Agri­cul­ture un­der­es­ti­mated

It makes a ma­jor in­di­rect con­tri­bu­tion to eco­nomic wel­fare

Finweek English Edition - - Focus on agri-businesses -

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

AGRI­CUL­TURE... BUSI­NESS CON­FI­DENCE STILL ON THE UP

Source: IDC, ABC

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