At the outset of the Covid-19 lockdown, agriculture and the food sector were classified as essential services to avoid disrupting the nation’s food supply. But there were always concerns about whether the agricultural value chains and logistics could work efficiently when most other sectors of the economy had ground to a halt.
Industry leaders quickly met, and with the help of the Bureau for Food and Agricultural Policy (BFAP) created a weekly value chain tracker covering all aspects of the sector. This proved an essential tool as challenges emanating from it were elevated to the legislators to be tackled swiftly and ensure the continuity of the sector.
Through the BFAP Covid-19 tracker, we also began to pick up challenges at the ports that led to delays in shipment and had various interactions with industry players. The delays were a great concern as SA’s agricultural sector is export-orientated. As the 2019/2020 production season was bountiful, we had greater volumes of field crops and horticultural produce to export than in previous years.
Continuous co-operation between industry players and the government reduced delays at the ports as the lockdown progressed. Another worry was the logistical challenges at receiving ports and general uncertainty about global trade due to disruptions caused by the pandemic to global supply chains and the debilitating effect lockdowns had on demand.
Yet against all odds, SA has managed to maintain vibrant trade, as illustrated by the agricultural trade surplus, which expanded 32% year on year in the second quarter of the year to $1.1bn, according to data from Trade Map. Exports were little changed compared with the same period in 2019, at $2.4bn, while imports declined notably to $1.3bn. The decline in imports can be attributed to slower domestic demand and large domestic crops.
The growth in agricultural exports was underpinned by citrus, wine, maize, apples, sugar cane, pears, avocados, grapes and macadamia nuts. These products will continue to support SA’s agricultural exports in the remaining two quarters of 2020. Citrus features prominently throughout the year and exports for 2020 are expected to reach a record 142.6-million cartons, up 12% year on year according to data from the Citrus Growers Association of Southern Africa. Similarly, we at the Agricultural Business Chamber estimate SA’s maize exports will reach 2.7-million tonnes this year, up 89% year on year due to a bumper domestic harvest.
The African and Asian continents were the largest markets for SA’s agricultural exports in the second quarter of the year, respectively accounting for 33% and 29% in value terms. Europe was the third-largest market, taking up 28%, and the balance of 10% by value was spread across the rest of the world. The main imports were wheat, palm oil, rice, poultry meat, sunflower oil and sugar. For the rest of the year, rice, wheat and palm oil will likely continue to dominate the imported agricultural product list.
Overall, though the pandemic will result in lower incomes in most world regions due to a decline in demand for goods, the agricultural sector is one of the few that might not be as hard hit. SA’s agricultural exports could increase in 2020 from 2019’s $9.9bn to more than $10bn. The catalyst will be the increase in grains and horticultural output, and the weakening domestic currency.
This all builds from great work various stakeholders in the agriculture, agribusiness, logistics and government sectors have done to ensure the continuous functioning of the sector throughout the lockdown period.
Written for and first appeared on Business Day, September 15, 2020
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This is an important day in the South African economics calendar. At 11h30 this morning, Statistics South Africa will release GDP data for the second quarter of the year. Recent surveys of macro analysts’ forecasts of the second quarter GDP show that the South African economy could contract by around 47% q/q on a seasonally adjusted and annualised basis, largely reflecting the effects of lockdown restrictions put in place to slow the spread of the pandemic across various sectors.
The agricultural sector, however, will probably be the only shining star, in part because the sector was classified as essential and didn’t close down during the strict lockdown period, whose effect extended to the second quarter. Most importantly, because this is a boom year in agricultural output, across all subsectors (field crops, horticulture and livestock).
As I have recently highlighted in the previous blog entries, South Africa’s agriculture already had a solid start to the year with first-quarter gross value-added growing by 27.8% q/q on a seasonally adjusted and annualised basis. I noted then that the succeeding quarters would likely continue to show strong growth, a view I still maintain. But the second-quarter expansion could be somewhat milder than the first quarter, possibly at a range of 20-25% q/q on a seasonally-adjusted and annualised basis. The key drivers will remain somewhat the same as the previous quarter, which was an uptick in animal products, field crops and horticulture.
Within field crops, sugar was the main driver, while in horticulture, deciduous fruits were the primary drivers of the bounce in the first quarter. In the second quarter, however, summer grains and oilseeds will likely be the key drivers of growth as harvest processes and deliveries started gaining momentum during this quarter going into the third quarter, as the season was delayed due to dryness when the season began. Meanwhile, in the horticulture industry, citrus most likely dominated in the second quarter. I doubt that the animal products remained as robust in the second quarter as slaughtering activity softened when the country went into strict lockdown at the end of March. If anything, the animal products activity will probably recover in the third quarter, which is when restaurants started opening more widely.
With that being said, I am still quite optimistic about the performance of this sector in 2020, maintaining our forecast, at Agbiz, for the year to average at about 10% y/y (compared to a contraction of 6.9% y/y in 2019). Other institutions such as the Bureau for Food and Agricultural Policy (BFAP) are more optimistic than us, placing their agricultural growth forecast for the year at 13% y/y. This optimism is based on the bumper maize crop of 15.5 million tonnes (the second largest in history), surging export prices of major fruits (further supported by the weak exchange rate) and strong overall sales of agricultural produce in the first four months of the COVID-19 pandemic. This is, of course, with the exceptions of the wine and tobacco industries, where domestic trade has been restricted through various stages of the lockdown, and only permitted in August 2020.
