by Wandile Sihlobo | Jun 3, 2023 | Saturday Read
Agriculture remains one of the success stories in South Africa’s economic progress, irrespective of the various challenges the country has faced over the past few decades.[1]
While primary agriculture’s share in the economy has declined from around 10% in the 1960s to just under 3% today, the sector has grown tremendously in real terms. This share decline only illustrates the classic story of how the South African economy has advanced over time, and various industries such as finance, manufacturing and transport have grown much faster than agriculture.
Still, the interlinkages of primary agriculture to manufacturing (agro-processing) make it an integral part of this economic transformation story.
Over the past decades, production growth has been underpinned by the adoption of new production technologies, better farming skills, growing demand (locally and globally), and progressive trade policy.
This was made possible by a range of trading agreements the South African government secured over the past couple of years, the most important being the African, European and Asian regions. The African continent and Europe now account for about two-thirds of South Africa’s agricultural exports. Asia is also an important market for South Africa’s agricultural exports, demanding roughly 25% export share.
The private sector has been a part of the core of the South African agriculture success story, while the government has had to ensure that policy remains favourable for investors and farmers. The priorities for the government were to ensure that there are no interventionist trade policies (blocking exports) or price caps and that infrastructure (roads, rail, water and electricity) is in place, there is strong protection of property, proper land governance, and openness to scientific advancements in seed breeding and agrochemicals and genetics are some of the positives that the South African government ensured. This was all anchored in the sound financial system that supported commercial production and international trade.
For the first two decades since democracy, the infrastructure was fully operational and supportive of the sector. But the past nine years have seen deteriorations which have seen even greater reliance on the private sector, and present long-term risks if not addressed.
Still, these private sector efforts, collaboratively with a favourable policy environment, ensured that South Africa’s agriculture continued excellently even during the covid-19 crisis (also thanks to good weather conditions). In 2021 and 2022, South Africa’s agricultural exports, in volumes and value, broke the record, reaching US$12,8 billion in 2022. Our export basket is diverse, with fruits, wine, grains, beef and wool, at the top of our list.
These policy measures and strong private sector participation differentiate a South African agriculture story from much of the continent. For example, whereas South Africa’s Agricultural Food System (AFS) share (primary agriculture and agro-processing) of GDP adds up to around 10%, and you have the private sector leading, in most African countries, the AFS share of GDP well above 30% – 40% and much of the development driven by government.
The South African government support private sector investments by providing the essential service delivery that any government is supposed to perform.
Inclusivity is crucial, and here the South African government has a tremendous opportunity (which we hope through the country’s newly launched Agriculture and Agro-processing Master Plan can be realised) to leapfrog the development of a multitude of businessmen and women that are already in the sector but require support in terms of extension, credit, and infrastructure. These “hidden middle” hold potential for employment generation and bring vibrancy to rural towns.
South Africa’s agriculture doesn’t have all its houses in order. We have our challenges. For example, the government has fallen short in delivering a range of basic services – water, roads, rail, and ports that are now presenting risks for the long-term growth prospects of the sector if there is no urgent intervention. We are also seeing rising crime which is a risk to investments. Also, I am sure some people are aware of our energy challenges, which also present challenges for farmers and the food sector.
With that said, in South Africa, both government and the private sector have a plan for the next decade through the Agriculture and Agro-processing Master Plan, which speaks to direct value change and regional requirements to boost the growth of this sector. This will entail resolving policy ambiguity, creating an enabling infrastructure, providing farmer support and supporting research and development, financing through a blended finance structure, and expanding export markets.
We also encourage farmers to focus on high-value, labour-intensive crops for exports. This is to ensure that the agricultural sector helps address the unemployment issues in the country. This will require the government to fully utilise its over 2 million hectares of underutilised land, focusing on promoting commercial production and small-scale farming only where conditions do not permit commercialisation.
What can African countries take from South Africa’s agricultural story?
- First, limited trade and commodity price interventions are essential to enable more private sector investments to drive market corrections in instances of price swings.
- Second, investments in infrastructure are critical. This includes both institutional infrastructure and physical/hardware infrastructure that can reduce the costs of doing business.
- Third, embrace technological advancements in seeds, genetics and agrochemicals vital in boosting productivity. Policy interventions that promote access to these technologies and create market systems that can deliver these technologies efficiently, at low cost, to make farming competitive.
