What difference does labour choice make to farm productivity and profitability in the Australian horticulture industry?

​​A comparison between seasonal workers and working holiday makers

Authors: Shiji Zhao, Bill Binks, Heleen Kruger, Charley Xia and Nyree Stenekes

Seasonal workers come from 10 participating nations in the Asia-Pacific region
Source: LMAP, Cardno

Foreword

Labour shortages can challenge the profitability, economic contribution, and sustainability of agriculture industries. The Australian Seasonal Worker Programme (SWP) was set up in 2012 in order to contribute to the supply of low-skilled labour to Australian horticulture industries, where employers can’t meet their needs with local labour, whilst also advancing the economic development of Pacific Island countries and Timor-Leste.

Participants in the Seasonal Worker Programme by year and country
Country 2012–13 2013–14 2014–15 2015–16
Fiji 0 0 <5 160
Kiribati* 34 14 11 20
Nauru* 10 0 0 17
Papua New Guinea 26 26 35 42
Samoa 22 162 185 140
Solomon Islands 42 9 21 61
Timor-Leste 21 74 168 224
Kingdom of Tonga 1,199 1,497 2,179 2,624
Tuvalu* 0 20 7 <5
Vanuatu 119 212 567 1,198
Total 1,473 2,014 3,177 4,490

Note: *Workers from these countries can be employed for up to nine months (others can be employed for up to six months)
Source: Department of Home Affairs.

While the SWP faces competition from other labour sources to meet labour demand in the horticulture industry, arrivals under the SWP have been increasing steadily since the program started.

The World Bank commissioned ABARES to compare seasonal workers PDF [1.12 MB, 1 page] with working holiday makers in terms of their impacts on farm productivity and profitability.

A previous small-scale ABARES study carried out in 2013 suggested that the productivity of seasonal workers was higher than working holiday makers. This report extends the 2013 study to include analysis of implications for profitability shedding light on the non-wage factors that influence growers’ decision-making about labour choices.

These factors may affect growers’ decisions to join the SWP as a direct employer, or to engage seasonal workers through other arrangements, such as labour hire companies or contractors.

Summary

The productivity and cost of labour have considerable impacts on farm profitability, especially in labour intensive industries such as the horticulture industry. The analysis in this study compared the productivity and implications for farm profitability of workers employed under the Australian Government Seasonal Worker Programme (SWP) (referred to as ‘seasonal workers’ in this report) and working holiday makers.

We investigated other factors that could influence growers’ decisions about the sources of labour they employ. Data was obtained from a small sample of growers who are approved employers under the SWP.

Using a mixed-method approach we used a grower survey, growers’ records of weekly employee payments (referred to as wages in this report) and hours worked, and semi-structured interviews with growers and labour hire approved employers.

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Seasonal workers contribute to productivity and profitability gains

Returning seasonal workers are more productive on average than new seasonal workers
Source: Department of Jobs and Small Business

The productivity of seasonal workers was, on average, 20 per cent higher than that of working holiday makers for the farm businesses in this study, based on fruit picking tasks. This estimate was derived from data for 150 seasonal workers and 109 working holiday makers over three years.

Number of workers and labour productivity, seasonal workers (SW) and working holiday makers (WHM)
Grower ID Financial year Produce Number of workers Labour productivity ($/hour) Relative productivity
  SW WHM SW WHM SW/WHM
  (a) (b) (c)=(a)/(b)
  2013–14 Citrus 25 11 24.4 21.7 112%
Grower A 2014–15 Citrus 44 23 25.7 21.6 119%
  2015–16 Citrus 44 39 26.8 20.4 131%
Grower B 2015–16 Berries 25 25 23.7 23.4 101%
Grower C 2015–16 Citrus 12 11 32.5 23.7 137%
Average relative productivity 120%
Leith and Davidson (2013) 2012–13 Citrus 30 34 24.7 20.2 122%

Note: Leith and Davidson (2013) results provided for illustrative purposes. Their study used the same method but a different dataset.
Source: ABARES

Seasonal workers who returned to the farm were on average 15 per cent more productive than new seasonal workers. This is mainly because returned workers required minimal induction and training in subsequent seasons as they had previously acquired skills and farm knowledge.

