SA’s vision of a thriving agricultural sector

In 2012 the National Development Plan (NDP) identified many opportunities for agriculture which, if exploited equitably, could be the engine of inclusive growth in many of SA’s less developed rural areas.

In these areas agriculture is typically the biggest employer of labour and capital and has strong linkages to input suppliers and agro-processing, thus magnifying opportunities through strong up- and downstream employment and economic multipliers.

The agriculture & agro-processing master plan being developed provides another opportunity to realign to the NDP’s vision of an inclusive and thriving agricultural and agro-processing sector. Achieving this vision requires a portfolio approach towards inclusive agricultural and agro-processing transformation.

Our food system combines diverse value chains with a wide spectrum of producers linking to a range of formalised and sophisticated markets on the one extreme, and informal markets on the other. Efforts are now required to reduce the persistent dualism in the sector, driving development and enabling a diverse range of primary producers and value chain operators to flourish.

Successful transformation will result in more smallholder farmers producing for local markets, ensuring regional food security and, where possible and viable, linking into formal or tailor-made value chains, growing their businesses. Nevertheless, the largely urbanised population and economically important international trade balance will still depend on commercial farming operations of black and white farmers and corporate agribusinesses.

The sustainable existence of a strong and healthy commercial sector is vital for the burgeoning smallholder sector as larger farmers create the critical mass of demand for research and technologies, input supply networks and value chains that will incorporate, expand and adjust to also serve the smallholder sector better if properly targeted.

The master plan identifies various cross-cutting preconditions and value chain-specific interventions and reforms. Simulations suggest successful implementation could increase real agricultural GDP by 14% above baseline projections by 2030. Total gross production value from agriculture could increase by R32bn in real terms, and the share of black farmer output could increase to more than 20% in most industries where transformation has been lagging, with current estimates from the National Agricultural Marketing Council averaging below 10%.

This outcome requires successful implementation of particular interventions and cannot yet be incorporated into the current baseline outlook, which is a “business-as-usual” scenario that reflects muted growth in farm output over the coming decade. The purpose of the baseline, which we summarise below, is to provide a clear benchmark of current realities that can serve as a road map to pinpoint required interventions that will lead to improved socioeconomic performance.

The 2021 edition of the Bureau for Food & Agricultural Policy baseline, generated by the bureau’s system of economic models, presents an outlook of agricultural production, consumption, prices and trade in SA from 2021 to 2030. The analysis is based on assumptions about various factors such as weather conditions, the macroeconomy and global markets. Macroeconomic assumptions are based on a combination of projections from the IMF, World Bank and the Bureau for Economic Research, while global commodity market projections are generated by the University of Missouri’s Food, Agricultural & Policy Research Institute.

In 2020 SA’s agricultural sector was a shining light in a difficult year. Amid various restrictions to curb the spread of the pandemic, the economy contracted by a record 6.4%. Agriculture, along with government services, was the lone positive contributor, growing 13.4% and yielding a trade surplus of more than $4bn.

The pandemic also highlighted the sector’s broader footprint, its complex interlinkages with the rest of the economy and the often underrated contribution of the informal sector. Despite unprecedented challenges across the value chain, food supply remained steady, and consumer food price inflation averaged a tolerable 4.8% for the year.

In a high world price environment short-term prospects for the sector remain upbeat. The Bureau for Food & Agricultural Policy expects further growth of 7.6% in real agricultural GDP in 2021, underpinned by a bumper harvest for most important crops, sold at high prices, and record exports of most important fruit categories.

The medium-term baseline growth path is conservative, and acceleration will require a favourable environment, underpinned by certain preconditions for inclusive growth. These include a 1) stable, conducive policy and investment environment, 2) comprehensive, sufficient and predictable infrastructure as well as service provision and maintenance, including electricity, roads and water with well-functioning municipalities, 3) comprehensive farmer support programmes, and 4) effective state services (trade affairs, port authorities, veterinary services, biosecurity, plant health, agricultural research).

Livestock, the largest agricultural subsector, has ample potential for accelerated, inclusive growth. Strong progress over the past decade was underpinned by substantial investments in intensive operations producing chicken, eggs and pork. The beef industry also shifted from a net importing to a net exporting position and wool exports have been hailed as a success, specifically because comprehensive support programmes boosted output from smallholder communal farms, delivering into export markets.

However, growth projections for the coming decade are balanced on a knife’s edge. Domestic consumption growth is expected to slow due to weaker spending power; thus production growth will rely on expanded exports. The animal health system, an essential precondition to achieve this, is currently inefficient in managing disease outbreaks, which hampers productivity and limits export opportunities.

Accelerated growth in livestock production will also enable expansion of field crops, as animal feed is a big market offtake. Under baseline assumptions, including stable weather, further real growth in the value of field crops beyond 2021 is limited. Even for soybeans, one of the most dynamic sectors in recent years, growth could slow as the industry moves towards self-sufficiency.

Though a milestone, this introduces the need to compete sustainably at export parity levels, which can be enabled by introducing new seed technology and germplasm, along with a constant drive towards improved farming practices, better efficiency in handling and processing, and investment in logistics — especially transport to coastal areas where almost one-third of soybean meal is consumed.

Investments that improve transport efficiency and port logistics will also support the competitive, export-orientated horticultural sector. Export orientation make this sector less sensitive to domestic spending constraints and it is reaping the rewards of more than a decade of investment.

Export volumes could rise by about 50% by 2030. While success in itself, this will bring price pressure in many markets, highlighting the need for the government to negotiate favourable, competitive access to new export markets and to invest in upgrading port facilities.

Furthermore, critical maintenance in irrigation scheme infrastructure has fallen behind, and water losses are estimated at as much as 30%. Though on-farm water-use efficiency has improved with the rising prevalence of netting, expansion and maintenance of infrastructure in existing irrigation schemes will be critical for new entrants to enter the sector successfully.

In the finalisation of the master plan for the sector it will be critical for social partners to focus on concrete actions to improve the preconditions for inclusive growth, including clear accountability and timelines for execution. 

• Davids leads commodity markets & foresights research and is a director at the BFAP. Meyer is MD and leads value chain analytics at the bureau and is an extraordinary professor at Stellenbosch University.