OPINION | Fix rail, ports, water to bring opportunities to SA agriculture
State of the agricultural sector in SA’s economy
SA's economy has faced challenges in recent times with GDP declining by 2% quarter on quarter (q/q) in the first quarter of the year (1Q20).
This comes after SA recorded contractions of 1.4% and 0.8% in the two preceding quarters respectively. However, one sector that has outperformed other sectors is agriculture, with growth of 27.8% q/q due to higher production of animal products, horticulture and field crops in favourable weather.
Underpinned by the enormous contribution from field crops, horticultural products and animal products, first quarter GDP for the agriculture, forestry and fishing sector increased by 27.8% q/q with a 0.5 percentage point positive contribution to the country’s GDP.
Good weather boosted crop prospects, allowing farmers to plant 7% more hectares (ha) under commercial grain and oilseed crops.
Planted area for maize, SA’s largest staple, was alone 13% higher year on year (y/y) at 2.61-million hectares. The expected total maize harvest now hovers around 15.51-million tons which is 37.6% higher relative to the 2019 levels, according to the CEC June 2020 estimates.
Meanwhile, strong export demand boosted maize revenues with first-quarter 2020 total of 512,800 tons, which is 86% higher y/y.
In the oilseed complex, the soybeans estimate was 1.26-million tons, 7.8% higher than last year's total despite a 3% contraction in planted area. The sunflower estimate was 13% higher y/y at 765,960 tons on much better yields as planted area also decreased by 3%. The groundnuts harvest jumped 169% y/y at 52,140 tons due to a whopping 87% increase in hectares.
A combination of relatively good production conditions, a sharply weaker rand and the rebound in exports boosted performance in the fruit sector, despite port challenges.
Averaging R15.36, the rand/US dollar exchange rate depreciated by 4% on the last quarter of 2019 and 10% y/y, which was beneficial for exporters.
Economic outlook for the rest of the year
Given the bullish harvest outlook for both the summer and winter grain and oilseed crops, as well as citrus, it is expected the current stellar performance from the sector will spill over into the subsequent quarters of 2020 despite the Covid-19 disruptions.
The weather has since turned positive for the winter rainfall areas with good snow coverage and heavy rains in the Western Cape. The result has not only been good moisture replenishment, but also the much-needed flows through the rivers to the region’s dams which saw dam levels lifting by 7.5 percentage points (ppts) week-on-week (w/w) and 6.7 ppts year on year (y/y) to 53.5% full during the week ended July 13, according to the department of water & sanitation. This is good news for the winter crops with wheat farmers optimistic about this year’s harvest.
For the new crop season ahead, the recent forecasts indicate good chances of a La Niña weather pattern which has historically been associated with good rainfall for the southern African region.
Though it is still about two months before the onset of the new crop season, these forecasts indicate positive developments for the agriculture sector and signals another season of bumper harvest following the impressive 2019/20 season.
Impact of Covid-19 on agriculture
The impact has been varied in subsectors with fresh produce initially affected as hawkers couldn't trade and fast-foods and restaurants were closed.
Some farmers who produce vegetables such as lettuce used in restaurants had to discard them.
Diesel shortages because of the backlog at refineries after the lockdown also hit some of the producer operations. However, the sector was overall minimally affected as most could operate and export as they were declared an essential service.
Opportunities and challenges in the agricultural sector
The biggest potential for the sector is in post-Covid upliftment of critical infrastructure such as rail, ports, water and related services to support the high-value export commodities such as citrus, avocados and macadamia nuts.
Some problems include logistical challenges emanating from measures to contain the Covid-19 spread.
Activity in some ports has been slowed by intermittent stoppages as people became infected and workspaces had to be disinfected.
Delays caused port congestion, prompting some of the shipping lines to start implementing surcharges or even bypassing ports.
Contribution to employment
Though having contracted by 2.3% q/q during the first quarter, at 865,000 jobs, employment in the agriculture sector was up 3.3% y/y and has increased by 8% relative to the same period in 2008.
Agriculture’s contribution to GDP is historically about 2.5%. However, given its backward and forward linkages to the rest of the economy this figure is even higher. The estimated number of commercial farming units in SA is 39,966, according to the national department of agriculture, forestry and fishing based on the latest census conducted by Stats SA in 2007.
— Paul Makube is a senior agricultural economist at FNB agri-business