SUBMISSION TO THE DEPARTMENT OF LABOUR ON ITS INVESTIGATION TO “REVIEW WAGES AND CONDITIONS OF EMPLOYMENT IN THE FORESTRY SECTOR, SOUTH AFRICA” (Published on 24TH February 2015 for Public Comment)
Produced by Roger Godsmark FSA Pietermaritzburg April 2015 Contents ______Page
1. Background to Submission 3
2. Introduction to Forestry South Africa 3
3. The Forestry Sectoral Determination – the Context 3
4. The New Sectoral Determination 5
5. Recommendations 7
2 1. Background to Submission
The Minister of Labour Gazetted Notice 139 in Government Gazette 38500, dated 24th February 2015, in which it was announced that the Department was to conduct a review of the “wages and conditions of employment in the Forestry Sector”. This is a “routine” review (as the current Determination expires at the end of March 2016) and follows other similar reviews that have occurred since the original Sectoral Determination for forestry workers came into effect in 2006.
FSA welcomes the opportunity to make this submission in terms of the above announcement. It should be noted that FSA played a very active and co-operative role in the initial investigation that culminated in the original Determination being implemented on 1st April 2006 and also the two reviews that have been subsequently undertaken.
It is hoped that this interaction by Industry will not be seen as the end of a process but the start of one in which the Industry will, as in the past, get an opportunity to participate in deeper consultations with the Department, including the participation in public hearings, as the eventual outcome of the Determination could have important consequences for the Industry in terms of its role in providing employment in rural areas and being a catalyst for rural development in general.
2. Introduction to Forestry South Africa
The question needs to be asked as to who is make this submission on behalf of the South African Forestry Industry. To answer this, the following needs to be noted. Forestry South Africa (FSA) is an Association which represents the interests of its members in particular and the promotion and wellbeing of the South African Commercial Forestry Industry in general. Although voluntary in its nature, FSA’s membership includes all 11 corporate timber companies operating in South Africa, 1 300 commercial timber farmers and 20 000 small- scale timber growers. This membership represents over 90% of the Industry as a whole and virtually all the private sector involved in the Industry. Due to this representivity, FSA is viewed by both Government and the Private Sector as the body which represents the South African Forestry Industry. It is thus hoped that DoL will consider our submission as representing the views of the Industry as legitimate.
3. The Forestry Sectoral Determination – the Context
In 2006, following almost 6 years of investigation, the (then) Department of Water Affairs and Forestry decided to request the Department of Labour to promulgate a specific Sectoral Determination for forestry workers. This was against the Industry’s advice. We said, at the time, that it would be far better to align the Determination with that applicable to agricultural workers. The minimum wages applicable to forestry workers were eventually aligned with those of agricultural workers in 2013, as were their conditions of employment.
Of concern to the Forestry Industry is that prior to the imposition of a new minimum wage for forestry workers, we as an Industry, held a meeting with DoL and ECC representatives in Pietermaritzburg in February 2013 at which they gave us an undertaking that BFAP (a
3 consultancy firm specialising in agricultural economics) would conduct a study on the Industry’s ability to pay various minimum wages (as BFAP had done for the agricultural sector). This commitment was not fulfilled and the promised research project never materialised.
Regarding the conditions of employment contained in the Sectoral Determination, we as the Industry, have never questioned these and these are currently accepted as standard practice by timber growers, both large and small.
Our comments and recommendations below thus relate specifically to the setting of a new minimum wage.
3.1 Minimum Wage Increases
As mentioned above, the first Sectoral Determination for forestry workers became effective from 1st April 2006. Graphs 1 and 2 below show an analysis of the minimum wages that resulted therefrom.
Graph 1: Minimum Forestry Wage in Nominal Terms 2006 - 2015
3 000
2 606.78 2 500 2 420.41 2 229.32
R 2 000
a 56% increase
n
d
p 1 500 1 428.70 e 1 278.03
r 1 221.83
m 1 138.71
o 989.34
n 894.52
1 000 836.00
t h
500
0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Year
Huge increase of 56% between 2012 and 2013
Graph 1 above clearly shows that at the end of every three year cycle of the Determination there has been a quantum leap in the minimum wage (set by DoL). Of particular concern was the staggering 56% increase in 2013. This has had major implications (see below).
Since the inception of the Sectoral Determination in 2006, the minimum wage, in nominal terms, has increased by no less than 212%. What, however, is of more significance, is that in real terms, after taking inflation into account, the increase in minimum wages has been almost 80% (refer Graph 2 below). The question needs to be asked – has productivity increased by the same level? The answer is no. Is this sustainable? Again, the answer is no.
