South Africa: ''Hike May Make SA Tobacco Unviable''

Source from:  Independent Online 04/27/2013

A government-ordered increase in farm wages has boosted costs for tobacco farmers in South Africa and threatens to make the industry unviable, a group representing growers and manufacturers said.

The minimum daily wage for all farmworkers was boosted by 52 percent to 105 rand ($11.05) from March 1, Labor Minister Mildred Oliphant said on February 4.

The decision followed a wave of violent strikes.

Pay will also be increased by 1.5 percentage points above inflation, which is currently 5.9 percent, for the next two years.

Costs for labor on tobacco farms have increased to as much as 35 percent of total production costs from 20 percent, Francois van der Merwe, chief executive officer of the Tobacco Institute of Southern Africa, said in an e-mailed response to questions today.

"Farmers have laid off approximately 10 to 15 percent of their labor force as a result of the high wage increase," Van der Merwe said. More job cuts would compromise the quality of the crop, he said.

South Africa produces 16 million kilograms (35.3 million pounds) of tobacco annually, according to the institute. The tobacco industry employs about 10,000 people in South Africa.

"If tobacco production drops dramatically below the 16 million kilogram mark, in terms of economies of scale, it may no longer be viable to process a smaller crop locally," said Van der Merwe.

"Buyers of South African tobacco will also be forced to source tobacco elsewhere to make up volumes." Enditem