Brief reflections on South Africa’s agriculture employment data for Q2, 2021

Brief reflections on South Africa’s agriculture employment data for Q2, 2021

My aim in this particular blog post is to share a note we (Agbiz) published earlier today commenting on the recently released Quarterly Labour Force Survey data for the second quarter of 2021. At the end of the post, we provide a brief view on the agricultural economic growth prospects for 2021, following a solid performance of 13,1% y/y in 2020.

South Africa’s agricultural jobs rebounded in the second quarter of 2021

After falling to the lowest levels since 2014 in the first quarter of this year, South Africa’s agricultural employment rebounded in the second quarter to 862 000 (up 8% year on year).[1] This is unsurprising because of bumper harvests on field crops and horticulture this season.

Moreover, the second quarter of each year is a period of higher activity in most agricultural industries, with harvesting underway, which requires increased labour. Notably, the scenario of higher agricultural commodity prices in a year of large harvests also boosted farmers’ incomes and, therefore, could retain and increase employment, even if seasonal.

From a regional perspective, except for the Western Cape and Mpumalanga, agricultural employment increased in the second quarter of 2021 compared with the corresponding period in 2020. Again, this can be explained by the need for more labour during a harvest period of a bumper crop.

The decline in employment in the Western Cape can be explained by the fact that the province’ wine and wine grape industry was hard hit by the lockdown regulations at various intervals in 2020 and this year. While the second quarter of this year’s 185 000 jobs in the Western Cape is not at its lowest compared to the first quarter’s 136 000, it is still well below the five-year average of 209 000 jobs.

For Mpumalanga, it is unclear what might have led to an 11% y/y decline in agricultural employment. The province had a vibrant field crop and horticulture season, both of which are generally labour-intensive. Perhaps the decline in forestry and game industry jobs might explain the province’s farm labour dynamics.

Overall, the employment data remain of interest following the 16,1% increase in the farm minimum wage to R21,69 per hour with effect on 1 March 2021. At the time of its publication, various commodity groups indicated that the increase in the minimum wage would cause a further squeeze on cash flow and negatively influence hiring decisions. But, the actual effects of the current minimum wage increase on jobs will only be apparent with a lag. We will continue to monitor the data.

Fundamentally, the agricultural economy is on a solid footing for a second consecutive year. In 2020, the sector’s gross value added expanded by 13,1% y/y. This year will likely also be another year of good performance, with the Bureau for Food and Agricultural Policy (BFAP) forecasting a 7% y/y growth.

[1] The Quarterly Quarterly Labour Force Survey data are available here.

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South Africa’s agricultural exports on track to beat 2020

South Africa’s agricultural exports on track to beat 2020

South Africa’s agricultural sector is export-orientated. Nearly half of the annual produce, in value terms, is exported in regular and good seasons. The 2020/21 season has been one such season, producing the second consecutive strong output performance, with an even larger harvest for major field crops, horticulture and the wine industry than in 2019/20. This robust production could boost exports to surpass the 2020 level of US$10,2 billion.

For example, in the first quarter of 2021, agricultural exports amounted to US$2,9 billion, which is a 28% year-on-year (y/y) increase. We now have the full data for the second quarter which showed an even stronger performance with exports valued at US$3,2 billion, up 36% y/y. This means that in the first half of 2021, South Africa’s agricultural exports amounted to US$6,1 billion, which is a 30% y/y increase. Compared with last year, the growth is partly because of base effects, as the first half of 2020 was heavily affected by the Covid-19 related disruptions to global supply chains. Still, the growth reflects rising export performance for various products.

In the second quarter of this year, the top exportable products were citrus, apples and pears, maize, wine, grapes, pineapples and avocados, wool, and nuts, amongst other products. These products will likely continue dominating the export list in the second half of the year; thanks to large production volumes. There were temporary delays in exports in the port of Durban at the start of July because of unrest. Moreover, later in July, there were additional brief delays in export activity across South Africa following IT glitches on Transnet systems. This will likely be reflected in the third quarter export trade activity. However, this does not change my view that exports could be larger in 2021 than the previous year because of the robust harvest.