- Lastly, supporting commercial farming, which will be essential for the growth of the agro-processing part of the various country’s food systems, and a source of employment, is a critical step for agricultural progress in Africa.
[1] This is an edited version of my address at the World Bank’s Africa Agriculture Policy Leadership Dialogue in Lusaka, Zambia, on 01 June 2023. Also, we have many challenges in the country, which I explained in this linked article. But I decided to focus on vital and broadly positive developments for the African audience. I have captured our domestic issues partly in this article (click here to read).
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Sep 12, 2020 | Saturday Read
The South African barley industry is set to face some market demand slump emanating from a COVID-19 induced alcohol ban on the one hand, against a predicted record 2020/21 farm production harvest on the other. South Africa could produce an estimated at 505 215 tonnes in 2020/21, which is up by 46% from the previous season. This is a result of increased area plantings and also expected higher yields following favourable rainfall in the Western Cape.
Such a harvest means that South Africa could remain a net exporter of barley. The key export markets for South Africa’s barley over the past five years were within the African continent, primarily Uganda, Namibia, Zambia, Botswana, Lesotho and Togo, amongst others.
Meanwhile, the 2020/21 marketing season has also been affected by the COVID-19 lockdown regulations which led to a temporary ban in alcohol sales for an extended period; first between 27 March and 1 June, and again between 12 July and 17 August. These bans could lead to a lower intake of barley by the domestic beer industry.
The irony of a historically large barley output amid a predicted fall in demand from processors creates new market uncertainty – where are farmers going to sell their barley? South Africa might have to explore export opportunities for its surplus beyond traditional markets. It would be worth considering key barley importing countries in the global market such as China, Iran, Saudi Arabia, Netherlands and Belgium.
Data trends show that South Africa hasn’t exported barley in any of the world’s largest importing countries. The country has, nonetheless, exported various agricultural commodities to these countries such as maize, citrus, beef and wine, amongst others. This indicates that there is an existing agricultural trade movement between South Africa and these countries. However, the existence of trade flows of other agricultural products is not a sufficient predictor of whether barley exports could follow a similar path.
Hence, barley producers and exporters could consider key additional factors such as tariff and non-tariff barriers associated with exporting to these countries. The full scope of the latter is a matter that requires further analysis and technical support from the Department of Agriculture, Land Reform and Rural Development (DALRRD), who will provide perspectives around plant health regulations that would need to be met in order to access these markets.
From a tariff perspective, South African barley exports to the EU (i.e. Netherlands, Belgium, Germany, Spain etc.) remain duty-free under the SADC-EPA preferential trade arrangement. The picture for the rest of the other markets – from the middle east and far east markets, is mixed. South African barley exporters will face tariffs in Japan (175%), Brazil (10%), Iran (5%) and China (3%). Some middle east markets like Jordan and Saudi Arabia are duty-free.
In order to identify the feasibility of accessing these markets, the Department of Trade, Industry and Competition (dtic) should begin to arrange outward-bound trade missions – which should predominantly have private-sector representation – to visit these markets and engage in Business-to-Business sessions to understand the product and client specifications and requirements.
The dtic, as well as the DALRRD, should work together with industry in a coordinated effort to access these markets. The Public-Private-Partnership (PPP) effort of developing a market entry strategy should ideally form part of a longer-term market development strategy designed to provide strategic alternative options in the event of a decline in domestic usage of barley, as many in the market anticipate. It is an opportunity for closer cooperation between the private sector and government and a model that can be used to other sectors
With the domestic barley crop now at advanced stages and set to reach the harvest stage by end of this year, efforts towards expanding market access in these countries for South Africa’s barley need to begin immediately. We recommend that the top ten countries be prioritized. The competitors that South Africa will potentially face in the various markets are France, Russia, Argentina, Australia, Canada, United Kingdom, Kazakhstan, Germany, Denmark and Estonia. In key markets such as China, which accounted for 21% of global barley imports by volume in 2019, Australia was a major supplier of roughly half of the imports, followed by Canada, France, Ukraine and Argentina.
However, China has since placed import tariffs of 80.5% on Australia’s barley, which provides a window of opportunity for other competitive suppliers. South Africa could be one such supplier to China, and this is a path South Africa’s government and industry should explore and prioritize in addition to other key markets. We think that Australia might also be looking for markets for its barley, which could present tough competition, to a certain extent, for South Africa. Hence, China should be prioritized.
