Bloomberg News

South Africa Farm Strikes May Endanger Wal-Mart Contracts

January 18, 2013

South African Farm Violence

A young man carries a tire to a burning barricade during a farmworkers strike in De Doorns. Photographer: Rodger Bosch/AFP via Getty Images

South African farmworkers who have waged violent strikes since November are winning their battle for higher minimum wages. The victory may cost thousands their jobs, as farmers mechanize to guard supply contracts with clients such as Asda, Wal-Mart Stores Inc. (WMT:US)’s U.K. chain.

Three people have died and packing sheds and vineyards have been torched in strike-related protests in the Western Cape, the nation’s biggest fruit-producing region. Workers are demanding the minimum wage be raised to 150 rand ($17) a day from 70 rand. While the government will legislate new pay standards by April 1, some farmers have already agreed to increases.

South Africa exports about 12 billion rand worth of fruit a year. It accounts for about 11 percent of the world’s table grape and pear shipments, and is the ninth largest wine producer, U.S. Department of Agriculture data shows. The farm strikes coincided with the peak harvesting season, placing the nation’s reputation as a reliable supplier at stake and raising the risk of market share being lost to competitors such as Chile, according to Pretoria-based Agri SA, the main farmers’ organization.

“We have had inquiries from our clients all over the world about the unrest,” Pieter du Toit, managing director of Du Toit Group (Pty) Ltd., one of South Africa’s largest farming companies, whose clients include Asda and Edeka Zentrale AG & Co., Germany’s biggest food retailer, said by phone from Ceres on Jan. 15. “I think they are spreading their risk to ensure supply. We will make mechanization a higher priority.”

New Jobs

The number of workers employed on farms has already slumped about 30 percent to 680,000 over the past decade because of farmers replacing workers with machines, according to Agri SA. The government is seeking to reverse the trend and is targeting 969,500 new agriculture jobs in Africa’s largest economy by 2030 to help cut a 25.5 percent unemployment rate.

Efforts to attract new investment into the industry are being undermined by the recent unrest, which spread to about 16 rural Western Cape towns and has seen police firing rubber bullets and stun grenades at stone-throwing groups of protesters. The violence followed a series of illegal pay strikes that began at mines in August and contributed to credit- rating downgrades by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.

“It doesn’t look as if the labor disputes are going to go away any time soon,” Razia Khan, the London-based head of Africa economic research at Standard Chartered Plc, said by phone on Jan. 15. “There has been a steady flow of bad news. No one seems to have proposed any sustainable solution. It’s very difficult to paint a bright picture.”

Rising Risk

South Africa’s rand has weakened 3.7 percent against the dollar since the latest protests started on Jan. 9, the second- worst performance of 16 major currencies tracked by Bloomberg. It fell 1.1 percent to 8.9023 a dollar as of 2:50 p.m. in Johannesburg. The cost of protecting government debt against non-payment using credit default swaps over five years climbed 14 basis points over the same period to 153, signaling an deterioration in risk perception, according to data compiled by Bloomberg.

Farmworkers in most towns returned to work yesterday to allow for further pay talks and will resume striking on Jan. 23 if no resolution is reached, according to the Congress of South African Trade Unions, the country’s largest labor grouping.

“It’s clear there are huge levels of profitability in this industry,” Tony Ehrenreich, the federation’s secretary in the Western Cape told reporters in Cape Town on Jan. 16. “Where there has been desire to mechanize, they have already mechanized. We are not scared of that as a threat.”

Remained Operational

Agriculture makes up about 2.1 percent of South Africa’s gross domestic product directly and farms produce almost 6.5 percent of the country’s exports, according to government data. Farms employ about 200,000 full- and part-time workers in the Western Cape.

“While the strike has undermined labor relations and dented South Africa’s image, 90 percent of farms have remained operational,” Anton Rabe, head of Agri SA’s labor committee, said by phone from Paarl on Jan. 14.

Shoprite Holdings Ltd. (SHP) and Pick n Pay Stores Ltd., South Africa’s two largest food retailers, said they haven’t experienced shortages of fruit as a result of the strike. The Fresh Produce Export Forum hasn’t received reports of contracts being canceled, Anton Kruger, chief executive officer of the industry body, said in an e-mailed response to questions on Jan. 16.

Monitoring Situation

“We are closely monitoring the situation and to date, we have only seen limited issues as a direct result of the protests in the Western Cape,” Josephine Simmons, a spokeswoman for Sainsbury Supermarket Ltd., a unit of J Sainsbury Plc (SBRY) said in an e-mailed response to questions yesterday. “We source from South Africa and Chile. The main issue we are seeing is shipping delays.”

Asda didn’t immediately respond to questions left on its website and Edeka spokesman Rolf Lange didn’t respond to an e- mail seeking comment yesterday.

Small-scale farmers like Ismail Motala, who grows fruit and vegetables near the southern town of Wolseley, say a resumption of the strike next week will put their livelihoods at risk.

“We need to get the fruit off the trees as fast as possible,” Motala, 43, said as he took a break from supervising his picking crew and loading crates of pears they collected onto a truck. “I have a window period of 8 to 11 days. We just hope the situation stabilizes.”

To contact the reporters on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net; Jaco Visser in Johannesburg at avisser3@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net


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