By Wandile Sishlobo, Chief Economist of the Agricultural Business Chamber of South Africa.
South African agriculture has progressed markedly over the past 25 years and exports have reached record levels. But how far transformation has gone remains unclear. Organised agriculture and government need to craft a common vision for the sector with clear rules of the game and monitoring systems.We can all have different views about the agricultural policies that the South African government adopted with democracy, but the one thing we can all agree on, is that the sector has grown tremendously. Importantly, this expansion was not driven by a few sectors but has been widespread, including livestock, horticulture and field crops. Of course, the production of some crops has declined over time, most notably, wheat and sorghum.
This, however, had a lot do with changes in agro-ecological conditions and falling demand in the case of sorghum, not policies.This uptick in production has been underpinned, largely, by the adoption of new production technologies, better farming skills, growing demand (locally and globally), and progressive trade policy. We use the words – progressive trade policy – solely to highlight South Africa’s standing in global agriculture.
South Africa was the 32nd world’s largest agricultural exporter in 2018, the only African country within the 40 top world’s largest agricultural exporters in value terms. This is according to data from Trade Map. This was made possible by a range of trading agreements the South African government secured over the past couple of years, with the most important ones being the African, European and Asian regions.The African continent and Europe now account for about two thirds of South Africa’s agricultural exports. Asia is also an important market for South Africa’s agricultural exports, demanding a 25% export share in 2018.
An export-led growth strategy
South Africa’s trade policy is underpinned by an exportled growth strategy. This means that the country essentially looks to grow its economy by deepening and expanding its export markets. Such efforts can be seen through South Africa’s participation in trade negotiations which seek to increase market access with traditional trading partners such as the European Union (EU) and penetrate new markets in Africa through the African Continental Free Trade Agreement (AfCFTA).
The focus on these two key regions comes as no surprise since they represent a significant portion of South Africa’s export revenue, specifically in the case of the agricultural sector. More than two-thirds of South Africa’s agricultural exports are concentrated within the African continent and the European Union (EU).
The African continent and Europe now account for about two-thirdsof South Africa’s agricultural exports.”South Africa was the 32nd world’s largest agricultural exporter in 2018, the only African country within the 40 top world’s largest agricultural exporters in value terms.”
More recently, Asia and the Far East (particularly India and China) have become a key growth frontier that present South Africa with new opportunities to expand its exports. Overall, Asia has accounted for a quarter of South Africa’s agricultural exports, with indications that South Africa can potentially increase its market presence substantially in the future.
In Asia and the Far East, India and China are especially interesting because they account for 36% of the world’s population, whose economic sizes are US$3.2 trillion and US$15.5 trillion respectively. With India and China headlining the growth potential in Asia and the Far East,this region is significant enough to warrant more attention, especially given that there is currently no preferential market access for South Africa’s agricultural sector in this region.
South Africa is having to compete with the likes of Australia and Chile, who have secured trade agreements that have afforded them a significant competitive advantage which could end up threatening South Africa’s market share and future growth.
India an important agricultural export market for SA
If one looks into Asia’s leading agricultural products importers, India is ranked the second importer after China. The products that underpinned this tremendous growth in India’s agricultural and food imports included palm oil, soybean oil, sunflower seeds, coconuts, cashew nuts, cotton, sugar, apples, dates, greasy wool, whiskies, coffee and grapes.
South Africa, although a key producer and exporter of some of the aforementioned products (namely greasy wool, sugar, apples and grapes), doesn’t even feature in the top 40 countries supplying agricultural products to India. In 2018, South Africa was ranked the 46th largest supplier of agricultural products to India by value, accounting for a mere 0.3% of the US$21.2 billion worth of India’s agricultural imports.
The key agricultural products that South Africa exported to India were pears, dog and cat food, greasy wool, oranges, apples, maize seed for sowing, cotton, and mandarins, amongst other products. South Africa, together with its Southern African Customs Union (SACU) partners have been negotiating a preferential trade agreement (PTA) since the mid-2000s.However, 15 years of on-and-off negotiations have not amounted to a favourable outcome.
