In a strategic position as a driver of economic growth and job creation, the agricultural sector stands as a barometer of a more equitable South Africa. However, the industry faces problems of competitiveness and efficiency, compounded by factors such as soil productivity, input costs, infrastructural impediments and the trade environment. The short-term future of the industry presents a complicated outlook, with sizeable potential but equally urgent challenges.
IN CONTEXT: Agriculture’s contribution to the South African economy has been on the wane, due in part to the rise of service sectors as well as its more modest growth rate. The value of production stood at R138.9bn ($17bn) in 2010, contributing R60bn ($7.3bn) to the country’s GDP, according to the Department of Agriculture, Forestry and Fisheries.
However, while the overall economy has grown by 14.9% since 1970, the primary agriculture sector has only grown at 11.8% per annum, meaning that its share of the country’s GDP has fallen from 7.1% in 1970 to 2.5% in 2010, according to the Department of Agriculture, Forestry and Fisheries.
Still, this is not an unusual trend. In sub-Saharan Africa, agriculture may account for 20% of GDP overall, according to the Food and Agriculture Organisation of the UN (FAO), but its share is declining in a third of the countries in the region. Indeed, while South Africa has bolstered many other economic sectors, agriculture remains a critical component of growth and development in the country.
The industry holds up well in comparison with many developed countries, ranking seventh globally in maize production and in the top 20 in the world for a whole range of cereals, fruits and livestock segments, according to figures from the FAO.
FUNDAMENTALS: South Africa is well positioned for agricultural production, although as a water-scarce country with a relatively dry climate, there are significant pressures on the land. Arable land accounts for 11.9% of South Africa’s total area, while 1.23% of the land is irrigated, according to the FAO. The vast majority of land is pasture (accounting for 69.1% of the total area), and as a result the country has a well-developed cattle and livestock industry. In 2009, cattle meat and chicken meat ranked number one and two in terms of production by value. The cattle meat industry was worth more than $2bn in that year, according to the FAO. Other key commodities include maize, grapes, sugar cane and pork.
TARGETING JOBS: With such a diverse range of production and strong expertise built up over many decades, the government has renewed its focus on the agricultural sector. Although the country became a net food importer in 2007 for the first time, this was a temporary blip, and the government is hoping to stem further reversals as well as bolster rural development and job creation through the sector. The National Development Plan, released in November 2011 by the National Planning Commission (NPC), challenges the sector to produce 1m of the 11m jobs that the government aims to create by 2030. Mohammad Karaan, dean of the Faculty of AgriScience at the University of Stellenbosch and a member of the NPC, told a parliamentary committee in November 2011 that with the right policies and support the sector could create 969,900 jobs by 2030.
This builds on the findings of the Bureau for Food and Agricultural Policy’s (BFAP) report, “Agricultural Outlook 2011”, which argues that an increase in cultivable and irrigated land, could create as many as 250,000 direct employment opportunities and a further 130,000 downstream jobs. BFAP estimates there are 2m ha of arable land available for expansion and that, at the upper estimate, around 700,000 ha of additional land that could be irrigated for agriculture. The report further states that with better utilisation of redistributed land and better access to land for farmers in former homelands, 300,000 jobs could be created for farmers and farm workers and another 200,000 jobs could be created downstream.
There are, however, significant impediments to the realisation of these bold targets which will require the reversal of some long-standing trends. Ernst Janovsky, head of Absa Agribusiness, told local media, that the number of commercial farmers in the country has fallen from approximately 128,000 in 1980 to 58,000 in 1997 and again to less than 40,000 today. Janovsky further estimates that the figure will drop to 15,000 in the next 15 years. Given the disproportionate influence of these farms on production and employment levels, the consequences have been, and are likely to remain, severe. According to the OECD, just 2500 farms provide more than half the total agricultural output in the country. Furthermore, the reduction in the number of these farms has been paralleled by a dramatic reduction in the number of workers in the agricultural sector. Between 1968 and 2003, employment on farms fell by 50%, or 800,000 workers, according to OECD. Since 2003, the decline has been even more dramatic, with a further 200,000 job opportunities being lost in primary agriculture.
This is hardly unique to South Africa, and nations around the world grapple with similar problems, but it is more acute because of the importance of rural job creation in South Africa. According to André Jooste, senior manager of the Market and Economic Research Centre at the National Agricultural Marketing Council, the figure for the past five years is almost 500,000 jobs lost. He said, “This has happened because of legislation pertaining to labour and land tenure.” While he dismisses arguments that the introduction of a national minimum wage in 2002 has impacted hiring and retention trends (as the average wage of a farm worker is consistently above the minimum wage), according to Jooste greater labour protection and fear over security of land has led many commercial farmers to reduce the number of both their seasonal and permanent employees.
