Deregulation of agricultural marketing in South Africa: Lessons learned (May 2000)

The effects of deregulation: Employment and wages

The structural changes taking place in agriculture have resulted in a decline in total employment in the sector. This is a process that started in the middle to late 1960s, when grain harvesting became mechanised. There is considerable evidence that the growth path followed in agriculture during that period, where capital was substituted for labour, resulted in a shedding of labour. In this sense it can be argued that agriculture played a distorting role in the economic development of South Africa. A development strategy that subsidised capital through numerous tax breaks and direct interest rate subsidies, even to the extent that farmers paid negative real interest on their loans for long periods, was always likely to lead to a skewed pattern of factor use in the sector.

Most of these distortions have now been removed. Nevertheless, it is clear that the commercial sector, as currently constituted, will not employ more labour than at present. While data on the size of the farm labour force are notoriously outdated and inaccurate, all the available evidence shows that the decline in employment has continued despite the steps taken to liberalise the sector. Whether this trend can in future be turned around through the encouragement of a small-scale commercial farming sector under the land reform programme is not an issue that can properly be addressed here.

However, it is clear from the case studies that were presented above that farmers who succeed in becoming internationally competitive in any of these industries will pay higher wages to the larger number of skilled workers that they are taking into employment, even if they do decrease overall employment levels…The Western Cape is used here as the basis of comparison for two reasons. First, the province is the leading source of agricultural exports from South Africa; hence it is more likely that the sector as a whole is more competitive than is the case in the rest of the country (although this is hardly true of wheat production, for example). Second, because the sector is dominated by a capital-intensive mode of production, there is a greater prospect of an increase in better-paid job opportunities. In fact, a survey conducted for the 1997 agricultural summit showed that farmers in the wine and fruit industries generally expected to increase employment despite increased mechanisation in, for example, wine harvesting. In addition, rural employment opportunities will increase as a result of their efforts to include more value-adding opportunities to their enterprise portfolios. This could lead to at least a reduction in the rate at which the sector is shedding labour if there is sufficient investment in the sector.

This policy bulletin is an extract from Free Market Foundation monograph by Nick Vink & Johann Kirsten and may be republished without prior consent but with acknowledgement to the authors. The views expressed in the article are the authors' and are not necessarily shared by the members of the Foundation.


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