by Wandile Sihlobo | Oct 5, 2019 | Agricultural Production
It has been 25 years since the dawn of democracy and the general mood in the country is pessimistic owing to poor economic fortunes and elevated joblessness, among other long-standing challenges. As an agricultural economist, it is not unusual to hear statements that suggest SA’s agricultural sector is in bad shape compared to the past few years because of uncertainties over land reform policy, water rights, biosecurity risks and the changing climate, all of which make agriculture increasingly risky.
While all these points have some validity, it is important that we never lose sight of the progress SA’s agricultural sector has made since 1994. Total agricultural output — field crops, livestock and horticulture — has nearly doubled over the past 25 years. The gross value of the sector has increased nine-fold since 1994 and was about R277bn in 2018, according to data from the department of agriculture, land reform and rural development.
While a number of factors have contributed to this progress, technological advancement and “progressive trade policy” have been central. The technological advancement has been both biological, such as the adoption of genetically engineered seeds, among other advancements, and mechanical, with the use of machinery that has resulted in an increase in productivity in some crops.
As far as trade is concerned, SA rejoined the world after 1994 and secured a range of trading agreements, the most important being the African, European and Asian regions. We have become a key player in the global food market. In 2018, SA was the world’s 32nd-largest exporter and the only African country within the world’s top 40 agricultural exporters in value terms.
Europe, Asia and the rest of Africa now import almost 90% of SA’s agricultural exports. About half of all of SA’s agriculture production is exported, with the horticulture, wine, wool and grain subsectors leading the way.
But the picture is not all rosy. While SA’s agriculture production has increased, food security is still challenging at a household level. My sense is that such a challenge is caused by lack of income rather than quantity or quality of food. Tackling this requires a broader macroeconomic and social protection discussion to determine how we can better protect the most vulnerable households, rather than just the agriculture sector.
In addition, we must continue to support the transformation of SA’s agricultural sector. While data is a significant challenge in assessing the integration of black farmers into the sector, there is anecdotal evidence that the sector is transforming in different parts of the country. We see this in field crops, horticulture, wine and livestock.
Just last week in the Eastern Cape I visited black farmers who are supported by agribusiness and running viable enterprises in citrus, sheep farming, lucerne, pineapples, peppers and blueberries. In Matatiele, a municipality in the northern part of the Eastern Cape, there has been a rise of black grain farmers, who were able to export their produce for the first time in 2018.
While anecdotal evidence is encouraging, we need to support policies that promote more widespread and sustainable inclusion. The Treasury recently released an economic strategy policy discussion paper that highlights priority areas that can drive diversification of the sector: improving access to finance for smallholder farmers; providing sufficient and affordable agriculture insurance; strengthening technical assistance and extension services to smallholder and emerging farmers, and improving market access. A similar theme is evident in the national development plan.
At a time when economic pessimism runs high, as shown by various indices, we should celebrate the progress SA has made in boosting agricultural fortunes since 1994. The sector has become more productive, exports have reached unprecedented volumes, the workforce is becoming more diverse and the sector is becoming a source of livelihoods for those in rural areas.
As we look to the future, we must build on that and ensure the dualism within the sector is eradicated, food security is no longer a pressing concern or households, and that we continue to improve productivity. All this needs a stable and predictable policy environment to attract investments.
Written for and first published on Business Day on 01 October 2019.
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by Wandile Sihlobo | Aug 24, 2019 | Agricultural Trade
The African Continental Free Trade Agreement (AfCFTA) was recently ratified. Although it is well understood that a reduction of tariffs in isolation won’t necessarily encourage trade, it is still an important development from an agricultural perspective. This is because there is still a lot of work to be done across the continent to address the lack of infrastructure, costly and prohibitive border processes, corruption and weak institutions.
The growth that South Africa’s agricultural sector has enjoyed over the past few decades was largely export-driven, and the African continent has been a key market. Hence, the prospects for South Africa’s agriculture can only be bolstered by trading under the AfCFTA, which is scheduled to start on 1 July 2020. Over the past 10 years, the African continent accounted for an average of 44% of South Africa’s agricultural exports, which equals to US$3.9 billion, up from an average of less than 30% in the prior decade. The top ten markets for South Africa’s agricultural exports were Botswana, Namibia, Mozambique, Lesotho, Eswatini, Zambia, Zimbabwe, Angola, Mauritius and Nigeria.
The growing middle class and more spending power have partly been the catalyst for the growth of South Africa’s exports to the African continent. This means that the economic trajectory of the aforementioned countries is important for South Africa’s agricultural prospects as it influences the domestic demand of the importing countries.
Also, worth noting is that aside from Nigeria, the remaining nine of the aforementioned countries are part of the Southern African Development Community (SADC), and currently account for 82% of South Africa’s agricultural exports to the African continent (meanwhile, the overall SADC region accounts for 88% of South Africa’s agricultural exports to the African continent).
This means that, what has really been an underpinning driver of South Africa’s agricultural exports to the African continent, has in fact been the SADC region and not so much the overall continent. The main explanation is that SADC is a tariff-free zone for South Africa and existing infrastructure facilitates trade with the neighbouring countries.
The products exported to the continent are diversified, ranging from sugar, beverages, spirits, to grains (mainly maize, wheat and sorghum), cotton, beef, and vegetable oils, amongst other products. With the exception of grains (especially maize), the share of agricultural products to the continent has grown over the past decade. The decline in grain exports is mainly due to the development of domestic grain production in a number of countries in the continent. Meanwhile, horticultural products, beverages and spirits production in the continent remains limited. The profile of agricultural exports has also been influenced by changing consumer taste with high-protein foods being more preferable.
The role of maize is by no means diminishing, as the livestock sector, which I believe will grow in the coming years in the continent, will require it as feed. Also, the decline of South Africa’s share of the continent’s maize exports has not caused disruption in domestic production since the maize industry has active markets in the Far-East region.
In response to the opportunity presented by the AfCFTA, South Africa will invariably need to expand its agricultural production in areas that still have underutilised land. In the past, I have argued for market development in Asia and the Middle-East, however, the African continent remains an important market which shouldn’t be ignored.
With South Africa’s agricultural exports within the African continent concentrated within the SADC region, the African Continental Free Trade Agreement offers hope for potential trade expansion. As set out in these pages in July in an essay co-authored with Michael Ade and Tinashe Kapuya, the newly launched trade agreement is expected to make 90% of trade within the continent duty-free by July 2020, and this is set to increase to 97% over the next decade as more duties on an additional number of products are phased down.
With such developments, the continent needs to address the lack of infrastructure and unconducive business environments that make trade across borders particularly costly and nearly prohibitive. It is only through the adoption of such a multifaceted approach that the African continent will fully benefit from the numerous opportunities that AfCFTA presents for its agricultural sector.
This essay was written for and first published on Business Day on 22 August 2019.
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