Analysis: Food, fuel to stoke South Africa mine wage talks

JOHANNESBURG Tue May 24, 2011 7:47am EDT

JOHANNESBURG (Reuters) - South African mine companies are again likely to be forced into settlements above the main rate of inflation as they tackle union wage demands given impetus by accelerating food and fuel prices.

Organized labor in South Africa, which has been growing increasingly militant, is seen in no mood to compromise as commodity prices ride high on international markets.

"I wouldn't be at all surprised to see higher wage demands based on commodity prices as well as food and fuel inflation," said Paul Bugala, senior sustainability analyst at U.S.-based Calvert Investments.

South Africa's powerful National Union of Mineworkers has fired its opening shots for the next round of wage talks, demanding a 14 percent, one-year wage increase across the board from gold and coal miners and a similar increase from Impala Platinum (IMPJ.J), the world's second largest platinum producer.

This far exceeds annual inflation which was 4.2 percent in April and follows a pattern strongly in place over the past four years that has seen miners dish out pay hikes way above headline inflation measures -- a trend they say is taking a growing toll on their bottom lines.

"We have clearly seen an increase in labor union militancy ... The ultimate settlement this year, as per the previous occasions, will likely be in the order of 10 percent," said Leon Esterhuizen, an analyst with RBC Capital Markets in London.

This would be over double headline inflation but for many mine workers that hardly captures the impact of rising prices on them because they often have several dependents and so climbing food costs can take a massive bite out of their pay.

While headline inflation in South Africa was 4.2 percent in the year to April food inflation was 4.8 percent and retail petrol prices have soared 21 percent since the start of 2011.

Food inflation of almost 5 percent is compounded if you have many mouths to feed and rapid petrol price hikes fuel wider consumer concerns on this front.

"I think one has to be cognizant of the basket of goods and prices that people are exposed to," Nick Holland, chief executive of Gold Fields (GFIJ.J), Africa's second biggest gold producer, told Reuters.

"Clearly there has to be a balance between what is affordable for business and also what employees are exposed to as they go to the shops each day to buy their goods and services and what they pay at the pumps," he said.

The pace of the acceleration on the food front has also been picking up. In November the overall consumer price index was 3.6 percent while food inflation then was a very muted 1.3 percent.

"14 PERCENT IS TOO LITTLE"

NUM says 14 percent is not much if you are at lower end of the industry average range.

"For a person who earns around 3,000 rand ($429) a month, 14 percent is too little. When you are looking at food prices, 14 percent is too little," said NUM spokesman Lesiba Seshoka.

According to the agreement signed between the gold miners and unions in 2009 which expires at the end of June, workers at the bottom rungs of the wage scale should now be making about 3,500 rand a month.

Average gross monthly earnings in mining and quarrying in November were just shy of 13,000 rand ($1,857), according to the latest quarterly employment report from Statistics South Africa, although in reality workers can be earning a lot less.

That is in line with average wages among non-farm workers but mine work is dangerous and also has serious health risks.

"A strong case can be made for a danger premium for miners. Wages should also reflect the danger indicated by the fatality and illness rates in South African mines," said Bugala.

Average wages have been rapidly rising from just over 8,000 rand in February of 2007. And according to Statistics South Africa the year-on-year increases have been very high at times, reaching 19.5 percent in November of 2008.

But South Africa's main inflation measure in November of 2008 was running at 12.1 percent and food inflation ended that year at 17.1 percent -- so many workers would not have felt themselves to be that far ahead of the price curve.

And much of the mining labor force comes from other countries in the region such as Malawi, where inflation is higher than in South Africa -- and it is those rates that will concern these workers because they send remittances home.

Malawi inflation in April for example was 7.1 percent.

Still, some analysts say food inflation in South Africa is not bad, contained by good harvests and a robust rand.

"There is no question that the rise in food and fuel prices that we are seeing across Africa are pressuring disposable incomes and having an impact on living standards," said Razia Khan, Regional Head of Research, Africa at Standard Chartered.

"But all things considered food inflation in South Africa is not that high by historic standards and compared to the rest of Africa. The wage demands we see are mostly because organised labor feels they can demand high wage increases," she said.

(Editing by Keiron Henderson)