There’s no need to reinvent the wheel to boost growth in South Africa’s agriculture

There’s no need to reinvent the wheel to boost growth in South Africa’s agriculture

This essay first appeared on Fin24, June 15, 2020

The South African agriculture sector has the potential to be amongst the sectors that will drive economic growth and job creation during the post-COVID-19 recovery phrase. The path to realise this growth does not need new policies.

The South African government should rather, recast its vision of agricultural development using chapter six of the National Development Plan (NDP) as a point of departure. The NDP proposed a three-tier approach for agriculture and agro-processing to reach its fullest potential of creating one million jobs by 2030, namely the development of underutilized land especially in former homeland areas and failed land reform farms (approximately 400 thousand jobs), the expansion of export-led high growth areas (approx. 250 thousand jobs) and the investment on agro-processing with integrated up-and downstream linkages (approx. 350 thousand jobs). But what will need to be done differently post the pandemic is the realization that the broad vision should be followed up with detailed operational plans to guide the officials and various stakeholders at the local level.

The Department of Agriculture, Land Reform and Rural Development is currently drafting the sector Master Plan, along with private sector players. Such a plan should prioritize high-value job-creating sub-sectors, and not only focus on areas where agriculture sector is established at the commercial level, rather in new areas that still have untapped potential. Such areas involve the former homeland regions of South Africa, government land and also underperforming land reform farms. The Master Plan should map these areas, along with potential agricultural activities which could be promoted. Another crucial step will be to understand why agricultural development has lagged over the past two decades in such regions while in the commercial agriculture areas the output has more than doubled since 1994.

There are several reasons which explain this disparity in fortunes, the major ones being lower levels of investment in agriculture and lack of infrastructure. With respect to investment, poor land governance, both in the former homelands and some underutilized land reform farms, have been the key impediments. With regard to the lack of infrastructure, the problem has been compounded by poor service delivery in various local municipalities, especially those in former homelands towns of South Africa.

Given these structural challenges, the Master Plan will have to lucidly articulate ways and means to increase investment, as well as the improvement or capacitation of local governance. In the case of investment, agriculture is a long-term economic activity with relatively modest returns. Given this reality, the South African government will have to clarify its long-term view on land reform policy, not only for areas that are already farming commercially but also for the former homelands, where investment and commercial agriculture is set to make the most impact.

A renewed drive on the prioritization of joint venture models between the private sector and the government is now critical in bringing about development. The private sector will not only bring a “know-how” to the state but also a capital investment. South Africa already has examples of such development programme from which to build on. These include, but not limited to, Sernick Group in the beef sector in the Free State and the Humansdorp Co-op in the Eastern Cape, which focuses on field crops and horticulture. Both companies have partnered with government and communities for the developed black farming businesses.

The Master Plans should reflect on such examples of successful programmes and further innovate and develop institutions which effectively drive and sustain development. Moreover, this post-COVID-19 agriculture development plan should also encompass the agro-processing side as that will add to job creation and development in various rural towns.  On this particular point, private sector investment should also be encouraged. Therefore, the agriculture and agro-processing Mast Plan should also reflect on strategic incentives for firms to expand agro-processing in various towns which were not predominantly agricultural. This might be in the form of tax incentives for various agricultural hubs which will be determined by the type of agricultural activity. In areas where weather conditions permit, the government should encourage the expansion of horticulture production as this subsector has higher labour absorption multipliers than other subsectors of agriculture, in addition to also having a higher value.

All these ideas aren’t new. There is no need to re-invent the wheel.  Rather, the focus should be on understanding why there have been low levels of policy implementation over the past two decades.  Addressing the stumbling blocks to development (i.e. investment and infrastructure) and focusing on effective implementation are the key ingredients of a successful post-COVID19 agricultural sector.

Given that the private sector’s role might have been less pronounced in the past, the tight fiscal position that the South African government is currently in demands a need for external funding to drive development and agriculture. This means for the better part, agricultural development in a post-COVID19 will require deeper and greater participation of the private sector. However, effective private sector participation demands that government provides greater levels of policy certainty, especially land reform. The government will have to take an investment friendlier approach, which is still anchored in development. The private-public-partnership approach is one such model, and there are a number of case studies that can be used to draw lessons.