To illustrate this point, consider the data from the South African Wine Industry Information and Systems, which estimated the 2021 wine grape crop at 1,5 million tonnes, 9% larger than the 2020 harvest. While there was a temporary ban on alcohol sales domestically, the exports continued for those entities with access to export markets, thus contributing to an increase in exports this year. The Citrus Growers’ Association forecasts South African citrus exports at a record 159 million cartons for this year, up by 9% from 2020. The citrus industry was affected by the temporary closures in the Port of Durban during the unrest at the start of July and later faced delays in export activity when Transnet experienced IT glitches. Still, the response to these challenges was swift, and export activity quickly resumed.

Moreover, South Africa could export 2,6 million tonnes of maize in the 2021/22 marketing year (this marketing year corresponds with the 2020/21 production season). This, however, would be 10% below the previous season because of an anticipated decline in Southern African demand. The rest of Southern Africa region is typically a key importer of maize from South Africa, but there is a major improvement in maize production across the region this year, and thus less need for South Africa’s maize.  These available maize export volumes are on the back of a large harvest which the Crop Estimates Committee forecasts at 16,4 million tonnes, the second largest on record.

From a destination point of view, the African continent and Asia were the largest markets for South Africa’s agricultural exports in the second quarter of this year, accounting for 34% and 26% in value terms, respectively. The European Union was the third-largest market, taking up 21% of South Africa’s agricultural exports in the second quarter of 2021. The balance of 19% of export value constitutes other regions of the world.

Notably, South Africa’s agricultural imports also increased in the second quarter of 2021 by 33% y/y to US$1,7 billion. The top imported products were the usual ones where domestic consumption usually outstrips domestic production. These are primarily palm oil, wheat, rice, poultry products and soybean oilcake, amongst other products. Rice, wheat, and palm oil will continue leading the agricultural import product list throughout the second half of the year. The International Grains Council forecasts South Africa’s 2021 rice imports at 1.1 million tonnes, a 5% increase from the previous year.

Meanwhile, South Africa’s 2020/21 wheat imports are forecast at 1,58 million tonnes, down by 16% y/y following an uptick in domestic production. I expect a notable decline in soybean meal imports as South Africa has a record soybean harvest of 1,92 million tonnes in the 2020/21 production season. The increase in domestic soybeans production should substitute a large share of the usual imports.

Overall, South Africa recorded an agricultural trade surplus of US$1,5 billion in the second quarter of 2021, which is a 40% y/y increase, in part because of lower base effects, as previously stated. With major economies in Europe, Asia, and the Americas recovering from the 2020 economic shock of the pandemic, we expect the demand for food products to remain firm and support exports in South Africa.

The relatively weaker exchange rate will also most likely keep South African agricultural products competitive for foreign buyers. As such, with the large volumes of production of various crops and fruits and sound output in the wool industry, I believe that South Africa’s 2021 agricultural exports are on track to exceed the 2020 level of US$10,2 billion.

From a policy perspective, South Africa has an export-orientated agricultural sector, which means that there need to be continuous improvements on logistics and an expansion of export markets to the new destination. These efforts should be well sequenced and complement the ongoing attempts of boosting domestic production through various interventions such as Master Plans.

In my view, South African policymakers should prioritise these additional export markets: China, India, Saudi Arabia, and Japan. These are large and growing markets, yet South Africa still has minimal agricultural presence.

In terms of logistics, the ongoing engagements between industry and Transnet to address bottlenecks and efficiency challenges at the ports and rail are a step in the right direction of supporting further export-orientated growth in South Africa’s agricultural sector.

The article was written for and first published on News24/Fin24.

