By working in a structured way with government and business, FAWU believes that transforming the food industry is possible. Last year’s Vision for Labour Relations in Agriculture is a relevant example. In the interest of collective industrial strategy agreements, FAWU has also been working towards holding two sector job summits as soon as possible:

• Wheat Product Industry Sector Job Summit
• Food Security and Jobs Summit (with commissions for remaining clusters)

FAWU continues to engage members of the Wheat Forum to secure their commitment to the first sector job summit. This has involved a learning curve, particularly when it comes to industry association structure and representation.

Rapid food price increases urged FAWU and COSATU to develop Proposals for Addressing the Food Security Crisis, which were then presented to NEDLAC in February this year. In order to clarify the role of agriculture and food in the economy, COSATU proposed the second tripartite Food Security and Jobs Summit.

The Food and Allied Workers Union is committed to building an effective and integrated industrial strategy. This submission is based on FAWU resolutions and research. Unfortunately, mandated demands on industrial strategy will only emerge after a meeting of shop-stewards, officials and elected leadership later in May.

The trends discussed below have led us to coin the phrase, Food Industry Crisis. We think that there are serious problems in the food industry that need to be addressed through industrial policy and industrial strategy.

Soaring food prices are a crisis for most South Africans. Food prices rose 14% in the year to March 2002, while other goods and services rose just over 5%. The cost of maize meal doubled in just eight months and the price of bread increased sharply in March.

In the past few years, rising unemployment and poverty have aggravated malnutrition. Between 1995 and 1999, the Department of Health found more malnourished children and a dramatic increase in wasting – a measure of chronic malnutrition. Adults in rural Limpopo, KZN and the Eastern Cape are increasingly malnourished. The high price of food is also a serious concern for people with HIV, who need nutritious food.

Deregulation and trade liberalisation has promoted rapid structural change within agricultural and food industries. Costs have been cut, new technology installed and mergers and acquisitions implemented. Labour productivity has climbed, but at the same time, 52 000 formal jobs have been shed in food processing alone (through firm closures, outsourcing, sub-contracting and competitiveness drives- see Appendix I).

Thousands more jobs have been lost in agriculture and, of those that remain employed, many suffer from persistent hunger (Appendix II). Along with the weakening rand, there is increased capacity to export certain foods (Appendix III) but there are few signs that this is leading to much job creation.

Case studies from food industry workplaces that we visited in different parts of the country demonstrated a serious lack of progress with employment equity and skills development. There were isolated examples of alternative management styles, but the most common tendency was for a band of reactionary white managers to be responsible for many aspects of human resource development.

Deregulation has given firms greater freedom to decide about which markets to target with their best quality produce and where to sell produce of a lower grade (e.g. lax regulation of the standard loaf of bread). HIV/AIDS projections are also encouraging a more vigorous export orientation out of the fear of a declining domestic market. The SA Chamber of Milling says of the HIV/AIDS report it commissioned:

Approximately 24 000 (out of 41 000) commercial farmers own PCs and software that will facilitate their production decisions, input buying, and produce selling when the former co-operatives get online. Large manufacturers are now integrated electronically with large retailers through barcodes and international data standards. Luxury products taken off a large retailer’ shelf in South Africa will soon be registered overseas and integrated into production planning models to streamline supply. In South African agriculture and food processing there is a serious problem with skewed access to information technology.

New technologies related to the food industry, like Genetically Modified Organisms (and biotechnology more generally), are being actively marketed through ‘public education programmes’ in the media.

Deregulation has also eliminated significant cross-subsidies that meant products were available in remote rural areas. In addition, food distribution systems that used to emphasise bulk use of rail, are now based on smaller (and more costly) transport loads by road.

Government now applies lower food safety, food quality and labelling standards at the same time as government officials struggle to enforce the rules in thousands of enterprises. Sometimes basic foodstuffs are sold as comparable products, but in actuality they are lighter, less nutritious or full of toxins.

The food industry is primarily linked to domestic demand. Although food exports have increased, as encouraged by government policy, they remain dwarfed by domestic demand for food.

FAWU believes that industrial strategy, as it relates to the food industry, should specify the balance between measures that aim to remove constraints to domestic demand (e.g. comprehensive social security, land reform and rural infrastructure) and those that aim to remove constraints to export growth. ‘Accelerating growth and development’ does not pay specific attention to social security, land reform and rural development. As the programmes that could stimulate domestic demand, this leaves us with the impression that ‘Accelerating growth and development’ does not strike the appropriate balance. FAWU is in the process of building demands on the contribution of land reform and rural infrastructure to job creation.

