How do you make a small fortune? Start with a big fortune and buy a wine farm.
That’s the conventional wisdom of wine farming, as viewed from the city slickers’ club. But I also know serious wine farmers who set out to harvest economics beyond the perfect cultivar.
Wine is a big international export business for South Africa. The multibillion-rand grape and deciduous fruit industry employs hundreds of thousands of people and is a big earner of foreign exchange.
Strikes are not always about economics, but the economics of a strike can create an insoluble deadlock.
Let’s do the arithmetic (not with the exact figures, but they demonstrate the principle). Farm workers in the Western Cape earn wages somewhere between R65 and R120 per day. The strike is about a wage of R150 per day — an increase of between 25% and 130%. Let’s use 50%.
The wage bill, I heard a farmer say on TV, is about 32% of his total running costs. Again, let’s use 30%.
I’m going to take an experienced guess that the profitability of a wine farm (for those who do this for business) is at most 8%-12%. Let’s be kind and use 10%.
Well, it just won’t work. Increasing wages by 50% pushes overall costs up 15%, which means that 10% of turnover profit turns into a 5% loss — fairly straightforward arithmetic. In any case, wine farming isn’t really a 10% profit business; for the most part it is a lifestyle business that barely washes its face — you make your money when you sell the farm one day. (Actually, your kids make the money when they split up the farm and sell it one day.)
I don’t believe the problem will be solved simply by increasing wages. Business Day reported on Wednesday that the farm strike ended with no finality on wages — at least there seems to be some understanding emerging, some mutual recognition.
The Department of Labour is getting involved. I’m pretty sure that’s a good thing. Stronger co-operation between the government and business will be a necessary element of our survival in the face of subsidised foreign competition. But it’s not just about the immediate economics. There are also bigger issues than raising the daily wage.
We compete in the global village nowadays. There will be a long, eager and price-competitive queue waiting to take up that precious shelf space that South African winemakers have fought hard to secure in the consumer capitals of the world. And it won’t just be about price. Almost more importantly, it will be about certainty of supply — if you can’t guarantee your clients your product when they expect it, they will eventually change. If you lose market share, it is extremely difficult to regain. You can’t produce wine on time amid a strike.
One of the biggest threats to labour is mechanisation. I’m not sure of the extent to which South Africa’s farming industries lend themselves to automation, but I’ll bet there are clever mechanical engineers trying to figure that out.
With unemployment already at unacceptable highs of more than 25%, we can ill afford another industry having to automate to compete.
An ever-present (and disturbing) feature of our labour landscape is the influx of foreign and illegal workers. Surely, that is something we can prevent? When there already isn’t enough to go around for our own, we should not provide for outsiders.
It is absurd to allow foreign subsidised imports, on the one hand, and let foreigners take local jobs on the other. We’ve accepted this phenomenon, but we shouldn’t. If, as a country, we have an interim skills shortage in a particular field, then of course we can import skills until we’ve trained ourselves up.
We’ve been picking grapes for generations in the Cape, however, and I’ll bet we could teach the foreigners a trick or two.
There is also the issue of land ownership. This is just one part of the broader debate on the ownership of the means of production.
I think the solution lies in aligned interest. This isn’t new thinking, but it is universally accepted. On the rugby field, as much as on the maize fields, if we all work together and are structurally incentivised to do so, there will be a better result for all.
The lowest-cost producer always wins. Simply changing a number isn’t the solution and sometimes it’s impossible, as it seems to be in farming. There are only so many drops of cost you can squeeze into a bottle of wine.
Intelligent productivity is the only game in town. Benefit from the fruits of your labour (okay, I couldn’t resist it). Don’t just pick grapes faster, pick them smarter — and be rewarded per unit of production.
That’s sharing in the means of production. Yes, I know we’ve all heard of this, but we don’t do it. We try to solve shareholding and asset ownership instead. We moan like hell about exogenous variables and try to change the rules instead of playing the game better.
Fix it from the inside. Don’t disperse or challenge the existing profitability ratios — raise profit through intelligent productivity and then share it with those who made it happen. There will be more to spread around, I promise you. We’ll move closer to being the lowest-cost producer and there will be higher profits.
Why? Increased productivity creates something out of nothing, that’s why — and that’s what we’re going to have to do in the Cape, and in the country.