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Rising costs to keep South African farmers on their toes

Rising costs to keep South African farmers on their toes

Amid an abundant harvest, high agricultural commodity prices have been an ironic windfall for South African farmers, particularly the grain and oilseed growers. However, farmers should manage their portfolios well, as input costs have also been rising, namely: oil, herbicides, and fertilizer. Such higher costs have the potential to erode these price gains when farmers embark on the 2021/22 production campaign, commencing in October this year.

At the end of the first week of July 2021, Brent crude oil price was up by 72% y/y, trading around US$74 per barrel. The oil price has a close correlation with fertilizer prices and various agrochemical inputs. As such, herbicide prices show similar increases in US dollar terms, with glyphosate up by 144% y/y in June 2021. Importantly, South Africa imports all of its annual agrochemical’ consumption. This means that it is not only the rise in prices that should be a concern, but also the logistics of landing the inputs on the back of disruption in supply chains and continuous reports of container shortages.

The same is true with fertilizer, with potash, urea, monoammonium phosphate (MAP), and diammonium phosphate (DAP) prices, for example, up by 32%, 52%, 67%, and 69% y/y, respectively, in the first week of July 2021.

The tight global supplies, strong demand and geopolitical uncertainties in crucial producing countries have been the primary driver of prices in all these commodities. Recently, OPEC’s failure to reach a deal to increase the global oil production is one factor causing tight oil supplies in the global market and ultimately driving up prices.

The expectation from various analysts globally is that fertilizer prices could remain elevated for some time. Now, South Africa is just three months away from the new season’s planting period, which means that the country’s farmers are unlikely to be spared the higher input costs.

If we consider grain and oilseed farmers, who are the main subject of our discussion; fuel generally accounts for between 11% and 13% of production costs. The consumption of fuel takes place generally throughout the year, with the highest periods being the planting and harvesting periods. In terms of annual fuel usage, it is worth noting that South Africa transports roughly 81% of maize, 76% of wheat, and 69% of soybeans by road. On average, 75% of national grains and oilseeds are transported by road. This means farm managers and agribusinesses will have to plan well for an environment much different from last year when input costs were relatively lower.

South Africa imports about 80% of its annual fertilizer requirements and is a minor player globally, accounting for a mere 0.5% of total global consumption. Hence local prices tend to be influenced by developments in the major producing and consuming countries, such as India, Russia, the USA and Canada. Hence, the higher global fertilizer prices will be experienced in South Africa as well.

Much of the fertilizer imported by South Africa is utilized in maize production, accounting for 41% of total fertilizer consumption in the country, with the second-largest consumer being sugar cane at 18%. Fertilizer constitutes about 35% of grain farmers’ input costs and a substantial share in other agricultural commodities and crops.

In essence, the higher grain prices and harvest might look good on the financial books in the near term, but farmers and agribusinesses will have to maneuver well to tide them over this challenging environment of rising input costs in the coming months. Even worse, if the grain prices could soften somewhat from the current higher levels (which is all too likely on the back of expected sizeable global harvests in the 2021/22 season), then farming margins could be even further squeezed in the coming months.

Another critical factor for the domestic farmers will be the performance of the rand to the US dollar, which is key in determining the prices of production inputs when planting begins in October. As such, although the prevailing higher grain and oilseed prices are a welcome development from a farmer’s perspective, they will need to shrewdly mitigate the primary and knock-on effects of potentially higher input costs in the weeks to come.

This essay first appeared on Business Day, 14 July 2021

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JP Landman on South Africa’s failing Municipalities and Local Government

JP Landman on South Africa’s failing Municipalities and Local Government

My previous post was on failing municipalities across South Africa and the impact on agriculture and agribusinesses.

This evening, Mr JP Landman covered a similar problem in his newsletter, highlighting that “163 of the 278 local authorities in SA are in financial distress, and 40 are in serious financial and service delivery crisis. In a display of wishful thinking, 102 have adopted budgets they cannot fund.”

