Farming in South Africa is being hobbled by power cuts and poor roads. Rural towns are being hit hardest

Farming in South Africa is being hobbled by power cuts and poor roads. Rural towns are being hit hardest

South Africa’s agriculture has had great consecutive seasons since 2019/20. The sector’s gross value added grew by 14.9% in 2020, 8.8% in 2021 and modestly by 0.3% in 2022 . This was primarily supported by favourable weather conditions.

The current season is also likely to deliver solid growth for the sector, with variation across sub-sectors. We already see prospects of large crops across the country.

Export performance is likely be robust, especially with a weaker rand exchange rate, which makes South African products more competitively priced in the global market.

Still, the sector is not reaching its full potential. A number of factors stand in the way of even greater successes and greater participation of black farmers in commercial value chains.

The first factor to mention is worsening power cuts. The agricultural sector is heavily reliant on energy. For example, recent work by the agriculture and food policy research group, the Bureau for Food and Agricultural Policy shows that roughly a third of South Africa’s farming income depends directly on irrigation, which requires power.

But that’s not the only challenge. Deteriorating roads, collapsing water infrastructure and rising crime are barriers to functioning effectively and efficiently.

These are not new issues. They have been flagged before. But they have worsened. They are a challenge for large commercial farmers as well as smaller farming enterprises. The emerging or new entrant black farmers, with limited financial resources, face it more acutely.

These challenges highlight the effects of weak governance across all spheres of government in South Africa. It is serious for all sectors, but particularly so for agriculture, which depends on the proper functioning of essentials such as roads, water and power.

Provincial governments and municipalities have not maintained or upgraded infrastructure that would support agriculture.

The results of this neglect, over time, are likely to lead to declining economic conditions and employment opportunities in small towns. Farming and agribusiness play a crucial role in sustaining the economies of small towns and rural areas. Paying attention to infrastructure could catalyse a virtual cycle in which the private sector increases investment, in turn leading to increased economic opportunities.

Roadblocks facing farmers

The impact that poor roads have on farmers is well illustrated by a recent case in the Eastern Cape province. Dairy farmers in the Ncorha area struggled to receive farm supplements, feeds and diesel because of the poor state of roads. And they couldn’t deliver their produce to the market.

Ncorha is a small region in the Chris Hani District Municipality in the Eastern Cape province of South Africa. One of its vital economic activities is farming, primarily the dairy industry. The Eastern Cape accounts for nearly a third of South Africa’s dairy production.

Poor infrastructure is not isolated to the Eastern Cape. Roads across the rural towns of the Free State, North West, Limpopo and KwaZulu-Natal, all of which are major agricultural provinces, are also poorly maintained and are in a bad condition.

More than two-thirds of South Africa’s agricultural produce is now transported by roads, as rail transport has faced challenges over the years. This is a major change from two decades ago when rail played an important role in transporting agricultural produce, specifically grains.

The poor road network has forced some farmers to pay for road maintenance. They have not been able to reap the full benefit of higher agricultural output because they’re incurring additional operating costs. Farmers have to step in when municipalities misuse funds allocated for infrastructure. Details of this have appeared in numerous Auditor General reports.

Water has often been flagged by various agribusinesses and farmers as another major problem. Key is the maintenance of water infrastructure such as dams and purification systems. Agribusinesses in some towns have had to step in and maintain water infrastructure. This again takes financial and human capital away from businesses to public service that municipalities should be covering.

Agribusinesses and farmers are also seeing a rise in corruption and crime. Commercial farming businesses have had to tighten security over the years at their own cost because of lawlessness in rural South Africa. Harvest and livestock theft affect all farmers and are much harder for new entrant farmers without a strong financial position to invest in security and technical solutions. Again, having to tighten security shifts resources from more productive uses to cover for the government’s shortcomings.

Why strong agricultural sector matters

South Africa faces a high unemployment rate at just under 33% in the first quarter of 2023. Rural areas tend to face the harsh effects of the poor economic conditions.