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In the second week of July 2020, the Economic Transformation Committee of the African National Congress (ANC) and Business for South Africa (B4SA), released their respective strategy documents for the post-COVID-19 inclusive economy recovery for South Africa. Both the ANC and B4SA prioritized the agriculture sector, for its transformative potential and aligned their strategies with chapter six of the National Development Plan (NDP), which reflects the commitment of both the government and private sector to the larger development agenda of South Africa.
Both plans highlight that poor infrastructure – both in the former homeland regions and in general logistics to move the produce to the ports and processing plants – is a constraint that needs urgent action; that improving agricultural finance is critical to unlocking the sector’s growth, particularly through the Land Bank; and that strengthening agriculture value chains is critical for fostering inclusive growth.
However, these ideas on how to strengthen the agriculture sector are not new. They first entered the policy arena in 2012. But in the subsequent eight years, little was done on the implementation front. Covid-19 presents an opportunity to change the narrative by focusing on why implementation has lagged and how it can become more effective.
The lack of implementation of agricultural government policy and infrastructure-related constraints are down to three broad reasons. First, weak coordination and misalignment of functions and priorities between different government departments and different spheres of government. Second, a misallocation of the budget by the national and provincial governments. And finally, poor coordination between the government and private sector, which has led to a misalignment of transformation programs, incentives and in some cases, vision.
To solve these challenges, the task largely lies on the government through its various Sector Master Plans to continue working with the private sector and civil society to address the aforementioned challenges. Agricultural growth and job creation will be stimulated through the development of under-utilised land, especially in former homeland areas and underperforming land reform farms (about 400K jobs); the expansion of export-led high growth areas (250K jobs); and investment in agro-processing with integrated up-and downstream linkages (350K jobs).
Additionally, the ANC’s strategy has highlighted the importance of collaboration, by noting that the state should mobilise development partners, including the World Bank, the African Development Bank, the private sector and impact funders to contribute towards developing a thriving rural economy centred on agriculture. This has become more important than ever. The 2015 Development Committee paper ‘Billions to Trillions: Transforming Development Finance,’ highlighted that the Sustainable Development Goals marked a shift from needing billions of dollars in official development assistance, to needing trillions. While the largest supply of development resources remained domestic public spending, the greatest area for expansion was unlocking the transformative potential of the private sector.
There is evidence that partnerships between the private sector and government have, in some cases, piloted successful programmes to drive transformation. Some of these include projects of the Sernick Group, the Humansdorp Co-op and the Mohair Trust, amongst others.
Three common themes run throughout these programmes: first, public-private-partnership structured finance, to help meet development goals; second, supporting market linkages to help agriculture play its part in creating a more inclusive South Africa and third, upgrading skills and technology through farmer training and the adoption of technology in production practices.
The task ahead, particularly the agriculture and agro-processing Master Plans, should focus on upscaling and replicating these strategic partnerships in various value chains across the country. As we have previously argued, incentives for agro-processing could be in a form of tax incentives for various agricultural hubs which will be determined by the type of agricultural activity. For agricultural production, the selection of the value chains to prioritise should follow the NDP’s view of higher growth and labour-intensive value chains, such as horticulture. In regions where this is not possible, livestock and field crops remain key subsectors for agriculture expansion.
Points of deviation
The one important point of deviation between the ANC and B4SA is land reform, which is central to actualizing agricultural expansion. To create more policy certainty for the private sector, B4SA advocated for strengthened property rights and the extension of secure tenure or tradable leases in government land to attract investment, and by extension, stimulate long-term growth. Meanwhile, the ANC, in its efforts to reduce inequality and promote equitable land distribution, advocated that the state should release land to individuals but is not clear on whether on tradable leases or another form of tenure rights will be afforded to the holders and occupiers of these land parcels. The ANC also advocated to acquire land for redistribution, the programme to expropriate land in line with the existing legal and constitutional prescripts should be continued. To further accelerate land redistribution consideration should also be given to the taxation of unused land. A position which was not shared by B4SA.
Overall, the ANC and B4SA agricultural development plans have more areas of alignment than a diversion. However, focusing on implementation, rather than just ideas, is crucial to creating inclusive growth and delivering a million jobs envisaged in the NDP. Given the current fiscal constraints, development in the sector will be private-sector driven as acknowledged by both the ANC and B4SA, but the private sector involvement will require clear policy guidance on land reform and more assurance on property rights. The release of the land the ANC argued for, will need to be on long-term tradable leases so that investment could flow, particularly in areas with better infrastructure.
 ANC,” Reconstruction, Growth and Transformation: Building A New, Inclusive Economy”, June 9, 2020. Available: https://www.scribd.com/document/468680698/ETC-Document-FINAL-8-July-2020#from_embed
 B4SA, “A New Inclusive Economic Future for South Africa: Delivering an Accelerated Economic Recovery Strategy”, June 10, 2020. Available: https://www.businessforsa.org/wp-content/uploads/2020/07/B4SA-A-New-Inclusive-Economic-Future-for-South-Africa-Presentation-10-July-Final.pdf
 NDP, “An integrated and Inclusive Rural Economy”, August 15, 2020. Available: https://www.nationalplanningcommission.org.za/assets/Documents/NDP_Chapters/devplan_ch6_0.pdf
 These appeared in the NDP, chapter six in 2012.
 This is generally a view carried in Chapter six of the NDP. Available here: https://www.nationalplanningcommission.org.za/assets/Documents/NDP_Chapters/devplan_ch6_0.pdf
 For more information, here is a full document: http://pubdocs.worldbank.org/en/622841485963735448/DC2015-0002-E-FinancingforDevelopment.pdf
 I have previously narrated The Co-op work in this article: https://www.news24.com/fin24/opinion/wandile-sihlobo-a-sleeping-giant-the-eastern-cape-20191005
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