At the end of December 2020, the Peruvian Congress approved Law 31087, which repealed the “Law of Agrarian Promotion” No. 27360. After the repeal, the Congress did not approve immediately a replacement law, thus creating a regulatory vacuum on the fiscal / economic regime and working conditions in the agricultural sector.
The repealed Law was enacted in 2000 and has been in force for 20 years. After its renewal in 2019, it was supposed to be in force until 2031.
The repealed Law of Agrarian Promotion is considered by the Association of Agricultural Producers of Peru (Asociación de Gremios Productores Agrarios del Perú – AGAP) “the best social and economic programme that the country successfully implemented and that also attracted investors from many countries, who came for long-term legal stability in the Peruvian agricultural sector and for the competitive conditions of Peru”.
The law introduced an exemption from payment of income taxes by companies in the sector but it allowed the government and the country at the same time to earn in taxes, in foreign exchange, in formal jobs and in poverty reduction. During the validity of the law, poverty in agriculture fell from 81.3% in 2014 to 30.3% in 2019.
The repealed law was harshly criticised both by employers and workers, mainly due to the lack of prior consultation with the affected parties and the lack of necessary technical debate in relation to the needs of this sector of the economy. Before and during the discussions on the law, there were several protests over working conditions in the agricultural sector, some of a violent nature and roadblocks, that finally culminated in the death of an agrarian worker.
According to the employers, and in particular AGAP, “the repealed law was able to attract businesses of all sizes in the driest areas of the country, - generating sustained growth for all the years that it was in force - which positively impacted almost 1 million people who, thanks to these undertakings, now have a decent, formal and banked income for much of the year.
This income, however, does not resolve the situation of immemorial abandonment of the State, with null or precarious access to education, health, decent housing, social infrastructure and public services, although much progress was made in electricity, telephone and internet thanks to the private investment. These legitimate demands cannot be postponed and, nevertheless, they do not seem to be a priority of any government”.
The new law, approved by the Congress on 29 December 2020, sets a sectoral minimum wage that cannot be less than the minimum living wage, currently established at PEN930 (US$261.9 dollars) plus a special bonus (not to be considered as a wage) of 30% of the minimum living wage for the agricultural worker. In addition, the new law maintains what already existed in the repealed law, that is the duration of 48 hours a week and 8 hours a day for an ordinary working week/day and reaffirms the prohibition on the intermediation of work for the main activities of the company.
At the moment, both employers and workers’ organisations have shown their disapproval with the new law. On the workers’ side, for example, the law is criticized for the non-remunerative nature of the bonus, for the little increase of the wage (some aimed at an increase of 50% of the minimum living wage and others 50% of the value of the tax unit), claims that go beyond the agricultural sector.
On the employers’ side, in its statement of 29 December 2020, Peruvian business associations, including the National Confederation of Private Business Institutions of Peru (Confederación Nacional de Instituciones Empresariales Privadas del Perú – CONFIEP), specified that “the minimum living wage should be technically debated and agreed by consensus, in the National Labour Council, with the participation of workers and employers”. CONFIEP added that “today they want to impose a remuneration by law, a fact that is not supported by technical knowledge and it is unconstitutional, means price regulation and violates the right of free hiring and direct negotiation between workers and employers”.
The above-mentioned methodology for setting wages would also be questionable from an international law point of view, as it could be considered contrary to the principle of free and voluntary collective negotiation enshrined in Article 4 of the Right to Organise and Collective Bargaining Convention of the International Labour Organisation (ILO), 1949 (No. 98), ratified by Peruvian Government in 1964.
As a direct consequence of these new obligations, companies may find themselves in economic difficulties that could force them to close their operations or start operating in the informal sector. Even if the Congress is aware that “labour overregulation has meant that of the 17 million workers that make up the economically active population of the country, only 5 million have access to some labour law and 12 million work in informality, that is, precariously, without health protection, without occupational health and safety rules, without protection in case of arbitrary termination, without holidays and Compensation for Time of Service (CTS), and with wages highly different from the formal labour market”, “this shows that labour legislation, although it pursues worthy purposes, is today far from the reality it seeks to regulate.” The signatory of the 29 December statement urges the Congress to reflect on the damage it is causing to the economic life of the country and in this case, desist from setting wages by law, as this will throw more Peruvians into informality.
Finally, Law No. 31110 was promulgated by the Government and entered into force on 1st January 2021, despite the fact that the business associations, through the President of CONFIEP, María Isabel León, reiterated that “their call to the Congress of the Republic to listen to the technical support and voices of all the actors before continuing to approve laws that continue to harm the country's economy, have repercussions on Peruvian families, and later end up being declared unconstitutional by the Constitutional Court, as is the case of the new Agrarian Law which would generate an increase of no less than 60% on labour costs, a situation that would not allow many companies in the sector to continue operating, would increase informality, generate investment losses and cause the loss of more than 200 thousand formal jobs, among direct and indirect jobs generated by the agro-export sector.”
Bilateral discussions continue between the employers and workers, as well as others, to reach an agreement on the legal regulations.