I have been thinking a bit about what COVID-19 means for South Africa’s agriculture and food supplies.
For my initial attempt in answering this question — download a paper I worked on today here.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
South Africa’s farming economy was not in good shape in 2019. This is clear from the agricultural GDP data released this morning by Statistics South Africa. The data show a 6.9% year-on-year contraction for 2019, which is a second consecutive year of contraction in South Africa’s farm economy. While worse than our initial expectations of a 4.0% y/y contraction, this is unsurprising. The output of various crops and horticulture produce declined notably in 2019 because of the drought, while the livestock was negatively affected by the foot-and-mouth disease outbreak.
This year, however, could be different. The improved weather conditions have led to an increase in summer crops area plantings and prospects of higher yields. The data recently released by the Crop Estimates Committee showed that South Africa’s 2019/20 summer crops production could increase by 26% y/y to 16.8 million tonnes, which could be the second-largest summer crops harvest on record after the 2016/17 crop. What’s more, the South African wine grapes production is also set to increase in 2020. There is also general optimism about 2020 harvest in the fruit industry, which supports our view of possible improvement in farming economy this year.
Against this backdrop, we are convinced that South Africa’s farm economy could recover by at least 5% y/y in 2020. The two factors that we are concern about and monitoring are (1) the spreading coronavirus and (2) the foot and mouth disease in the domestic market. The coronavirus could negatively impact the global demand for agriculture products, and subsequently prices. Whereas, the foot-and-mouth disease has led to a ban on South Africa’s livestock products exports since the end of 2019.
Moreover, the Agbiz/IDC agribusiness confidence, which in the past proved to be a good indicator of the growth path of the South African agricultural economy sector has been rather wobbly in the most recent quarters because of policy uncertainty. It remains in the contractionary territory, having eased at 44 points in the last quarter of 2019 (see Exhibit 1 below). This is below the neutral 50-point mark and implied that agribusinesses are downbeat about business conditions in South Africa.
Exhibit 1: SA farming economy
Source: Stats SA, Agbiz Research
Overall, we think the expected improvement in summer crop and horticulture harvest could add some optimism in the sector in the coming quarters. With that said, developments on the agricultural policy environment, depending on how they are perceived by agribusinesses, could always influence the confidence levels much faster than one can observe changes in farm economy which is guided by the seasonal output.
Written for Agbiz.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
It’s not been a good year for South Africa’s agricultural sector. Production has been down thanks to the dry spell, but the weatherman sees plenty of rain on the horizon.
Statistics South Africa released second-quarter figures in September which showed seasonally adjusted gross value added in the agricultural sector fell by 4.2% quarter on quarter on an annualised basis, after a 16.8% decline in the first quarter.
So, it’s unsurprising that trade data continue to paint a similar picture of a decline in performance from levels we saw in 2018. South Africa’s agricultural trade surplus narrowed by 30% in the second quarter of this year compared to the corresponding period in 2018, recorded at $789-million, according to data from Trade Map.
The driver was not an increase in imports, but rather a decline in export volumes of wool, edible fruits, wine and grains. This can be explained by two factors, which are animal health and climate change, which induced the aforementioned dryness in some parts of the country.
First, the foot-and-mouth disease outbreak in Limpopo earlier this year resulted in a temporary ban on South Africa’s beef and other livestock product exports. This continued for months while the authorities did inspections and applied control measures and, thus, the impact was reflected in trade data for the first half of this year.
Beef is now back in export markets, but the wool industry continues to struggle to access the Chinese market as negotiations to resume exports are still underway (the ban on wool imports also arose from the foot-and-mouth outbreak).
This is particularly important because, over the past five years, China accounted for an average of 71% of South Africa’s wool exports in value terms. A China ban has serious implications for the wool industry and significantly affects the agricultural trade balance.
Second, the drought that started in October 2018 and continued into early 2019 in some parts of South Africa led to a poor summer crop and horticulture harvest. For example, major summer crops that performed poorly in the 2018/19 production season – maize, soybeans and sunflower seed production – are down by 12% year-on-year, 21% y/y and 24% y/y, to 11.02 million tons, 1.17 million tons and 680,940 tons, respectively.
