SA’s agricultural sector was one of the bright spots of our economy during the pandemic. This was the only sector that showed robust growth as others were constrained by lockdown restrictions, supply chain disruptions and reduced consumer activity.
But this year, the predominant message regarding the growth performance of the sector will likely be more downbeat compared with the past two years.
I am already in the camp of those who forecast a mild contraction in SA’s agricultural sector this year. There are a number of things that worry me.
For example, the livestock industry, which accounts for roughly half of South African agriculture’s gross value added, continues to suffer from foot-and-mouth disease outbreaks and rising feed costs. Meanwhile, some field crops’ harvests aren’t as robust as the 2020/21 season due to heavy rains.
While some of these harvests will be lower than in the previous season, they are well above the long-term harvest levels. These reduced harvests and the challenges in livestock farming will likely overshadow the robust activity we have seen in field crops such as soybeans, sunflower seeds and various fruits.
These challenges are mirrored in sentiment indicators. For example, the Agbiz/IDC Agribusiness Confidence Index deteriorated further by seven points to 53 in the third quarter after a two-point decline in Q2 2022.
Moreover, the exceptionally high base created by two years of solid growth — with the sector expanding by 14.9% year-on-year in 2020 and 8.8% y/y in 2021 — will also be a major factor in a mild contraction this year.
Respondents to the third quarter Agbiz/IDC Agribusiness Confidence Index survey provided details about challenges being experienced. Higher input costs, friction in some export markets, rising interest rates, intensified geopolitical risks which disrupted supply chains and ongoing weaknesses in municipal service delivery and network industries were some factors cited.
A level of the Agbiz/IDC Agribusiness Confidence Index above the neutral 50-point mark implies that agribusinesses remain cautiously optimistic about operating conditions in SA. With this line of thought, the third quarter of 2022 results still reflect broadly favourable agricultural conditions, albeit not as strong as the previous seven quarters.
One other aspect worth monitoring is jobs, as agriculture is viewed as a key employer. Here, I am concerned about the broad growth numbers.
For example, in the second quarter of this year, there were 874,000 people in primary agriculture, up by 1% y/y (and up 3% quarter-on-quarter), well above the long-term agricultural employment of 780,000.
When I observe the activity on the ground and chat with farmers and agribusinesses, I don’t get a sense there will be a notable fall in employment despite the downbeat view I hold about the sector’s broad growth performance for this year.
The Agbiz/IDC Agribusiness Confidence Index has a subindex that also assesses the sentiment about employment conditions in the sector. In the third quarter, that subindex was robust, measured at 61 points.
While I anticipate some moderation in SA’s overall agriculture growth prospects this year, I am not suggesting the sector is in bad shape.
The output in a range of commodities is well above the long-term levels, and the contraction that I project is largely a reflection of the exceptional performance of the past two years rather than the depressed production conditions in the current year.
Notably, the sector can return to positive growth if the livestock disease is controlled and if we get a favourable rainy season in the 2022/23 summer.
The department of agriculture, land reform & rural development, with organised agriculture, should accelerate the collaborative efforts of resolving the animal disease challenge.
I would add the issue of trade, where various agribusinesses and farmers continue to highlight the need for expansion of export markets to countries such as China, South Korea, India, Saudi Arabia, Bangladesh and Japan. These have strong economies and can be key buyers of our high value products such as beef, wine and fruits.
Simultaneously, we need to maintain the existing export markets such as the EU, elsewhere in Africa and some Asian countries. This is a long-term endeavour that requires active engagement by the South African authorities in consultation with other role players in the sector.
Regarding the upcoming 2022/23 agricultural season, the prospects of a weak La Niña provide a good foundation for an excellent rainy season. This is notwithstanding the lingering challenges of higher prices of critical farm inputs such as fertiliser, agrochemicals and fuel which will put pressure on farmers’ and agribusinesses’ finances when the summer crop season starts in October.
From a policy position, SA’s agricultural sector recently launched an agriculture and agro-processing master plan, a social compact development plan, which should help drive long-term inclusive growth and unlock barriers that constrain performance, if implemented fully.
Some barriers require collaboration with various line departments and state-owned companies specifically concerning the efficiency of municipalities and the network industries — mainly roads, rail, ports, water and electricity.
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