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Operationalizing existing SA agriculture policy key for growth and job creation

Operationalizing existing SA agriculture policy key for growth and job creation

South Africa’s agricultural policy growth path has been clear as far back as 2012 when the National Development Plan (NDP) sketched higher growth potential and labour-intensive sub-sectors that could create jobs and increase the sector’s contribution to GDP. One such subsector was horticulture, which, among others, had the capacity to grow and create employment along the value-chain, including off-farm and in agro-processing.

Seven years after the NDP was crafted, nothing has fundamentally changed this viewpoint, and if anything, the global demand for the horticulture and protein-rich food products has increased notably over this period. With this, South Africa’s agricultural exports have also increased, having amounted to US$10.6 billion in 2018, representing a 17% increase from 2012, a year of the release of the NDP.

The gains have largely been underpinned by the subsectors that were identified as potential drivers of South Africa’s agricultural economy – namely the horticulture as already discussed, as well as wine, grains, amongst others. But the growth in exports has not been evenly distributed from a geographic and spatial point of view.  In fact, growth has been concentrated in traditionally agriculture active areas, while the former homelands have seen sporadic improvement over time.

In my field visits in the Eastern Cape last week, where I interacted mainly with new generation farmers with an objective of understanding the developments at farm level in the province, the constraints that came out repeatedly were not different from those expressed by agribusiness firms and farmers in other provinces. These included the lack of access to finance, challenges regarding land governance in the communal areas, access to water, need for farming advice (effective extension services) and poor infrastructure.

This means if South Africa is to attain its rural economic growth and job creation ambitions, the country does not need to re-invent the already stated vision of creating vibrant rural economies. Rather, the focus needs to be on crafting specific strategies which seek to resolve the prevailing constraints that hinder progress, such as the aforementioned ones from Eastern Cape’s farmers.

Targeting specific bottlenecks entails effective coordination between the established agribusinesses, farming enterprises, communities and also government (national and local).

This approach is premised on the assumption that there is universal buy-in on the vision articulated in the NDP. However, often times, the message and vision at national government levels by political captains of various departments have not been received with the same level of enthusiasm at local government levels. This is an area which requires improvement.

Agribusinesses and farmers have in various forums expressed a willingness to collaborate with the government in growing South Africa’s agricultural sector. This willingness should be welcomed as it promises to address some of the challenges that currently exist at the farm level, such as skills transfer, access to finance and also links to market, amongst others.

There are areas where this approach has started to bear fruits. Within the Eastern Cape province, the blended finance approach of the provincial government, has sparked agricultural development in lands that were underutilised for decades, and thus increasing value and creating extra jobs.[1] In the Free State province, livestock farmers have also started collaborating with emerging black farmers with an aim to bring them into the formal market and growing the industry. The government has also supported some of the initiatives through the Jobs Fund.[2]

Fortunately, this public-private partnership approach has been revived in government policies, with the National Treasury’s recent economic policy discussion paper highlighting the need for a joint-venture approach to drive development in South Africa’s agricultural sector. This should receive increased focus in the coming months as its success would ensure that the bigger ambitions articulated in policy papers actually translate to development at farm level and communities.

There are, of course, broader policy questions such as land reform policy and water rights which will need to be attended to concurrently with the other development strategies. Even these specific areas require realization, in order to attract investment into agriculture, that property rights are key.

Overall, the path for growth and job creation has been clear for some time. What is needed is an increased effort in coordinating strategies and programs that address specific constraints and bottlenecks, which will deliver the bigger goal.

[1] Here we are specifically referring to the Co-Op (an agribusiness) development projects, which cover citrus, lucerne, pineapples, livestock, blueberries and papers, amongst other agricultural commodities.

[2] We are specifically referring to the Sernick Group (an agribusiness) development initiatives.

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