The wine-grape harvest was down 2% from 2018. All this led to lower export volumes in the second quarter of this year compared to the corresponding period in 2018.
The African continent and Europe continued to be the largest markets for South Africa’s agricultural exports, respectively accounting for 40% and 26% in value terms. Asia was the third-largest market, taking 24% in the second quarter. The balance of 10% value was spread across other regions of the world.
But the most important point is that the subdued performance has largely been underpinned by temporary problems. This means South Africa’s agricultural economy could bounce back in 2020.
The Weather Service has already indicated a possibility of above-normal rainfall in parts of the summer crop-growing areas in the 2019/20 season. If this happens, it should lead to a recovery in production.
Government and the private sector should now prioritise animal health to minimise adverse effects in the near future. All this gives comfort that the underperformance in the second half of this year – and probably the whole of 2019 – might be a temporary blip.
Written for and first published on Daily Maverick on 15 September 2019.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
Although South Africa’s economy has recovered from the previous quarter’s poor economic performance with a 3.1% quarter-on-quarter seasonally adjusted growth rate (q/q saar), agriculture did not contribute to the improvement. After a strong contraction (16.8%) during the first quarter of 2019, we[1] were optimistic that things would turn around for South African agriculture. We hoped that base effects coupled with improved horticultural production would trigger a recovery for the sector. However, we were wrong.
Data shows that the sector is in recession – having contracted a further 4.2% q/q/ saar in the second quarter of 2019, largely owing to a poor field crop harvest in the summer rainfall areas as a result of droughts earlier this year.
While this surprised us, it is important to note that these are seasonally adjusted numbers, which means that the increased horticulture activity on the ground may not be reflected in a similar size in the data. The data is weighed down by major summer crops, which performed poorly during the 2018/19 production season – maize, soybeans and sunflower seed production are down by 12% y/y, 21% y/y and 24% y/y, to 11.02 million tonnes, 1.17 million tonnes and 680 940 tonnes, respectively.
Given both the data and our observations of broader agricultural activity, we believe that South Africa’s agricultural sector will underperform in 2019. We predict that the sector will contract by approximately 2% y/y this year, because of generally poor summer grains and oilseed harvest in the 2018/19 production season.
Sentiments across the South African farming environment is relatively negative. The Agbiz/IDC Agribusiness Confidence Index, which has historically proved to be a good indicator of the growth path of the South African agricultural economy, has been rather unstable in the most recent quarters, but remains in the contractionary territory, having eased 44 points in the second quarter of 2019. This is below the neutral 50-point mark and reflects the negative perceptions held by agribusinesses about South Africa’s business climate.
Given that the sector’s poor performance is largely due to unfavourable weather conditions, prospects of higher-than-average rainfall in the 2019/20 summer season provides hope that the blip will be short-lived and that gains are just around the corner – in 2020.
Read my Business Day column tomorrow, 04 September 2019, I provide further evidence for our optimistic view of South Africa’s agricultural performance in 2020.
[1] By using the word “we” — I’m referring to our inhouse view at the Agricultural Business Chamber of South Africa (Agbiz).
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
The expansion in most agricultural subsectors in South Africa has been export-driven, particularly in the horticultural sector. This sector is labour-intensive, and the expansion also brought jobs.
This somewhat compensated for the dwindling labour participation trend in other agricultural subsectors over the past few decades due to technology advancement and consolidation of farms. The gains in horticulture have largely been the reason South Africa’s agricultural jobs have been stable over the past decade, bringing the average number employed in the industry to 767,000 between 2008 and 2018.
Of late, a number of policymakers, including President Cyril Ramaphosa, have expressed a desire to see agriculture continuing to play a pivotal role in rural economic growth and job creation through increased production.
