Insights

The Living Wage: Agriculture sector

The industry has been adjusting to the abolition of the AWO (Agriculture Wages Order) in October 2013 which previously dictated pay to labourers across both agriculture and horticulture. This third change to pay rates (the Living Wage) in as many years makes it increasingly hard for farming businesses to forecast their costs in an already tight global market where both wheat and milk prices are on their knees, and retailers keep fresh produce margins tight. Competition is stiff – falling global commodity process, a weakening Euro, ever tightening chemical regulation and now an increase to minimum wage. That said, many loyal servicing workers would already be earning more than the National Living Wage however, an increase like this stifles businesses appetite for headcount growth.

Alice Hawkes, Director in the Agriculture industry team

The National Farmers Union (NFU) has responded to the Living Wage announcement with concern about how the above-inflation increase will impact competitiveness in agriculture and the labour intensive horticultural industry. Many fresh produce businesses have a seasonal workforce due to a need for hand harvesting, accordingly they have to plan and budget costs well in advance of the summer. This announcement has given the industry little time to adapt their plans for this 11% increased labour cost, effective April 2016. Unlike many other sectors fewer than 10% of farmers utilise a corporate structure so they do not benefit from the chancellors reduction in corporation tax to offset this cost burden. As a result, the NFU is asking the government to assess the consequences to the farming industry with specific focus on the horticulture industry in the hope that the government will consider delaying implementation of the Living Wage.

In the absence of a delay, the horticulture industry specifically is going to have to consider how to manage these costs; absorb them or pass them on? The latter being a nearly impossible task in the UK where the multiples dictate the price for the grower. The industry already struggles with recruitment and retention of good people but some businesses may decide to focus on hiring under 25’s to avoid the Living Wage rates. Separately, for those businesses with recurring seasonal workforce, the viability of current practices such as paying overtime and offering other non-statutory benefits may fall away impacting the loyalty and reliability of those same workers to return each season.

An interview with a fruit farming client confirmed that while the Living Wage has generated a host of questions and some concerns, many of their seasonal workers already earn more than the NLW due the commonly practiced piece rate pay schemes. Piece rates pickers (paid a fixed piece rate for each unit) usually earn more than the Living Wage so they will not feel the impact of the new legislation as much. It will be companies reliant upon agency labour who will be more affected as they typically pay workers on an hourly rate regardless of output.

Finally, a key concern for the industry is that the higher costs of the Living Wage could affect innovation across the industry which is integral to the introduction of new products, more efficient processes and remaining competitive with the EU.

“Farm leaders concerned about effect of ‘living wage”
Farmers Weekly 23 July 2015

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