Iran, which accounts for 10% of the world’s barley imports typically receives supplies from Russia, the United Kingdom and Germany. In the case of Saudi Arabia, the key suppliers are usually Argentina, Russia, Ukraine and Estonia. These are all suppliers that South Africa will have to compete with in these markets.
It will be important to assess the extent of the country’s competitiveness against these suppliers and determine if lower tariffs present a meaningful competitive advantage for South Africa to attempt access to these markets. If this is done with speed, it could prove to be an alternative outlet for the excess barley that South Africa will likely have in the 2020/21 marketing year.
Note: My good friend, Dr Tinashe Kapuya, contributed to this Weekend Note. Dr Kapuya is an agricultural economist and currently leads Value Chain analytics division at the Bureau for Food and Agricultural Policy (BFAP).
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Aug 28, 2020 | Saturday Read
SA’s agricultural sector had a solid start to 2020, with first-quarter gross value-added growing 27.8% quarter on quarter on a seasonally adjusted and annualised basis (see Exhibit 1). I noted then that the succeeding quarters would be likely to continue to show strong growth — a view I still maintain. But the second-quarter expansion could be somewhat milder than the first, probably in the range of 20%-25%. The key drivers will remain similar to the previous quarter — an uptick in animal products, field crops and horticulture.
Within field crops, sugar was the main driver, while in horticulture it was deciduous fruits. In the second quarter, however, summer grains and oilseeds will probably be the key drivers of growth as harvest processes and deliveries started gaining momentum during this quarter going into the third quarter, as the season was delayed due to dryness at the start. Meanwhile, in the horticulture industry, citrus most likely dominated in the second quarter. I doubt that animal products remained as robust in the second quarter as slaughtering activity softened when the country went into strict lockdown at the end of March. If anything, animal products activity will probably recover in the third quarter, which is when restaurants started opening more widely.
That said, I am still quite optimistic about the performance of this sector in 2020, maintaining a forecast of about 10% year on year, which is our official view at Agbiz (compared to -6.9% in 2019). Other institutions, such as the Bureau for Food and Agricultural Policy (BFAP) are more optimistic than us, placing their agricultural growth forecast for the year at 13%. BFAP’s underpinning view for this estimate is similar to what we have expressed in previous notes, which is a bumper maize crop of 15.5-million tonnes (the second largest in history), surging export prices of major fruits (further supported by the weak exchange rate) and strong overall sales of agricultural produce in the first four months of the pandemic. This is, of course, with the exceptions of the wine and tobacco industries, where domestic trade has been restricted through various stages of the lockdown and was only permitted again in August.
The allied industries have benefited from this improved environment of the agricultural sector, including agricultural machinery. As we set out at the start of July, the agricultural machinery industry data for the second quarter has continued to show a mixed picture, with tractor sales up 8% year on year, while combine harvester sales are down a mere 3%. The improved harvest, which boosted farmers’ finances somewhat as well as their interest in buying up existing stock ahead of the expected price increases as a result of the weaker domestic currency, has been the key driver of second-quarter sales.
The only aspect I remain downbeat about during the second quarter of the year is agricultural jobs, primarily due to the regulations that were introduced to curb the spread of the virus. I think that probably limited the amount of seasonal labour that would have been employed during a year of a bumper harvest. But the full extent of this phenomenon will only be clear when the Quarterly Labour Force Survey is released in the coming weeks.
Stats SA will release second-quarter GDP data on September 8, so it is only then that we will know whether the aforementioned exposition truly holds. But with the high-frequency data from the farm-level such as production figures and prices, I am inclined to believe that the sector will register yet another good reading in the second quarter. Unfortunately, however, this will do very little to change SA’s overall GDP picture as primary agriculture is a relatively small share of the economy.
Recent surveys of macro analysts’ forecasts of second-quarter GDP show that the economy could contract by about 40% quarter on quarter on a seasonally adjusted and annualised basis, largely reflecting the effects of lockdown restrictions put in place to slow the spread of the pandemic across various sectors. However, the continued resilience of the agriculture sector is important for the rural economy, boosting foreign earnings and stabilising food security, at least at a national level.
Exhibit 1: South Africa’s agriculture GVA
Source: Stats SA and Agbiz Research
This note was part of Agbiz weekly viewpoint and also appeared on Business Day, August 24, 2020
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
