Factors affecting the demand for labour in large-scale sugarcane farming in three regions of KwaZulu-Natal, 1984-2008.

Abstract

Many authors have cited the relatively high unemployment rate as the most severe economic problem facing South Africa today. At the same time, government institutions claim that the agricultural sector can help solve the high unemployment rate, as this sector has the potential to create employment for a large number of unemployed South Africans. These institutions do not elaborate on how the sector will provide so many jobs. Published empirical studies on the South African (SA) agricultural sector have recommended ways in which policy-makers may achieve their goals of creating employment. However, most studies on labour considered the entire agricultural sector, whereas this study focuses on a sub-sector, namely the SA sugarcane sector. The study aims to analyse the potential of the sugarcane SA sector to create employment by estimating long- and short-run price (wage) elasticities of labour demand for large-scale sugarcane farms on the South Coast, in the Midlands and in Tugela/Zululand during 1984/1985-2008/2009. Using panel data, two models are estimated by Ordinary Least Squares (OLS), Model 1 capturing labour use intensity and using “labour units employed per 1000 tonnes of cane cut” as the dependent variable, while Model 2 captures the total labour units demanded by large-scale sugarcane farmers. Only Model 2 is estimated using simultaneous equations as past studies indicate that labour use intensity may be analysed using single-equation models. For Model 1, the estimates of the long-run wage elasticities compared to the short-run wage elasticities are similar and around -0.5, -0.17 and -0.33 for the South Coast, Midlands and Tugela/Zululand regions, respectively. The wage elasticity estimates for Model 2 in the short-run were -0.34, -0.24 and -0.17 and in the long run -0.61, -0.42 and -0.30 for the South Coast, Midlands and Tugela/Zululand, respectively. The two econometric techniques (OLS and 3SLS) yielded similar wage elasticities. Results suggest that all labour demand estimates were wage inelastic, with the South Coast having a relatively greater response of labour demand to wage rate changes than the other two regions. Inelastic demand estimates for labour in all three regions may be due to the perennial, long-term nature of sugarcane and farmers taking time to decide how to respond to changes (hikes) in the price of labour. The decline in the demand for labour by large-scale sugarcane farmers due to an increase in real wage rates raises questions about the appropriateness of labour laws and minimum wage iii legislation that have increased the real cost of farm labour in the large-scale sugarcane sector of KZN. In order to reverse the rising farm labour unemployment trend in South Africa, the study recommends that policy-makers could rather adopt more flexible labour market regulations (for example, those relating to the hiring and dismissal of workers) that would reduce real labour costs and encourage local farmers to employ more labour on sugarcane farms. Furthermore, the land under sugarcane proved to be an important determinant of the demand for labour by large-scale sugarcane farmers and hence policies regarding land reform need to be revised and implemented more proficiently. Future research could focus on the skill-level of those workers who are affected the most following an increase in minimum wages and possible reasons why the KZN sugar industry is losing land to other land uses.