We have a big problem! You can read JP Landman’s piece by clicking here.

And oh, I have another essay on this issue, narrowing deeper on the agricultural challenges emanating from poor performing municipalities. I’ve also proposed some suggestions on the way forward. The article will be published on The Conversation soon, hopefully, June 18.

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Ghost towns across South Africa a growing concern for the farming community

Ghost towns across South Africa a growing concern for the farming community

On June 9, I presented at the South African Cane Growers Association’s annual general meeting. My talk was, titled South Africa’s agriculture in the economic reconstruction and recovery narrative.

I reflected on South Africa’s agricultural performance over the past decade, which has been fantastic. The volume of production has expanded by 19% between 2010 and 2020. Over the same period, the value of production has grown by 44%. This growth has been widespread across all agricultural subsectors – horticulture, livestock, field crops and animal products. The only weakness over this period is that inclusion – share of black farmers participation – has remained negligible in several subsectors, at best averaging between 5-10%, according to data from the National Agricultural Marketing Council. The only subsectors with encouraging numbers are the sugar and livestock industries, where commercial share contribution by black farmers is over 20%.

We all know that effective partnerships between commercial farmers and new entrants into the sector have been one of the ingredients for this success. But this is not a focus of this particular note.

At the end of the presentation, we had an open discussion about a range of issues from land reform, climate change and trade matters, amongst other aspects. But what stuck to my mind is a concern expressed by some producers (farmers) about the failing small towns across South Africa. The poor service delivery by municipalities is driving business away and leading to ghost towns. We have recently learned of a similar situation with Clover leaving Lichtenburg because of poor service delivery by municipal officials. This challenge is not unique to Lichtenburg but familiar across many towns across South Africa.

In 2019, following a farm tour I did in the Eastern Cape, I recounted my experience there in a blog post. My reflection drew from a 2017 essay by Phumulo Masualle, former Premier of the Eastern Cape. In it, Masualle called for the revitalisation of rural, small towns.

In short, he argued that the demise of South Africa’s rural small towns stems from the lack of economic opportunities and declining quality of life owing to poor infrastructure and a lack of new private investment. This is partly a result of the reluctance to transfer excess public land to black South Africans and also the fact that the South African government have failed to transfer land rights to land reform beneficiaries, and also address the tenure issues in communal land, amongst other factors.

Importantly, the reluctance to transfer ownership to land reform beneficiaries also means that the municipalities cannot levy rates and taxes. In this sense, the tenure arrangements are starving rural municipalities of their ability to raise their own funds and makes them overly reliant on the equitable share from the National Treasury. In Metros, where title deeds are commonplace, the municipalities are for the most part self-sufficient as they can raise their own revenue via the Local Government: Municipal Property Rates Act. As long as the majority of land continues to be owned by the state (e.g. the former homeland areas), there is no legal basis for municipalities to leverage rates & taxes from occupiers.

In that same 2019 fam tour, I stopped at Cradock, a small Eastern Cape town, to give a brief talk at a farmers’ meeting. Thank goodness the town at the time didn’t precisely fit Masualle’s description of the situation in other small rural towns across South Africa. The only factor differentiating Cradock from some small rural towns until this day is its vibrant wool, beef, dairy, fruit, lucerne, and mohair industries. The commerce and services that occur in the city centre are one way or another linked to the health or sustainability of the agricultural businesses, which in the recent past have not been smooth sailing. (By making this statement, I am not ignoring the drought challenges facing the southern regions of the Eastern Cape at the moment. The good rains that most regions of South Africa enjoyed since the start of the 2020 summer season didn’t reach much of the province).

Drawing from conversations with farmers in Cradock in 2019; climate change, biosecurity, water regulations, and land reform were amongst the factors that keep some farmers up at night. Sadly, we have not made much progress in all these aspects three years down the line. Covid-19 has also done its fair share of disruption from the work plan of both industry and government.

