Economic Update

Welcome rains in late summer and autumn brought some respite for South Africa’s agricultural producers towards the end of 2016, helping to boost yields and improving the chances of recovery after a two-year contraction.

Signs of a brighter outlook come after a lengthy drought, which has significantly pushed down production in the past three years and continues to impact much of the eastern part of the continent and the Horn of Africa.

While still in marginally negative territory, the sector registered its smallest quarterly contraction in two years in the fourth quarter of 2016, paving the way for bigger harvests and a stronger performance this year.

Improvements taking hold

South Africa’s agricultural production, including the forestry and fishing segments, declined for eight consecutive quarters through to the end of 2016, according to data issued by Statistics South Africa (Stats SA) in March.

The sector contracted by 20.1%  in the second quarter of 2015 at its weakest, but showed significant signs of improvement by the latter half of 2016. Results for the fourth quarter were by far the strongest of the last two years, with negative growth reduced to 0.1%.

While the continued downturn did not see the sector register any contribution to GDP growth, negative or otherwise, in the second half of the year, in each of the first two quarters its contribution contracted by 0.2%.

Agriculture did make gains in employment in the fourth quarter, according to another Stats SA report issued in February, with 38,000 jobs added out of 235,000 across the broader economy.

Employment rose by 6.9% year-on-year (y-o-y), with the number of positions available across the industry reaching 919,000 by the end of 2016. Again, most of the gains were made in the final quarter.  

Brighter outlook

Based on preliminary estimates, the coming year may finally bring about positive growth for the sector, heralding a definitive recovery.

South Africa’s Crop Estimates Committee has forecast a maize harvest of 13.9m tonnes for 2017, up 78.9% on last year’s yield. Meanwhile, increases of between 23% and almost 400% were predicted for sunflower seeds, soybeans, sorghum, dry beans and groundnuts.

Resurgent optimism has, in turn, been reflected in the area under plantation. A total of 3.97m ha are currently being cultivated, approximately 720,000 ha more than in 2016.

Positive sentiment has trickled down into other segments of the agri-business community, according to the results of the latest Agricultural Business Chamber survey of sectoral confidence.

The Agbiz/IDC Agri-business Confidence Index was up two points to 57 in the first quarter, well above the 50-point threshold that indicates expectations of expansion. The index has now been in positive territory for three consecutive quarters, tracking the gradual improvements recorded in agricultural production.

Pressure on prices

While output of key crops are expected to be far higher this year – with the total harvest from South Africa’s six main crops forecast to increase by 72% – increased yields will likely dampen returns for growers as bulges develop in the market.

Much of the maize harvest was brought in simultaneously, triggering a glut in production, which in turn pushed down prices. Quotes were below R2000 ($154.1) per tonne in early March, compared to roughly $430 a year earlier.

Though proving effective in reducing food inflation – a major component of the consumer price index – weak commodities prices could leave growers increasingly burdened with debts accumulated over the past three years of drought and low production.  

Longer term, experts have also predicted that climate change will have an increasingly adverse impact on the country’s primary producers, who will need to adapt if they are to maintain output.