Post-apartheid labour laws, such as the 1998 Employment Equity Act, have attempted to offer greater protection against discrimination for both full-time and temporary employees. The high level of seasonal labour in the agricultural sector falls under these provisions, a situation that some argue has given farmers less flexibility in their recruitment patterns. This has been an ongoing debate, and as early as the year 2000, a paper for the Trade and Industrial Policy Secretariat found that “farmers’ collective decision to shed permanent workers is in large measure being driven by ‘non-economic’ considerations, including above all: fear of losing control of one’s land to resident farm workers due to new (and possible future) legislation; and a sense that, because of democracy and a commitment by the state to safeguard human rights, farm workers are more difficult to manage than they were prior to 1994.”
LAND REFORM: The legacy of the two-tier system of largely white commercial farms which dominated production and smallholder, largely black farms predominantly on communal and state land are still being dealt with. While land reform enshrined in the 1994 Land Restitution Act was designed to tackle this issue, it has so far fallen short in addressing this reality. The government has consistently been behind on its targets of land redistribution, with just over 5% of land being redistributed to black smallholder farmers by 2007, according to the Programme for Land and Agrarian Studies at the School of Government of the University of the Western Cape. This is well below the initial target set out in 1994 of transferring 30% of white-owned commercial farmland to black farmers by 2014. Such targets have had to be radically revised, with the process of buying lands from willing sellers (white farmers) at market prices proving to be slow and expensive. The latest date to hit this target is 2025. There have also been other problems with the reform programme. For instance, the local press reported in November 2009 that the Land Claims Commission still owed R10bn ($1.2bn) to landowners from which it had bought property.
CAPACITY BUILDING: However, perhaps a more pressing concern for boosting both employment and productivity is addressing the quality deficit in skills, capital and technology among smallholder farmers. According to a 2009 report by The Economist, the South African government admitted that about half of the farming businesses redistributed to black owners have failed because of lack of money or skills.
According to Aart-Jan Verschoor, the senior manager for economic and biometrical services at the Agricultural Research Council (ARC), “Over the last 200 years, if you were black and wanted to farm you were in trouble. The system was simply geared towards large commercial farms, which were run by whites. This led to a huge drain on skills and capacity from black society. This is the reason we are struggling with land reform today.”
Two programmes are already in place to deal with this issue. Firstly, the Land Redistribution for Agricultural Development (LRAD) programme, established in 1999, provided for grants on a sliding scale from R20,000 ($2448) to R100,000 ($12,240) for land acquisitions and improvement, infrastructure development and short-term agricultural input costs. This was supplemented by the Comprehensive Agricultural Support Programme (CASP), introduced in 2004, which offers technical and advisory assistance as well as training and capacity building and marketing and business development. The latter programme remains a key government tool for job creation. In June 2011, Tina Joemat-Pettersson, the minister of agriculture, forestry and fisheries, said during her budget vote speech in Parliament in Cape Town that in 2010/11 5000 new jobs had been created through CASP and that a grant of R1bn ($122.4m) had been allocated to the programme for the year 2011/12 to support a further 15,000 smallholder farmers.
SMALLHOLDER ROLES: There are also plans to address the lack of research on redistributed land and smallholder plots. The land reform programme has paid scant attention to the quality of land being redistributed, to its location in relation to markets, or to its suitability for certain crops and commodities. Verschoor explained, “We’re saying in the future we’re going to focus on the smallholder sector, which really describes any black farmer that wants to become active and commercial. … It means we will do more dedicated research for smallholder systems. We will recognise that they don’t have huge tractors or a herd of 5000 [cattle]. We will do research into production systems and incubators [as well as] land use planning.” As such, the ARC will begin to address issues of proximity to transport infrastructure and what the soil can support on smallholder farms in different regions. The ARC expects to publish a new strategy paper by the second half of 2012.
BALANCING ACT: Such moves illustrate an increasing awareness of the importance of smallholder farms to the long-term sustainability and productivity of South Africa’s agricultural industry. However, balancing the competitiveness and efficiency of South African agriculture with equitable rural development and employment generation is tricky at the best of times. Indeed, according to the OECD, “The principal policy dilemma in this case is that reforms designed to improve productivity in agriculture are at odds with the policy of trying to decrease rural unemployment and, thus, poverty.”
Competitiveness has hinged to a large degree on the liberalisation and deregulation of the country’s primary sector. Moves to open up agriculture to greater competition have certainly boosted agricultural exports from South Africa, which expanded at a compound rate of 8.7% between 1996 and 2005, according to figures from the Department of Agriculture, Forestry and Fisheries. This trend is continuing, with the value of exports increasing by 6.9% to R47.6bn ($5.8bn) in 2010/11.