This may also reflect potential ‘selection effects’, such as a stronger incentive to be re-employed, or grower preferences to re-employ them because of their higher productivity. Selection effects were not assessed in this study.

Non-wage labour costs were higher per hour and per worker for seasonal workers, relative to working holiday makers. However, these costs were estimated to be only a small part of total farm cost so is likely to have a limited impact on farm profitability.

Total non-wage labour cost adjusted for the length of work, 2015–16
  Seasonal worker Working holiday maker Cost ratio
  ($) ($) (SW/WHM)
Per worker per year 1,620 134 12.1
Per week worked 74 25 3.0
Per hour worked 1.8 0.8 2.3

Source: ABARES

The non-wage labour cost related to seasonal workers was 2.3 times higher per hour worked than for working holiday makers. This estimate includes costs associated with the recruitment process, some transport, training and administration, which could not be recouped from workers’ wages. Much of the difference can be attributed to a number of requirements of the SWP designed to protect seasonal workers as a vulnerable workforce—that do not apply to the employment of working holiday makers.

The profitability benefit from hiring seasonal workers cannot be determined without further detailed information about the production process and cost structure of the farms that participated in this study. However, the direct monetary benefits of hiring seasonal workers is likely to at least cover the higher non-wage labour costs and hence deliver a profitability gain; otherwise growers would be unlikely to opt for seasonal workers when working holiday makers are a viable alternative.

Growers consider other factors in labour decisions

Reliability of labour during harvest is a key issue for many growers
Source: LMAP, Cardno

In addition to the direct monetary benefits associated with different labour sources, a key consideration for many growers was the reliability of labour during the critical period of harvest.

A priority for growers was for the harvesting process to run smoothly with minimal disruption. Growers in general said they viewed seasonal workers as a reliable workforce as they have a predictable, contracted employment term and they are driven by the desire to earn a good income to take back to their home country.

Working holiday makers were generally seen by growers as less reliable, typically working for shorter periods (on average, five weeks per farm, compared to 22 weeks for seasonal workers), and often worked for shorter hours per day. A high level of staff turnover was seen as an undesirable risk, particularly during the critical period of harvest.

Benefits of working holiday makers included easier access to these workers at short notice. It was common for growers to employ seasonal workers and working holiday makers in a complementary fashion where seasonal workers formed the core of the workforce and working holiday makers were employed casually as needed, particularly during peak labour periods.

Many growers reported that they gained greater control over the selection of their labour supply by becoming an approved employer under the SWP and could save costs. However, growers also reported that the processes to become an approved employer and recruit seasonal workers were challenging. Several pointed to too much ‘red tape’, and visa changes that had caused disruptions and uncertainty about planned worker arrivals. Some regarded the recruitment process and other requirements a barrier to more growers becoming approved employers, and expressed the need for clearer and simpler processes. The need to provide accommodation was a key factor that some growers identified as limiting them from employing more seasonal workers.

Several growers engaged an intermediary who assisted them employ seasonal workers, typically a person from the same home country or a leader within the seasonal worker team. This helped overcome language and cultural differences, and facilitated worker management.

These issues could otherwise have reduced worker productivity and farm profitability. When employing a larger number of seasonal workers, additional staff were needed to take charge of worker management and pastoral care, adding to farm costs. Seasonal workers from the same country tended to have good teamwork abilities when working on the same farm, which is likely to increase their productivity.

Implications and future research

This study finds the SWP offers an opportunity for growers to increase their profitability, and suggests the relatively higher productivity and other benefits of accessing seasonal workers warrant further promotion of the SWP in the Australian horticulture industry—for employers who might otherwise find it challenging to meet their seasonal labour demands.

The extent to which growers could benefit may depend on their farms production processes and cost structure, as well as how well they are able to handle potential challenges associated with the employment of seasonal workers.

The study also points to scope for further research including further analysis of worker productivity, costs and outcomes for growers under different labour supply models such as labour hire and contractors (relating to both seasonal workers and working holiday makers).

The findings suggest that further streamlining the recruitment process and other SWP requirements for approved employers could increase the attractiveness of participating in the program. It is important that these requirements are designed so that businesses can operate in the program efficiently and cost effectively, in turn contributing positively to farm profitability—while also maintaining safeguards for a vulnerable workforce.

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