4 Graph 2: Forestry Minimum Wages Nominal vs. Real 2006 to 2015 Nominal Real 3 000 R2 606.78 2 500 h t 2 000 n o M
r 1 500 e
p R836.00 R1 500.74 d
n 1 000 a R 500
0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Year Nominal increase over period - 211.8% Real increase over period -79.5%
3.2 Consequences of Current Sectoral Determination
Forestry is a labour intensive Industry and, in terms of Government goals, could (according to them), create no less than 1 million jobs. Quite frankly, this is pie in the sky, as the current regulations actively encourage employers to hire less rather than more employees. When the 56% increase in the minimum wage was implemented in 2013, the following occurred:
1. In an effort to save jobs, employers within the sector cut working hours rather than jobs as, at the new increased wage rates, they could not remain profitable with the same staff complement;
2. Those growers who could not do the above or mechanise, went out of business; and
3. There has, and continues to be a move towards the mechanisations of operations.
The net effect of increasing the minimum wage by 56 % in 2013 has been a loss of jobs.
4. The New Sectoral Determination - Things to Consider
4.1 Operational Costs – Labour Component
Any business, whether in forestry or not, has to generate profits in order to re-invest in their respective businesses. In terms of forestry, the investment horizons are long – a minimum of 8 to 30 years, depending on the crop grown. In all forestry operations, being a highly labour intensive operation, labour costs make up to around 30% - 40% of overall operational costs.
5 Given the above, any major increase in labour costs will have a major impact on the financial sustainability of both large and small timber growers alike.
4.2 Operational Costs – The Bigger Picture
As mentioned above, labour costs can be a significant proportion of the total operational costs of a forestry operation. When determining a new wage rate, this should not be viewed in isolation but should take into account other operational cost increases. Over the past few years these have been well above the published headline inflation rate (as of March 2015 - 4.0%). These include, amongst other, the following:
Eskom tariffs Municipal Property Rates SFRA Water Tariffs for forestry Transnet Freight Rail tariffs SANRAL tolls on roads Decrease in diesel rebate (allowance deduced from 60%to 80%) Other administered tariffs
The bottom line is that the cost pressures from the above have already had a negative financial impact on forestry (and other) businesses and as a consequence, their long-term sustainability. Although the latest official figure for headline inflation is, as mentioned above, 4% (March 2015), this is, according to analysis, going to increase dramatically over the next year. DoL should thus think seriously about this before determining the benchmark wage for 2016.
4.3 Industry’s Ability to Meet Cost Increases in Order to Afford Higher Wages
Unlike certain Industries, the Forestry (and for that matter the Forest Products Industry), are price takers. As such, any production cost increases (i.e. labour) that are incurred, whether it be fuel increases or labour costs etc. cannot be passed onto the consumer. Any cost of production increase has thus to be absorbed by the producer. DoL should thus take into account the following factors before setting the new benchmark wage:
(a) The continuing depressed trading climate in which many forestry enterprises are operating; (b) The need to remain as competitive and productive as possible through controlling cost increases and improving productivity whenever possible; and (c) Recognise that above inflation wage increases have been granted since the inception of the Forestry Sectoral Determination in 2006 (80% in real terms since 2006) without a commensurate increase in productivity.
Continuing this upward movement in wages without a commensurate improvement in productivity is counter-productive – it simply makes us less internationally competitive and in the long-term will lead to job losses.
4.4 The National Minimum Wage Debate
6 The call for a national minimum wage was motivated by Cosatu and was included in the ANC’s 2014 election manifesto. Subsequently, various hearings have taken place around the country to discuss this matter. At these hearings, minimum wages for various sectors have been proposed.
It would appear that, in relation to the agricultural and forestry sectors (as with other sectors covered by existing Sectoral Determinations – e.g. security guards, domestic workers etc.), the minimum wages being talked about are considerably higher than those currently in force.
It is hoped that DoL takes the line that should any such national minimum wage be implemented, it should ONLY apply to those sectors not currently covered by their own Sectoral Determinations.
5. Recommendations
Given the above, we would like to make the following recommendations:
5.1 Before a determination on minimum wages is made w.e.f. April 2016, an investigation be conducted by a reputable independent consultancy firm to determine the ability of the Industry to pay certain wage levels.
5.2 Notwithstanding the above recommendation, in order that we do not have another “shock” increase at the end of the current three year cycle, the current minimum wage (R2 606.78 per month w.e.f. 1st April 2015) be increased w.e.f. 1st April 2016 by CPI (for the lowest quintile) + 1%.
5.3 The two annual increases thereafter in the cycle be set at CPI (for the lowest quintile) + 1%.
Roger Godsmark Chairperson: Human Resources Committee Forestry South Africa
Pietermaritzburg 24th April 2015
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