However, imports have also been growing rapidly. The level of import cover, or the ratio of agricultural exports to imports, has declined markedly from 3.95:1 in 1970 to 0.98:1 between 2006 and 2008, according to the OECD. A February 2012 report put out by the South African Institute of Race Relations states that this trend has been reversed and that in 2010 the country exported around 30% more agricultural produce than it imported.
Export competition is challenging across the board. Competition, particularly from the Americas, is becoming particularly fierce. Chile and Peru are now South Africa’s major rivals when it comes to supplying fruit to Europe. Jooste said, “On the competition side, one of the countries on trade is Peru. They are approximately two or three weeks earlier than us [in their growing season] and specifically for Europe, they’re extending production massively.”
As such, everyone from producers to the government is having to reassess the competitiveness of several South African products. One competitive issue revolves around the infrastructural limitations that still inhibit domestic exporters. “We have significant capacity problems,” said Jooste. According to the World Bank’s “Doing Business Report 2012”, it takes a South African exporter 30 days at a procedural cost of $1531 to export goods, compared to an OECD average of 10 days at $1032.
Such impediments are leading many farmers to look at other options, with some producers beginning to use external ports, such as Maputo in neighbouring Mozambique, according to Jooste.
This issue is something that the government is beginning to look at; for example, in early 2011 the NAMC commissioned a study on transport costs and the food chain for government consumption. No public recommendations have yet been made, however. Such problems compound existing challenges for exporters, such as the issue of exchange rate volatility, which for much of 2011 squeezed the margins of South African exporters.
CROPS: The maize segment, which has been a mainstay of local agricultural output, is indicative of the difficulties facing South Africa. In November 2011, Reuters reported that the country was close to running out of the crop because it had committed the majority of its production for export.
South Africa’s maize harvest reached 12.82m tonnes in 2010/11, its biggest crop in three decades. However, the US Department of Agriculture predicts a harvest of 10.86m tonnes for 2011/12, a 15% decrease on the previous year. While maize prices were increasing in 2011, influencing planting intentions for the coming season, erratic climatic conditions and higher input costs, particularly for diesel, are creating challenges for the segment.
Maize, for which South Africa ranks seventh globally in output, is likely to continue to be a mainstay of the country’s agricultural sector. The cereals segment generally, however, is flagging, with aggregate cereals production for 2011 estimated to be 13.5m tonnes, 11% below 2010 output, according to the FAO. Several public agencies have been looking at other key sectors that can bolster exports, create jobs and compete domestically with imports. One area stands out. According to Jooste, “The fruit industry always remains our employment multiplier industry.” Verschoor agreed, “Job creation will be in horticultural crops. That’s where it will be coming.”
The BFAP “Agricultural Output 2011” report finds that most high-growth-potential and labour-intensive crops and produce fall into the fruit, vegetable and nut category. These are largely net exporting industries that should be sustainable for production and processing in the longer term, including avocados, olives, pecan nuts, citrus fruits, and deciduous fruits such as grapes and apples. For example, BFAP concludes that through diligent land use, the citrus industry can create an additional 15,000 jobs and a further 9900 jobs downstream. Other winners include avocado pears (18,550 direct jobs), pecan nuts (18,200 direct jobs) and tomatoes (16,690 jobs).
Still, while the citrus industry may be an ideal candidate for expansion as a labour-intensive and export-oriented industry, 2011 was not a good year for the sector. Late exports from Egypt as a result of the political unrest in the country coincided with South Africa’s shipments to Russia, a market, which accounted for 12% of all citrus exports, according to Fresh Fruit Portal. Therefore, farmers had to divert produce to other markets in the Middle and East Asia. Justin Chadwick, CEO of the Citrus Growers’ Association, told Fresh Fruit Portal, “It was not a successful season for us in terms of returns to the farmer.”
OUTLOOK: There is clearly a big burden that is being shouldered by agricultural investors – from commercial companies to smallholders – in terms of addressing a number of major economic priorities for the country as a whole, including food security, employment and rural development.
Even while the secondary and tertiary sectors of the economy post higher growth rates, South Africa’s agricultural industry is well-placed to address some of the more fundamental needs of the country’s growth trajectory, and offers significant potential in a number of key cash crops and export commodities, as well as niche opportunities in segments such as organic produce and wine.
Realising this potential will depend in large part on how the private sector and the government are able to balance the twin challenges of maximising the industry’s externalities and its overall competitiveness. While the balance of exports to imports has shifted over the past decade, the agricultural sector remains a leader in the region and key products continue to perform well in international markets.
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