Farm businesses count the cost of the National Living Wage
Farmers have been warned of the hidden costs facing the agricultural industry as the government introduces the National Living Wage.
West Norfolk vegetable growers Alfred G. Pearce said some of its staff already earning more than the minimum wage would now have to be given a pay rise as well, or see their salaries overtaken by its lowest-paid workers.
Director Simon Pearce said the company was now stalling its investment plans, and changing the relationship with its agency workers, to find an extra £150,000 for wages.
He is calling for retailers to give certainty to suppliers and agree to absorb the extra costs, or pass it down to shoppers in the form of price rises.
It comes after the chancellor George Osborne announced sweeping changes to the minimum wage in his summer budget, including rebranding it the National Living Wage.
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The first changes were introduced this month when the National Living Wage was increased by 20p to £6.70 per hour. In April 2016, it will rise again to £7.20 per hour, before a final hike to £9 per hour by 2020.
'The greatest concern is the cost as a business,' said Mr Pearce. 'We've just had this 20p rise and that is a few thousand a year and it is relatively manageable. But when it gets to £9 it starts to get scary.
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'It will mean £150,000 worth of extra costs as a business and we cannot fund that within our marketplace.'
'However, as a business, we do get it. We know why the government is doing it and it will work as long as everyone is allowed to pass it down the chain.'
Alfred G. Pearce employs 90 people in Setchey near King's Lynn where its grows and processes more than 70,000 tonnes of vegetables each year from 2,700 acres of farmland. It expects to hand nearly a third of its workforce a pay rise in the wake of the chancellor's announcement.
Mr Pearce added: 'The other problem is that we also have people on just above the minimum wage. With the recommended rise in the living wage, the lower-skilled worker's pay will take over some of the skilled workers pay, so they will need a pay rise to.'
One way in which Mr Pearce hopes to shoulder the burden is by cutting the cost of using agency workers and taking on more salaried staff.
While agency staff are normally vital for seasonal work, he believes the company can reduce the amount they are paying in fees and sustain more full-time workers because their factory runs as a 24/7 operation. However, Mr Pearce has dismissed the government's claim that businesses can afford to pay the National Living Wage because the UK has one of the lowest levels of corporation tax in Europe.
He added: 'It will not balance. To benefit from the corporation tax cut we have to be making a healthy profits. We have had healthy profits over the last decade, but it is not the case now. The National Living Wage particularly hits the agri-farm sector.'
Rural industry view
Urgent action is needed to prevent rural businesses from cutting jobs in order to cope with the introduction of the National Living Wage, a rural industry body has said.
The Country Land and Business Association (CLA) fears that the inflation in wage costs could also spark some farming firms to slash their growth plans.
Ben Underwood, CLA east regional director, said: 'We have concerns about the inflationary pressure of the new National Living Wage on employment, as well as the lack of action to reduce the burden of tax on small unincorporated businesses.
'Much of the rural economy relies on minimum wage jobs, and the National Living Wage means farmers and other rural businesses are now presented with significant inflation in their wage costs. It could mean that those considering increasing production and/or expanding their workforce will be forced to think again.
'A cut in corporation tax is supposed to pay for it, but there are hundreds of thousands of family businesses in rural England and Wales that are unincorporated, including rural firms and family farms, and it will not benefit them – they will be taxed on higher rates.
'We now need an urgent plan for how to ensure rural businesses are not left behind and jobs in rural communities are not put at risk, and the CLA is pressing for a relief for unincorporated businesses.'
The East of England Co-op said food growers would have to wait until the new year before it made a decision on whether it would absorb the extra costs from the National Living Wage.
The regional retailer, which has more than 200 shops across Norfolk, Suffolk and Essex, believes it is too early for all its producers to have calculated the impact of the wage rise, but discussions over cost could begin in early 2016.
Roger Grosvenor, executive officer, retail, for the East of England Co-op, said: 'The introduction of the National Living Wage will have a varying effect on all businesses, ourselves included.
'We have over 140 local producer partners and it is possibly too soon for all of them to have worked out the full impact. It will no doubt become more apparent in the new year.
'We have a very open, two-way dialogue with our producers and will continue to work with each of them individually to ensure everyone involved is able to continue running a viable business, whilst ensuring our customers continue to have access to the local produce they know and love.'
Will your business be affected by the introduction of the National Living Wage? Contact Ben Woods on 01603 772426 or email email@example.com.