Resolving the unemployment crisis requires that all economic sectors perform optimally, especially the primary sectors with an ability to absorb even the least skilled labour. Agriculture is one such sector, while agribusiness and agro-processing also present a range of employment opportunities.

But all these hinge on effective provision of public services such as roads, water and electricity. In turn, these depend on strong provincial governments and municipalities.

The recently launched Agriculture and Agro-processing Master Plan presents practical steps for implementing Chapter Six of the National Development Plan, which outlined a vision for developing the agricultural sector further.

Weaknesses of the provincial government and municipalities are undermining the government’s plans to expand agricultural output and resolve inefficiencies within the Department of Agriculture, Land Reform and Rural Development.

These weaknesses are also hindering the economic vision for South Africa set out by President Cyril Ramaphosa.

Addressing local government failures should be a top priority for the presidency. Rural towns and communities support millions of people and are currently in despair.

Public-private sector partnerships can also be considered to help tackle some of these challenges. Models of how these can work are outlined in various master plans and need commitment and effective leadership.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

Global food price index declines

Global food price index declines

The FAO Food Price Index, a measure of the monthly change in international prices of a basket of food commodities, declined by 3% in May 2023 from the previous month to 124 points.

Importantly, this is 22% lower than the all-time high reached in March 2022, primarily driven by the softening prices of the cereals, dairy and vegetable oil indices.

These price trends will likely overshadow the impact of the rising sugar and meat prices in the near to medium term and thus keep the headline global food price index at relatively lower levels than a year ago.

The price surge in sugar reflects the concerns about the tight global supplies in the 2022/23 season and the rising concerns over how the development of the El Niño phenomenon may affect the 2023/24 crops.

Moreover, the meat price index increase was underpinned by the firm demand in Asian countries for pork and supply constraints. The pork supply limitations in several leading producing countries were due to high production costs and animal health issues.

Additionally, the solid Asian demand extended to poultry meat; hence the price rebounded following nine months of continuous declines. The supply limitations arising from widespread avian influenza outbreaks in various regions also increased the price.

South Africa is part of the global agricultural market. Therefore, this anticipated price trend, particularly in grains (other than rice, which is rising globally, and the is a rand/dollar exchange risk on its imports) and vegetable oils, will likely be a reality also in the domestic market.

In essence, this means that agricultural commodity prices will likely continue to soften from last year’s levels, although not to the extent that we are back at pre-covid-19 levels.

Importantly, this FAO Food Price Index measures commodity prices at the farm level, and there is a lag before such price trends are reflected at the retail level, and even there not to an equal extent because of the value costs such as processing, packaging, distribution, labour, etc.

Still, this will be sufficient to somewhat moderate the consumer food price inflation from the current levels in the year’s second half. Also, we will monitor the global meat price direction and its impact on South Africa, as this would influence the current food inflation view.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

South Africa’s agricultural growth story

South Africa’s agricultural growth story

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

Kenya’s maize challenge

Kenya’s maize challenge

It is disappointing to see that in Kenya,  President William Ruto’s government lost a case seeking the Court of Appeal’s nod to import Genetically Modified Organisms (GMO) maize into the country.

President Ruto wanted to lift the ban on cultivating and importing GMO white maize in Kenya in response to growing food insecurity in Kenya. The country has struggled with drought in the recent past and remains a net importer of maize.

The liberalization of the Kenyan maize seed market would have benefited farmers in the same way as in South Africa, Brazil and the US. In fact, the sentiment towards the cultivation and importation of GMO crops is changing worldwide, partly because of the global food crisis and countries’ efforts to boost domestic production.

For example, at the beginning of June 2022, the Chinese National Crop Variety Approval Committee released two standards that clear the path for cultivating GMO crops. Now that this hurdle has been cleared, the commercialization of GMO crops in China is a real possibility.