It is a long-standing paradox that increasing hunger can go hand in hand with so-called food ‘surplus removal’ schemes in export markets. With the current exchange rate, there is no correlation between increasing basic food exports and positive food security outcomes in South Africa. This is especially true when repatriation of export earnings is delayed or earnings kept offshore.

FAWU is alarmed by the statements being made by multi-lateral food aid organisations. Reports by the Food and Agriculture Organisation (based in Rome) and World Food Programme (East Africa), have increased their estimates of the number of people facing starvation in Southern Africa from 4 million (22 February 2002) to 19 million in the space of two months (24 April 2002). We feel that a fivefold increase in estimates warrants further scrutiny.

This is especially important since statements about the volume of maize exports required from South Africa wreaked havoc with South African Futures Exchange maize prices last year. Maize price act as a catalyst, they transfer into the animal feed industry and then into dairy, chicken, egg and feedlot beef production. Other staple foods like rice and potatoes tend to track the maize meal price. The South African Grain Information Service, will not disclose where 960 000 tons of maize was exported to in the 2001/2002 marketing year. What is known is that more than 100 000 tons of Genetically Modified Organism (GMO) free maize was exported from the Free State to Japan at a substantial price premium.

FAWU believes that regional capacity to assess and address the regional food security crisis should be bolstered very urgently. This will improve regional knowledge of the human crisis facing the region and would leave us less dependent on one source of information. It would also assist in developing ideas on strategic stores of key grains as well as the role of export levies in containing domestic prices.

In addressing the current food security crisis within South Africa, we are encouraged by the investigations that have been initiated so far (Competition Commission, NDA, DTI, and Treasury). However, to facilitate effective action after findings have been released, we think that the results of this work should be consolidated under NEDLAC and the sector job summit process as soon as possible.

That fact the food industry chains are especially long means that they offer important job creation prospects (see Appendix IV). Most countries in the world acknowledge this by subsidising and protecting their domestic industry as well as promoting exports. Apart from South Africa, few countries have shown a commitment to fundamentally changing this approach.

FAWU believes that it is in the long-term interests of South Africa and the region to build productive capacity in food production and processing. Destroying local capacity through an inability to curb dumping, or through allowing subsidised imports, is no way to build a prosperous country in the long term.

FAWU has learnt through practical experience that trade agreements and tariff reductions are complex tools to stimulate food industry growth and employment. We have experienced particularly acute difficulties in some processed food products (e.g. canned fruit and vegetables, concentrated dairy products, sweets and chocolates, meat, chicken and wheat products). Trade agreements create opportunities in some sub-sectors (and parts of South Africa) while others suffer unfair competition. Some of FAWU’s direct experience is echoed in the latest assessment of the EU-SA Trade and Development Co-operation Agreement (TDCA), as shown below:

After adding citrus to the list of sectors experiencing ‘practical problems’, the finding about short term losers is particularly worrying to FAWU. It was expected that South Africa would benefit more from the agreement in the short term and increasingly less so in the long-term (asymmetry was one developmental part of the agreement).

The EU is meant to ‘open’ its markets ‘faster’ for South African products than vice versa. However, South Africa has had to call for a Food Safety Conference to remove non-tariff barriers in the EU before our exports can flow freely. The University of the Free State study concludes by stating that ‘it is too early to assess the impact of the TDCA on trade flows’ and suggests that more research is required. FAWU is also monitoring discussions about rules of origin within SADC because of the risk of heavily subsidised food imports arriving via our neighbours.

Further liberalisation of agricultural trade in the context of weak rules, hidden subsidies, and uneven trade negotiation capacity could lead to increased dependency on distorted international markets.

FAWU supports far more rigorous and balanced assessments of the merits of any new trade agreements. In addition, FAWU believes that more attention should be given to the definition of ‘abnormal competition in agricultural products’ as well the mechanisms to protect against it.

Foreign Direct Investment, while offering the prospect of some benefit, should also be more clearly defined. FAWU does not believe in Foreign Direct Investment that leads to warehousing of manufacturing facilities (e.g. dairy). Many developing countries that allow Foreign Direct Investment are more precise about the terms and conditions of foreign multinational company involvement.

As far as domestic direct investment is concerned, FAWU sees parastatal organisations playing a stronger investment role. The example of red tuna has already been broached with the Minister of Environmental Affairs and Tourism. This is a valuable species that is not currently fished by South Africans because we lack the technological capacity.

