It makes a major indirect contribution to economic welfare
IN THE FOUR decades since the midSixties the contribution of South Africa’s agricultural industry to gross domestic product has dropped from around 10% to less than 3%. However, that doesn’t make it a minor industry, as its effect on other sectors is still so important that an estimated 35% of SA’s total economy is affected by its ups and downs.
During a recent question session in Parliament concerning agriculture, Agriculture & Land Affairs Minister Lulu Xingwana said that the agricultural industry created more jobs per investment unit than any other industry in the country. Around 40% of the population outside Gauteng is connected with agriculture in some way or other, while the income of 10m South Africans is dependent in part on direct and indirect agricultural activities.
According to recent figures from Statistics SA, formal full-time and part-time employment within agriculture grew to 1,3m workers last year, which is about 147 000 more than in March 2005, when the previous count was made.
Though some might regard that as somewhat optimistic, all agree that employment has in fact increased.
“Unfortunately, Government doesn’t regard agriculture as the answer for economic growth in the country,” Agricultural Business Chamber ( ABC) CEO Tobias Doyer says. “Agriculture and defence are the only two sectors on which Government’s long-term spending is less in real terms.”
Doyer says SA farmers are among those who receive the least State support worldwide – only New Zealand’s farmers get less. That makes it extremely difficult to compete against other countries where governments put money directly into their farmers’ pockets. “That’s why it’s important for agriculture to convince Government that it does indeed make an important contribution to the economy.”
Independent PricewaterhouseCoopers economist Roelof Botha says it would be a mistake to underestimate the role that agriculture plays in SA. “You can’t ignore the fact that primary agriculture contributes less than 3% to GDP but you must take the whole value chain – right to tourism – into consideration and therefore look at the 30% to 35% that’s involved.”
Botha sees particularly great export potential for SA products that are processed and exported to countries like India and China, where there are 2,5bn people to feed and relatively little water available.
First National Bank agriculture division head Ernst Janovsky is another economist convinced that the agricultural industry will become more important in the coming decades. “With the world’s agricultural land becoming less and less – and the pressure on production becoming greater in order to feed the growing population – its role will increase. With an expected 40% to 60% growth in demand over the next 40 years – based on population growth of 0,9%/year – that’s inevitable.”
Janovsky says that Africa, Asia, Russia, South America and the Caribbean islands still have agricultural land available for increased production, but Europe, North and Central America, and even Australia and New Zealand, are able to make less and less land available for agriculture. That provides opportunities for countries such as SA, Janovsky says, and that’s why the industry must keep an eye open for opportunities. However, if you look at the past two years the industry in SA hasn’t done well at all. Very low product prices and a strong rand hit the industry hard, with negative growth in all four quarters of last year: -18,8% in the first quarter, -29,9% in the second and -14,9% in the third.
However, as the negative growth of only -0,2% in the fourth quarter shows, the turnaround has already taken place and it’s expected that things will be going a whole lot better despite the effect of the drought on SA’s summer crops. That’s confirmed by the noticeably high confidence shown by agribusinesses. According to the ABC and the IDC’s quarterly agriculture-confidence index for first quarter 2006, business confidence has improved by 23,9% compared with the correspon-
ding quarter last year (see graph). That large increase is even bigger than fourth quarter 2006’s equally impressive 21,8% increase.
According to Lindie Botha, ABC agricultural economist and compiler of the index, seven of the 10 factors that the index is based on showed a positive trend. “The strongest driving forces were the expected increases in turnover, net industry income and the market share of agribusinesses,” she says. “Capital investment and export volumes also remain positive, which support companies’ expectations that the relatively strong economic growth in SA will continue.”
However, Doyer says that agribusinesses in certain areas are concerned about the extent to which producers will be affected by the drought. But otherwise there are clear,
Agribusinesses in certain areas are concerned about the extent to which producers will be affected
by the drought.
positive trends in product prices and exports as well as elsewhere.
There are a few industries, such as the wine and ostrich industries, where con- fidence is relatively low for institutional reasons.
According to Rian Coetzee, head of the IDC’s division for food, liquor and agriculture, the increase in the ABC/IDC agricultural-confidence index indicates the industry’s potential and encourages investors like the IDC to become even further involved in the agricultural industry.
However, Doyer says to attract further investments and to grow as an industry, it’s important that, in addition to the greater Government support that he mentioned, value-adding and greater productivity are also needed in agriculture. It’s essential to remain competitive on a global level and not to drop further and further behind.
Little State support for SA farmers. Dr Tobias Doyer