AGRICULTURE is less than 3% of the economy, making it easy to downplay its importance. But the worst drought since the early 1990s has put farming back on the front pages. And it has highlighted the short-and long-term policy issues affecting the sector.
It’s worth putting the drought in macroeconomic context though, first in that it affects only some crops, but not others, and second in the sense that SA’s food price woes this year aren’t just about the drought.
Agriculture is a schizophrenic sort of sector, and the drought mainly affects the summer crops on the nonirrigated side of the divide — maize and sugar. It potentially affects meat too, but good rains in the next couple of weeks could still save grazing lands, and livestock.
For maize, however, it is too late. The planting season has come and gone and, although official crop estimates are due only next Wednesday, the Bureau for Food and Agricultural Policy (BFAP) at the University of Pretoria expects a total maize crop of just 4.7-million tonnes, far less than half the industry average of about 11.5-million tonnes a year for 2011-15, and than SA’s average consumption of 9.6-million tonnes a year over the period. This means, even taking into account what’s in storage, SA will have only eight months of its staple food, white maize, available — and none in stock for the next season.
Stellenbosch University’s Nick Vink talks of the potential for a large-scale disaster in agriculture, raising questions about where SA will even find the white maize for import, given that most other countries tend to grow more yellow maize. Consumers may have to cut back — or switch to imported rice or other starches.
At a macroeconomic level, the major effect is likely to be on food-price inflation. The BFAP reckons maize meal prices have already increased by 20% and will increase by a further 10% in the first quarter of this year, hitting poor consumers hard.
But the food-price inflation story is much wider than just the drought. It’s also, crucially, about the rand.
The trouble is that a 30%-40% depreciation in the rand means the price of any food commodity that SA imports in part — chicken or bread, for example — tends towards the import-parity price, because why should local producers charge less than importers? The same goes for export crops, such as table grapes — why should producers sell for less at home than they can get on the export market?
Food-price inflation is still running at less than 5%, but Nedbank’s economists expect it to jump towards 10% later in the year, and it’s clearly going to be one of the issues the Reserve Bank’s monetary policy committee will be worrying about.
The balance of payments effect of the drought is potentially important too, although hard to assess because agriculture is so small in the scheme of things. Interestingly, the National Development Plan (NDP) took a creative view of the need for SA to have food security, defining the goal as being "to maintain a positive trade balance and not to strive for food self-sufficiency in staple foods at all costs".
In practical terms, that means we need to be exporting enough in the way of other agricultural commodities to cover the cost of any imports of maize or other staples SA needs.
The drought means SA will be importing maize and sugar, rather than exporting these, as it does in normal years. But export-orientated crops under irrigation such as citrus and grapes are still thriving, and BFAP director Ferdi Meyer reckons the agricultural trade balance will still be positive, although much smaller.
These irrigated, export-orientated, often labour-intensive parts of agriculture are the ones the NDP, and last year’s agricultural policy action plan, want to see expanded. And there are some initiatives under way.
But, while the drought has highlighted the importance of a vibrant agriculture and rural economy, it has also highlighted many of the shortcomings in policy, particularly the need to put support systems in place for smallholders and large farmers, as well as to improve the investment climate more broadly.
SA has done much to bring market economics into agriculture and get rid of uneconomic apartheid-era subsidies. But government support is essential in areas such as providing and maintaining adequate and efficient water infrastructure — as well as providing training and extension services for farmers. There’s also a case for the government to assist with drought insurance.
Longer-term, if SA is to expand agriculture and agricultural exports and capture their potential to create jobs, farmers will need a more conducive investment environment, and much more policy certainty.
Land reform has tended to be more of a focus than agricultural policy as such, and transformation is obviously an imperative. But suggestions that farmers will be forced to limit their land holdings or donate large equity stakes have done nothing to create the kind of certainty needed to attract the large, long-term investments the sector needs to grow.
Joffe is editor at large