FAWU has had some experience of cluster studies in the food industry. The most direct experience was gained with the Wheat Cluster Study, completed in 1997. Our assessment of the cluster study highlights three areas for improvement:

1. employment issues and information were neglected in the methodology that was used (Monitor’s Diamond). This led to a failure to appreciate the impact of different recommendations on employment and labour relations
2. food security issues were disregarded
3. democratic structures of industry governance, post study, were ignored

Despite the reservations above, cluster initiatives can improve the ability of sectors to withstand import competition, especially when there are deep seated conflicts amongst different parts of an industry chain. FAWU would support further cluster initiatives in different food industries if there was an improvement in the methodology, and the capacity of consultants, to address employment and food security issues.

1. In light of the problems around food safety and food quality, not only in trade, but most importantly in domestic markets, FAWU calls for the current process of legislative and administrative review of food safety, to be speeded up. It is well known that increasing co-ordination between the Department of Health, the National Department of Agriculture and the Department of Trade and Industry is moving very slowly. Owing the highly technical nature of these discussions, FAWU believes that special attention should be given to raising capacity and awareness of food safety issues before any legislation is finalised. Improvements in food safety and quality within factories are also closely linked with skills development.

• FAWU believes that a fund is needed to support cluster type initiatives in the food industry. This may be especially urgent for some of the products on the reserve list of the EU agreement that will be reviewed in 2005 (e.g. dairy, red meat and sugar).

Official statistics show a decline in formal employment of 52 000 between 1990 and year 2000. When looking in more detail, between 1993 and 1997, there was a decline of about 22 000, the ten sub-sectors showing highest decline were as follows:

Source: StatsSA STEE

However, because of employment growth in some sub-sectors, the net decline was 18 000 (i.e. 21 791 – 3851 = 17 940). The top five sub-sectors showing growth were as follows:

Source: StatsSA STEE

FAWU supports a major drive to improve the reliability and analytical power of employment statistics and business registers. We are under the impression that Statistics South Africa could not maintain this level of detail in employment information (5-digit SIC code) beyond 1993-1997 as a result of problems with resource allocation and capacity. In our view information presented at 3-digit SIC code level is too broad to be of much use for the purposes of industrial strategy.

It is generally accepted that the long-run trend in agricultural employment follows the general pattern illustrated in Figure 1. The estimated number of farmworker households in different agricultural subsectors, reporting hunger is shown in Figure 2.

Agricultural products that grew in comparative advantage the most between 1995 and 1998 included:

Source: Dirk Ernst van Seventer, Focus on Data – December 2000 Inter-industry Revealed Comparative Advantage for South Africa

The food industry is dependent on agricultural producers for the supply of many raw materials. Approximately R17 billion is spent on inputs from primary agriculture. In 1997, nine percent (or R1.6 billion) of agricultural inputs were imported.

Most manufactured inputs into the food industry come from within the industry itself (e.g. when millers of wheat supply plant bakeries with flour). However, several other industries are also important (see table 1). Machinery, equipment and chemicals are especially import intensive. Approximately 18% of all manufacturing inputs are imported.

Source: WEFA Provisional Social Accounting Matrix, 1997

Other expenditure arising from the food industry includes approximately R3 billion spent on transport, R3 billion on financial and business services and R1.25 billion on energy and water.

The most significant downstream effects from the food industry are through supplying animal feed back to agriculture (R2.5 billion), hides to the leather industry, and substances for the production of various advanced chemicals (e.g. sugar is used to make lysine). Total downstream sales to manufacturing industries amount to just less than R1 billion.

The graph below shows a summary of how wages vary according to category of work, size of enterprise and level of unionisation in the wheat product industry chain. The size of the bubble indicates the number of employees and when the bubble is shaded, it means that more than 40% of workers in that category were unionised.

The graph shows clearly how unionised workers in factories, or in retail stores, are paid better wages than non-unionised workers. Unionised drivers and machine operators in larger factories (mills and bakeries) command higher wages. Most often, these workers are employed by one of six JSE listed companies.

A large number of bakery workers in smaller enterprises are not unionised and earn low wages. Many of the workers in this category worked in unregistered or informal businesses and a large number were contract workers as opposed to permanent employees.

Catering establishment and restaurant bakers are paid slightly better wages despite being located in small enterprises where unions are not present.

Diagram: median monthly wage [PMG note: not included here]

General farm workers on small and unregistered farms are the largest, and worst paid, group. In terms of monthly wages, they are followed closely by farm drivers and machine operators.