South Africa was an early adopter of GMO technologies. We began planting GMO maize seeds in the 2001/2002 season. Before their introduction, average maize yields in South Africa were about 2.4 tonnes per hectare. This has increased to an average of 6.3 tonnes per hectare in the 2022/23 production season. Meanwhile, the sub-Saharan African maize yields remain low, averaging below 2 tonnes per hectare.

While yields are also influenced by improved germplasm (enabled by non-GM biotechnology) and improved low and no-till production methods (facilitated through herbicide-tolerant GM technology), other benefits include labour savings, reduced insecticide use and enhanced weed and pest control.

With Kenya struggling to meet its annual maize needs and importing over half a million tonnes yearly, using new technologies, GMO seeds, and other means should be an avenue to boost production in future.

Significantly, allowing for imports of GMO maize from origins such as South Africa, the US, and South America would have helped soften Kenya’s domestic maize prices, which are currently double what we see in South Africa, trading around US$500 per tonne.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

A solid maize harvest in South Africa

A solid maize harvest in South Africa

South Africa’s Crop Estimates Committee lifted the country’s 2022/23 maize production estimate by 2% from last month to 16,1 million tonnes. This crop is 5% more than the 2021/22 season and the third-largest harvest on record.

The expected large harvest is primarily on the back of large yields, as the area planted is slightly down from the 2021/22 season.

A crop of 16,1 million tonnes implies South Africa will have sufficient supplies to meet domestic maize needs of roughly 11,4 million tonnes and have over 3,0 million tonnes for export markets in the 2023/24 marketing year.

The soybeans harvest was unchanged from April’s record estimate of 2,8 million tonnes (up 24% y/y). The crop improvement is due to an expansion in the area planted and the expected higher yields.

The ample soybeans harvest means South Africa could meet its domestic demand and remain with over 300 000 tonnes of soybeans for export markets. This soybean export expansion is a new territory for South Africa, which until recently, had been a net importer of soybeans and soybean products, and positive for the agricultural trade balance.

The sunflower seed production estimate remained unchanged from last month at 797 610 tonnes (down 6% y/y). The annual decline in the sunflower seed production forecast mirrors the reduced planted area and yields in some areas.

Other small crops, such as groundnuts and dry beans, were lifted from April estimates to 51 510 tonnes (up 6% y/y) and 48 560 tonnes (down 8% y/y), respectively.

Overall, farmers nationwide are hard at work harvesting the summer crops at the momentum. The recent rains have not caused quality issues; thus, we anticipate a large harvest of high-quality summer grains and oilseed.

From a grains consumer perspective, these data bode well with the already softening maize and oilseed farm prices and reinforce our view of a possible moderation in grains-related food product prices in the food inflation basket.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

Some moderation in South Africa’s consumer food inflation?

Some moderation in South Africa’s consumer food inflation?

The data released by Statistics South Africa on May 24 shows that consumer food inflation moderated at 14,3% in April 2023 from 14,4% in the previous month.

The food products prices that underpinned this slight deceleration are meat; oils and fats; and fruit. Meanwhile, other product prices increased mildly.

As stated in our previous notes, we expect consumer food inflation to remain sticky at relatively higher levels for another month or so and decelerate in the year’s second half.

Red meat prices, which have started to soften, should continue to moderate in the coming months as we see that trend at the farm level. Fruit prices will likely follow a similar trend as the harvest across South Africa gains momentum and improves domestic supplies.

The moderation in the “oils and fats” products is in line with what we are seeing in the global environment, as South Africa still imports its palm oil usage. For example, in April 2023, the FAO’s vegetable oil price index was at 130 points, down 45% y/y.

Still, the weaker rand exchange remains an upside risk to prices that could reduce the gains for local consumers. The same applies to rice and wheat, as South Africa is a net importer of these products.

Moreover, the relatively lower farm-level maize prices will filter into the retail products mainly in the year’s second half. There is a lag between three and five months between farm and retail prices of some products.

The impact of load-shedding may continue to influence prices for the next few months. Still, the various interventions to ease the load-shedding burden on farmers, such as load curtailment, expansion of the diesel rebate to the food value chain, and, most recently, the launch of the Agro-Energy Fund, all support the production conditions.