Negotiations for opening up India’s market have inevitably come with difficult conditions, especially given their substantially larger tariff book. However, given the market size and potential of India, it is important that further considerations be made to allow South African agriculture to capture its export market opportunities.
South Africa’s export share to China remains negligible
In the case of China, South Africa’s agricultural exports account for 0.5% of China’s agricultural imports. The key agricultural products that China imports include soybeans,cotton, malt, beef, palm oil, wool, wine, strawberries, pork, citrus and barley. South Africa’s presence within the Chinese market is mainly wool, citrus, nuts, sugar, wine, beef and grapes. But within these products, South Africa’s share remains negligible, with the exception of wool. What has constrained South Africa’s growth in these markets over the past few years is not the fact that the products in demand are not produced in South Africa, but rather trade barriers. In part, this is because of the way China facilitates agricultural trade.
Aside from the exports
The increase in agricultural output is the reason South Africa is now ranked 45th out of 113 countries in the Global Food Security Index, making it the only African country within the top 50. We do recognise, however, that boasting about this ranking when millions of South Africans go to bed hungry every day is contradictory.
We must remember that the Global Food Security Index balances the four elements (affordability and availability, quality and safety) to arrive at a rating and covers matters at a broad national level. In this regard, South Africa produces enough food to fill the shelves of supermarkets with high-quality products but still has a long way to go in addressing household food insecurity as many households cannot afford the food that is available in a way that meets their nutritional demands.
What is worth reiterating is the fact that despite South Africa’s relatively lower average income, the country still manages to punch above its weight in terms of food security. This is testament to the country’s competitive agricultural sector and its ability to supply food at a relatively low cost.
Boosting rural households’ income through job creation in the agricultural sector
Although the Food Security Index indicates South Africa is food secure, there are pockets of food insecurity within the country when you consider a household-level perspective. While there are a number of interventions that can assist in supporting households’ access to nutritious food, one form of intervention that can boost rural households’ income is through job creation in the agricultural sector.
With agriculture having gained prominence as one of the sectors that could bring about rural economic development and job creation in South Africa, the government’s approach to realising this vision should be regionally focused. Such an approach not only makes sense in terms of reducing poverty but also in exploiting the potential of underutilised land. Limpopo, KwaZulu-Natal and the Eastern Cape arguably have about 1.6 million to 1.8 million hectares of underutilised land which can be sustainably farmed for increased food security over the long term.
This is according to a 2015 study by McKinsey Global Institute. Admittedly, the current land governance system (communal land) has been cited as one of the hindrances in agricultural development in these provinces as it limits investment. But, solving such matters can take a long time and land reform policy is still being debated across the country. The near-term practical approach that can make a difference is structuring an innovative agricultural finance instrument – such as blended finance – which pulls in capital and human capital from both private and public sectors.
As encouraging as this agricultural progress story is, some may ask whether the gains we’ve seen in agricultural production over the past two decades have been widely shared across different cohorts of farmers in South Africa?
There are no easy answers to this, as we lack data on the entry-level of black farmers to agriculture in South Africa (and progress). Likewise, even the existing sector has seen consolidation and corporatisation, which means that the number of farmers in the sector has decreased.
However, statistics may not paint the full picture as the professionalisation of the sector has also led to more formal employment opportunities being created for qualified persons as family farms have somewhat been replaced by professional agribusinesses with line managers. But what we can not ignore is the anecdotal evidence pointing to a rise of black farmers in some corners of South Africa.
We see this in field crops, horticulture and livestock. As we continue on this agricultural journey, let’s always be cognisant of the progress South Africa has made in boosting our agricultural fortunes. And in the quest to grow and be more inclusive, be forever vigilant of the unintended consequences of the policies we seek to implement. Equally, we must never be complacent with the dualism that we continue to see in South Africa’s agricultural sector.