Still, the important thing is that these matters are within the regulator’s or government’s control, which I hope will continue to have close cooperation with organised agriculture groups in addressing them. Such progress should happen while pursuing the transformation objectives in the agricultural sector at the same time. An avenue to address all these challenges is the Agricultural and Agro-processing Master Plan, which is at its final stages. All social partners are currently at consultation stages with their constituencies about it. I hope that there will be broad consensus on its vision and unity to push for its implementation, right after the publication which I hope will be within the next two months.

A practical implementation of the Agricultural and Agro-processing Master Plan, coupled with the government’s intention to release land rights to the proper beneficiaries — not the politically connected and the weekend farmers’ crowd — would be a step in the right direction towards revitalising the small rural towns. But also crucial in the process would be to focus on beneficiation of some agricultural products, particularly in the former homelands’ small towns where the only economic activity seems to be retail on the back of remittances and government social support finances.

So, to former Eastern Cape Premier Phumulo Masualle’s proposition of revitalising rural small towns. I would present to him, as I did in 2019, that this should start with the revitalisation of agriculture and, in the process, enticing agribusinesses to expand operations to such towns, then focus on beneficiation. Importantly, the revitalisation of agriculture will help nothing if the management of small towns are not improved. Such improvement in the management of small towns requires a qualified financial officer, qualified civil engineer and electrical engineer, proper billing, a non-corrupt mayor and councillors and a reduction of the large bill and salaried staff to the bare minimum so that money can be used for waste removal, waste management, sewerage systems, roads, water provision, etc. These are tough decisions but all essential if we are serious about transforming South Africa’s small towns from “Ghost towns” status to vibrant towns.

These improvements need to happen simultaneously and not before or after agriculture revitalisation, which will be supported by the Master Plans. Crucial to remember is that the beneficiation of agriculture (locally) can only happen if the towns are functional. The same for businesses – they cannot operate if the basics are not in place.  So, if, as South Africans, we are serious about creating employment, and boosting economic growth in rural areas, the key will be the local towns, not agriculture on its own.

This essay first appeared in the Sunday Times, 13 June 2021

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Sentiment in South Africa’s agriculture industry shoots to record high in Q2, 2021

Sentiment in South Africa’s agriculture industry shoots to record high in Q2, 2021

This blog post aims to share the latest results of the sentiments indicator in South Africa’s agriculture and agribusiness sectors. This is data we, at the Agricultural Business Chamber of South Africa (Agbiz), released earlier today. Below is a brief text from the formal statement, and I have linked the data and full statement at the end of the post.

“South Africa’s agricultural sector has not, in the recent past, had a season as good as the current one. This is evident from the Agbiz/IDC Agribusiness Confidence Index (ACI), which in the second quarter of this year reached a record high (since its inception in 2001) of 75, from 64 in the first quarter of 2021. These results reflect favourable conditions for all subsectors of agriculture, with various crops set to reach record output levels. Importantly, this comes at a time when commodity prices – domestically and globally — are at relatively higher levels, mainly supported by growing demand from China, combined with dryness in parts of South America. Such an environment of large yields and higher prices is not a usual occurrence in South Africa and has boosted farmers’ incomes and sentiments about business conditions. This second-quarter survey was conducted in the first two weeks of June 2021 and covered agribusinesses operating in all agricultural subsectors across South Africa.”

The complete statement and data are accessible by clicking here.

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My Talking Head on Magic Markets Podcast

My Talking Head on Magic Markets Podcast

This week I joined The Finance Ghost and Mohammed Nalla (Moe-Knows) to discuss the investment opportunity in the South African agricultural sector. You can listen to this session on Magic Markets by clicking here.


This episode of Magic Markets is brought to you by Olive Venture Capital Company, a s12J-compliant investment vehicle that is welcoming new investors until the s12J window closes at the end of June 2021.

Olive VCC is an authorised financial services provider.

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