Hence, the 2022/23 maize harvest is estimated at 15,9 million, 3% higher than the 2021/22 season’s harvest and the third-largest harvest on record. Soybeans harvest could reach a record 2,8 million tonnes. Other field crops and fruits also show prospects for decent harvest this season.

With that said, the effectiveness of these energy support measures differs across farming enterprises and food companies, and the costs to food producers, mainly those not fully benefiting from the above efforts, remain high because of all the necessary mitigation measures.

South Africa’s consumer food inflation outlook for the year’s second half is reasonably better. The key drivers of the expected moderation will be meat, grain-related products, vegetable oils, and fruits, which comprise roughly two-thirds of the consumer inflation food basket.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

South Africa’s agricultural growth story

South Africa’s economic choice between Washington and Moscow is clear

Geopolitical risks are back on the SA agricultural agenda. Over the past year the country has felt the effects of Russia’s invasion of Ukraine indirectly through the disruption caused to various commodity supply chains and the consequent surge in prices. This was especially so with grains, vegetable oils, fertiliser, liquid fuels and natural gas.

Now the US accusation that SA supplied military equipment to Russia has raised diplomatic tensions between the two countries, leaving much uncertainty over future political and trade relations.

The matter is likely to be ventilated through diplomatic channels over the coming days and weeks, and it remains unclear where things will settle. But while this unfolds it is worth looking at our economic ties with the rest of the world.

SA benefits far more from trade with the US than with Russia. Therefore, from a purely economic standpoint the obvious approach in an increasingly uncertain world is to nurture relationships with countries with which the country already has strong economic ties.

The US was SA’s second-largest export market in 2022, accounting for 9% of the total, according to data from Trade Map. China was the leading export market, accounting for 10% of our exports. Other important markets include Germany, Japan, the UK, the Netherlands, Mozambique, India, Botswana, Belgium, Namibia and Zimbabwe.

Russia is one of the least important export markets for SA’s exports, accounting for a mere 0.2% in 2022. Over the past five years SA’s total exports to Russia averaged 0.4% of the total per annum.

Economic interests

In the current environment of global geopolitical uncertainty SA should ideally be seeking to deepen relationships with countries that serve the country’s economic interests and, by extension, support domestic employment. Tensions with the US present significant economic red flags for SA.

The first risk is that of negative sentiment rising among critical trading partners against a country allegedly arming an invader, and the loss of credibility regarding SA’s claim to be nonaligned in the Russia-Ukraine conflict.

There are already anecdotal stories about companies delaying investments in SA over fear of rising geopolitical tension and SA’s position on the war. The country’s political leadership should be building on the work of the president’s annual investment conferences in attracting foreign direct investment to drive manufacturing and other sectors and job creation.

Trade is critical from an agricultural perspective. SA exports about half of its agricultural production in value terms, totalling a record $12.8bn in 2022. Maize, wine, grapes, citrus, berries, nuts, apples and pears, sugar, avocados and wool were some of the top exported products last year. Russia is a small market for these, accounting for just 2% of SA’s agricultural exports over the past five years.

The African continent remains an important market for SA produce, accounting for 37% of our agricultural exports in 2022. Asia was the second-largest at 27% of exports, followed by the EU at 19% and the Americas in fourth place, accounting for 7%.

Within the Americas the US is an important agricultural trading partner, accounting for an average of 4% of SA’s annual agricultural exports over the past five years. Fruits, nuts, processed vegetables, wine, dairy products, industrial alcohol, and fruit and vegetable juices are some of the agricultural products SA exports to the US. These products benefit from duty-free access to the US under the African Growth & Opportunity Act (Agoa).

SA is a small, open economy that is highly integrated with the global economy through numerous complex channels. This means the political leadership should primarily position the country in an attractive way for investment, and to gain market access to the world’s fastest-growing economies.

Written for an first appeared on Business Day.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

Pin It on Pinterest

Shares
Share This