsky, the head of agribusiness at Absa, said that at this time of the year, when harvesting had just begun, farmers were “fully stretched” as they had incurred all of their costs and would only receive income a few months after they had delivered their crops.

SA Table Grape Industry chairman Johan van Niekerk confirmed that at this stage in the season it would be very difficult for the majority of farmers to raise the cash needed to meet the increased wage demand.

“At the beginning of the season most of the farmers arranged for funding from their banks on the assumption that they will be paying seasonal workers around R70 a day. In the short term it will be very difficult for them to increase the wages. Even if the growers in De Doorns wanted to pay R110 a day their bankers probably wouldn’t let them,” Van Niekerk said.

Janovsky said if the higher wages could not be accommodated by a farmer’s budget then banks would not be able to provide the necessary additional finance. “It depends on the profitability of the farm but we could not finance someone who would be pushed over the brink by the increased labour costs.”

Nedbank Business Banking’s divisional manager of agriculture in the Western Cape, Daneel Rossouw, said higher wages would have a negative impact on farm profitability and long-term sustainability.

“Only the top one-third of table grape farmers will be able to maintain a normal replanting programme, which is essential for sustainability, and replacement of farming equipment, with a very small margin available to repay debt and make provision for owners’ remuneration.”

The exact cost to the farm of each farmworker was not available, Rossouw said, but the information banks used clearly showed that only the top one-third would be able to afford higher wages.

“Study group information indicates an average margin at current wages [before owners’ remuneration and debt repayment] of approximately 18 percent. This margin is negative for the bottom one-third of table grape farmers in De Doorns, clearly indicating that the majority of table grape farmers will not be able to absorb higher wages.”

Industry analysts said the major constraint on the farmers was that they were price takers and had no power to demand higher prices for their produce. Almost 100 percent of the table grapes grown in the Hex River Valley are sold, often through agents, to the major European retailers.

Janovsky said not only were the farmers price takers for their grapes but they were also price takers for their inputs such as fertiliser and fuel, which were set on international markets.

Hex River Valley Table Grape Association chairman Michael Laubscher said that if the farmers demanded higher prices from the powerful European retailers they would be replaced by suppliers from other countries. “All the countries we are competing with get some form of subsidy,” he said.

However, recent statistics compiled by the “Capturing the gains” programme at Manchester University suggests there is scope for tougher negotiations by South African farmers.

The figures show that the country supplied more than 50 percent of the UK grape market in December and January, and more than 40 percent in February.

One industry analyst noted that in the short term it would be extremely difficult for the UK retailers to source supplies from other countries, given South Africa’s reputation for quality produce.

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