While boosting production is conceivable if the focus is not only on boosting productivity on active farms, but expands to areas that have under-utilised land – Eastern Cape, KwaZulu-Natal, and Limpopo, among others – there needs to be an equal effort in opening up new markets. This is something South Africa has done well over the past few years, but now we need to expand beyond the destinations where we currently participate.
To illustrate this point – in 2018, South Africa’s agricultural exports amounted to $10.6-billion, a record level. This was underpinned by increased exports of oranges, grapes, wine, maize, apples, wool, lemons, mandarins and pears, among other products. About two-thirds of these exports went to Africa and Europe.
Asia is also an important market for South Africa’s agricultural exports and accounted for a 25% export share in 2018. This is a region where South Africa can still push the button a bit more to expand its footprint.
Within Asia, the countries that have been purchased a large share of South Africa’s agricultural produce included China, Hong Kong, Vietnam, Japan, Malaysia, Singapore, Bangladesh, South Korea, and Taiwan.
India, whose agricultural imports have nearly doubled over the past decade – from $11.2 billion in 2009 to $21.2 billion in 2018 – is down on the list of Asian countries that import agricultural products from South Africa.
Yet, if one looks into Asia’s leading agricultural products importers, India is ranked second after China. The growth in India’s agricultural imports has, in part, been driven by population growth and rising incomes.
The products that underpinned this tremendous growth in India’s agricultural and food imports included palm oil, soybean oil, sunflower seeds, coconuts, cashew nuts, cotton, sugar, apples, dates, greasy wool, whiskey, coffee, and grapes.
Its leading agricultural suppliers over the past few years have consistently included Indonesia, Ukraine, the US, Argentina, Malaysia, Brazil, China, Australia, Singapore, and Afghanistan.
South Africa, although a key producer and exporter of some of the aforementioned products (namely greasy wool, sugar, apples and grapes), doesn’t feature even on the top 40 countries supplying agricultural products to India.
In 2018, South Africa was ranked the 46th largest supplier of agricultural products to India by value, accounting for a mere 0.3% of the $21.2- billion worth of India’s agricultural imports. The key agricultural products that South Africa exported to India were pears, dog and cat food, greasy wool, oranges, apples, maize seed for sowing, cotton, and mandarins.
It is time South Africa starts to explore possible ways of boosting its exports to India, especially as the two BRICS countries are increasingly becoming warm towards each other from a political and diplomatic point of view.
Agricultural business leaders are keen to participate in the Indian market, but for that to happen, the South African government will have to engage with its Indian counterpart to resolve existing non-tariff barriers that hinder participation, specifically for horticulture products. All this will be in the spirit of boosting South Africa’s agricultural economy. We need to have the same zeal for creating export markets as we do for boosting production across South Africa.
*Written for and first published on Daily Maverick on 27 June 2019.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
Wandile Sihlobo is the Chief Economist of the Agricultural Business Chamber of South Africa (Agbiz) and the author of two books, “A Country of Two Agricultures: The Disparities, The Challenges, The Solutions” and “Finding Common Ground: Land, Equity and Agriculture“.
He is a Senior Lecturer Extraordinary at the Department of Agricultural Economics at Stellenbosch University.
Sihlobo is also a Visiting Research Fellow at the Wits School of Governance, University of the Witwatersrand, and a Research Associate at the Institute of Social and Economic Research (ISER) at Rhodes University.
Sihlobo was appointed as a member of President Cyril Ramaphosa’s Presidential Economic Advisory Council in 2019 (and re-appointed in 2022), having served on the Presidential Expert Advisory Panel on Land Reform and Agriculture from 2018.
He is also a member of the Council of Statistics of South Africa (Stats SA) and a Commissioner at the International Trade Administration Commission of South Africa (ITAC).
Sihlobo is a columnist for Business Day, The Herald and Farmers Weekly magazine.
His weekly podcast, “Agricultural Market Viewpoint with Wandile Sihlobo“, is available on all podcast platforms.
He holds a Bachelor of Science degree in Agricultural Economics from the University of Fort Hare and a Master of Science degree in Agricultural Economics from Stellenbosch University.