South Africa’s primary agricultural employment increased three percent year-on-year (about 27,000 jobs added) to 865,000 jobs, although this was marginally down quarter-on-quarter (-2 percent).
This recovery was underpinned by strong activity in all major agricultural subsectors, including livestock, field crops, and horticulture production. The significant improvement in activity across the various subsectors was largely driven by favourable weather conditions during 2019/2020.
From a field crops perspective, South Africa expects its second-largest grains harvest on record in 2019/2020.
Latest projections for the 2019/2020 maize, sunflower seed and soybeans harvests indicate year-on-year increases of 38 percent, 13 percent and eight percent, respectively, equivalent to output levels of 15,5 million, 765,960 and 1,3 million tonnes respectively.
Local sugar cane production is set to increase by one percent year-on-year to 19,4 million tonnes.
In horticulture, South Africa has generally had a good fruit harvest in the year to date, with the citrus industry recently noting a 13 percent year-on-year increase in available supplies for export markets in 2020.
There is also a broad recovery in the production of deciduous fruit, with 2020’s apple and pear production up by five percent and one percent year-on-year respectively.
Although the livestock subsector has also been resilient, the latest outbreak of foot-and-mouth disease posed a significant challenge at the beginning of the year.
As it stands, the agricultural sector’s 2020 second quarter looks set to continue its positive trajectory, with South Africa’s Agricultural Business Chamber (Agbiz) forecasting 10 percent annual year-on-year growth for the sector (versus a 6,9 percent year-on-year decline in 2019).
However, despite this largely positive outlook, significant downward risks remain.
Agricultural employment data for the second quarter of 2020 will probably not be as robust as in the first quarter, as social-distancing regulations introduced at the end of March would have hampered farmers and agribusinesses from increasing employment, particularly of seasonal workers.
Ongoing economic uncertainty could negatively impact financing of the agricultural sector, as commercial banks are likely to be more risk-averse in the current unprecedented environment.
This, compounded by the Land Bank’s financial woes, poses significant risk around capital availability for the sector.
Reinstating a ban on alcohol sales, as announced by President Cyril Ramaphosa on July 12, has dealt another blow to the local wine industry, which has already lost billions this year due to COVID-19 related lockdown regulations.
With the duration of the alcohol ban uncertain, its effects will be felt throughout the wine industry’s value chain.
Interestingly, the Agbiz/IDC Agribusiness Confidence Index (ACI), which has in the past proven to be a strong indicator of the agricultural sector’s growth path, fell from the 50-point mark in the first quarter of 2020 to 39 in the second quarter.
A level below the neutral 50-point mark implies that agribusinesses are downbeat about prevailing local business conditions.
The ongoing COVID-19 crisis is primarily a health shock, but its impact on the economy has been severe and the index reflects this sentiment.
Notably, this print is the lowest level since the third quarter of 2009 - at the height of the global financial crisis.
The ACI will likely continue to print below the neutral 50-point level throughout 2020 due to the negative sentiment caused by COVID-19, which could lead to a disjuncture between agribusiness confidence levels and the sector’s actual economic performance.
While the positive rebound in the agricultural sector’s GDP is indeed a welcome development, the question remains - where do we go from here?
A positive first quarter growth print is one thing, but how does South Africa continue to create sustainable long-term growth for the sector as a whole?
Despite four consecutive quarters of contraction (2019) and ongoing challenges due to the global COVID-19 pandemic, South Africa's agriculture sector rebounded by 27,8 percent quarter-on-quarter - seasonally adjusted and annualized - in the first quarter of 2020.
Recently, the ANC’s economic transformation committee and Business for South Africa (B4SA), each released discussion documents sketching a post-COVID-19.
As an identified priority sector for growth and job creation, agriculture features prominently in both documents.
Positively, both the ANC's and B4SA's agricultural development views are framed from chapter six of the National Development Plan, which highlights a need to expand irrigated agricultural land by one-third (by 2030), expand commercial agricultural production, as well as prioritise subsectors and regions that have high potential and are labour intensive.
There is also a focus on the need for increased transformation in agriculture and its value chain. Both plans recognise that poor infrastructure, both in South Africa’s former homeland regions and in logistics to move produce to ports and processing plants, is an area that needs urgent attention.
Another point of commonality that arises from both economic recovery documents is the need to improve agricultural finance through stabilising the Land Bank.
South Africa’s agricultural economists have long beaten the drum that the next frontiers for growth in the sector will be the expansion of production mainly in KwaZulu-Natal, Eastern Cape and Limpopo.
The Eastern Cape and Limpopo have been among the provinces with the least contribution to domestic agriculture’s gross value added, respectively accounting for six percent and seven percent of the total.
Meanwhile, provinces such as the Western Cape, Free State and Mpumalanga contribute 22 percent, 10 percent and nine percent respectively.
This raises a further question: Why has agricultural development lagged over the past two decades in these provinces while output doubled from commercial agriculture in other areas?
There are several reasons for this apparent disparity, the most notable being lower levels of investment in agriculture and a general lack of infrastructure.
Unlike the mining sector, where the private sector predominantly leads and paves the way in building public infrastructure, agriculture (particularly smallholder farming) relies mainly on state-led and government-supported initiatives in developing the required public infrastructure that supports overall production and market access.
With government resources stretched to their limits, there is much scope for private sector-driven infrastructure development.
Developmental projects in areas such as irrigation systems, silos, electricity generation and packhouses can easily be led by the private sector. In other essential infrastructure projects such as roads, rail and dams, government is still required to lead activity.
There is, however, room for a private-public partnership approach, particularly for major agribusinesses that are aiming to expand within potential high-growth areas such as the Eastern Cape, KwaZulu-Natal, and Limpopo.
This approach will, however, need to be a bottom-up one, where agribusinesses identify the binding constraints in specific areas of interest and then co-finance, with government, the necessary infrastructure development. - BizCommunity
Casey Delport is an investment analyst at Anchor Capital