We have had a fair share of depressing news from various sectors of the economy, but the light that agriculture presents deserves some attention. There are favourable economic conditions in this sector, and these are clear from recent data releases on the gross value added, sentiment indicators, and farm machinery expenditure.
First, after contracting 1% quarter on quarter (seasonally adjusted) in the first quarter of 2021, the agricultural gross value added rebounded 6.2% in the second quarter. This improvement is supported by increased production of field crops, horticulture and relatively better production conditions within the livestock subsector.
In the 2020/2021 production season, robust agricultural production was underpinned by favourable rainfall and expansion in area plantings of various field crops. Major grains such as maize and soybeans saw production reaching 16.3-million and 1.9-million tonnes, respectively. This is the second-largest harvest yet in maize and a record harvest in soybeans. Bumper harvests of other field crops were also expected in 2020/2021. Within the horticulture subsector, the South African Wine Industry Information and Systems forecast the 2021 wine grape crop at 1.5-million tonnes, 9% more than the 2020 harvest. Thanks to a good harvest, the Citrus Growers’ Association projects record exports of 163-million cartons (15kg) in 2021, up from 146-million cartons in 2020.
Second, machinery sales (an important indicator I have been following closely as we approach the 2021/2022 summer crop production season) have been quite bullish. The recent data from the South African Agricultural Machinery Association show that tractor sales were up 56% year on year (y/y) in August 2021, with 724 units sold. Considering the total tractor sales for the first eight months of 2021, we are already 30% ahead of the corresponding period in 2020, with 4,658 units sold. Notably, 2020 was also a good year for tractor sales in SA, so surpassing it is a testament to agriculture’s growing momentum in 2021.
Third, in the case of sentiment, the Agbiz/IDC Agribusiness Confidence Index also paints a similar picture of optimism among the agribusinesses operating in all the subsectors. After a surge to an all-time high of 75 in the second quarter of 2021, the Agbiz/IDC Agribusiness Confidence Index moderated back to 67 points in the third quarter. Still, this current level reflects favourable conditions in SA’s agriculture sector and concomitant agribusinesses. A level above the neutral 50-point mark implies that agribusinesses are optimistic about operating conditions in the country.
October will be a busy time in agriculture across the country, as plantings for the 2021/2022 summer crop season will begin. These are mainly maize, sunflower seed, soybeans, sorghum, peanuts, dry beans, and a range of vegetables and fruit. Positively, the weather outlook is favourable, with prospects of a weak La Niña, which means we could see above-normal rainfall over various regions of the country. The large tractor sales I have highlighted also signal that farmers are encouraged by the prospects of another season of good weather and are bullish about their farming decisions. This is spurred by large harvests in the 2020/2021 production season, their improved finances, combined with higher commodity prices.
Overall, these developments also mean the farming economy should maintain a positive growth path in 2021. Still, the headline figure will likely not be as robust as in 2020, though the harvest is larger. We expect the sector’s gross value added to expand 6% y/y because 2020’s base, at 13,4%, was already quite strong. Our colleagues at the Bureau for Food and Agricultural Policy are slightly more optimistic than us, projecting a 7.6% y/y expansion in SA’s agricultural gross value added.
Positively, agricultural jobs also rebounded in the second quarter of 2021 to 862,000 (up 8% y/y). In 2021 and into 2022, we expect employment to remain at relatively firm levels around the medium average of 852,000.
Here in my home province of the Eastern Cape, agriculture’s outlook paints a mixed picture. The southern regions of the province were not as fortunate as most of the rest of SA in 2020 and remained dry for much of the year. This has placed an enormous financial burden on farms of all sizes and subsectors within the province. The current La Niña outlook for 2021/2022 summer is still tentative, and it is not clear if the Eastern Cape will be in a better position in terms of precipitation this time around.
This is an uncertain eventuality that the provincial authorities should plan around well ahead of time. If the dryness is prolonged, there will be a need for intervention through feed assistance, mainly to the livestock farmers in the southern regions of the province. However, in the long term, more concrete interventions to mitigate climatic risks need to be actioned around sustainable water harvesting, abstraction, storage, usage and disposal.
This essay first appeared in The Herald, 29 September 2021
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