AGRI­CUL­TURE

THE DE­CI­SIONS THAT STILL HAUNT THIS SEC­TOR

Finweek English Edition - - FRONT PAGE - BY MMAT­LOU KAL­ABA Lec­turer in Agri­cul­tural Eco­nom­ics at the Univer­sity of Pre­to­ria

South Africa’s de­ci­sion to play by the global rules of free trade post 1994 put the coun­try’s agri­cul­tural sec­tor in a dif­fi­cult po­si­tion. While it was ex­pected to com­pete against the best in the world, the sup­port that could have helped it was taken away.

At the same time, the coun­tries it was com­pet­ing against were very sup­port­ive of the sec­tor − some­times as much as three times more. This meant that new black farm­ers missed out on the op­por­tu­nity to catch up with farm­ers who had been sup­ported pre­vi­ously.

Be­yond that, there was the prob­lem of land re­form which needed to be ad­dressed with­out putting the spirit of rec­on­cil­i­a­tion as well as pro­duc­tiv­ity at risk.

SA has lim­ited agri­cul­tural po­ten­tial and pro­duces at rel­a­tively high cost to at­tain the same unit of out­put as most coun­tries in the world. It is clas­si­fied as a semi-arid area, mean­ing its rain­fall is low and er­ratic. The coun­try has an av­er­age an­nual rain­fall of less than 500mm com­pared with the global av­er­age of 860mm.

Only 12% of it s 1. 2m s quare kilo­me­tres is suit­able for agri­cul­tural use.

PO­LIT­I­CAL IM­PER­A­TIVES

Although the agri­cul­tural sec­tor had to pro­vide food, the new demo­cratic gov­ern­ment also needed it to ad­dress po­lit­i­cal chal­lenges re­lated to ru­ral de­vel­op­ment, so­cia l and po­lit­ica l is­sues. The fo­cus at the time was on trans­form­ing the sec­tor to achieve these po­lit­i­cal goals rather than to pre­pare for global com­pe­ti­tion.

Look­ing at land own­er­ship, this is un­der­stand­able. More than 80% of agri­cul­tural land was owned by white com­mer­cial farm­ers, yet t he white pop­u­la­tion made up about 13% of the coun­try. Ad­dress­ing the un­equal and racially-skewed land dis­tri­bu­tion would also con­trib­ute to over­com­ing t he so­cioe­co­nomic chal­lenges the coun­try

faced. These in­cluded un­em­ploy­ment, in­come in­equal­ity, food in­se­cu­rity, poverty and malnutrition.

Pos­si­bly the big­gest of them all is un­em­ploy­ment, which has re­mained over 20% in this 20-year pe­riod. The ma­jor­ity of the un­em­ployed are un­skilled or have low skills and are af­fected by low lev­els of ed­u­ca­tion. The agri­cul­ture and min­ing sec­tors ab­sorb the ma­jor­ity.

Em­ploy­ment i n t he sec­tor has de­clined sub­stan­tially over time. In the 1970s agri­cul­ture used to em­ploy over 2m peo­ple on farms alone, or about a quar­ter of the em­ployed. By 2014, fewer than 700 000 were em­ployed on farms, fewer than 5% of the em­ployed.

TRAC­ING THE PROB­LEM

Within a year of t he demo­cratic gov­ern­ment com­ing into power it had to ac­cede to the World Trade Or­ga­ni­za­tion (WTO). This meant that South Africa en­tered into an agree­ment that ex­posed its econ­omy to global com­pe­ti­tion and had to play by global rules, both at home and in­ter­na­tion­ally.

Other agree­ments were signed with the EU and south­ern African coun­tries. Some are still be­ing ne­go­ti­ated.

The di­rec­tion taken by the new gov­ern­ment was con­trary to the stance adopted by the apartheid gov­ern­ment, which pro­tec te d a nd s up­por te d white South African busi­nesses. The agri­cul­tural sec­tor was a ben­e­fi­ciary through var­i­ous forms of sup­port. This in­cluded di­rect sub­si­dies or through in­sti­tu­tions such as com­mod­ity boards. The boards were re­spon­si­ble for reg­u­lat­ing and sup­port­ing com­modi­ties through price set­ting, in­puts, through­put and fi­nal prod­ucts.

But the sup­port was a bur­den to the na­tional fis­cus. To re­duce costs the new gov­ern­ment got rid of the boards. The gov­ern­ment would not have man­aged to f inance 60 000 white com­mer­cial farm­ers only, while t here were an es­ti­mated 3m small­hold­ers who had not re­ceived sup­port from the pre-demo­cratic gov­ern­ment. To bal­ance the scales, it was more con­ve­nient to re­move most of the sup­port than to ex­pand it.

THE CON­SE­QUENCES

Two de­ci­sions − ac­ces­sion to the WTO and dereg­u­la­tion − put the sec­tor in a very dif­fi­cult po­si­tion. In terms of job cre­ation the sec­tor has per­formed poorly. In ad­di­tion, its con­tri­bu­tion to GDP has shrunk to less than 3% of GDP from 4.6% in 1994.

Land re­dis­tri­bu­tion has also not suc­ceeded. Only 7.5% of t he l and tar­geted for black peo­ple has been trans­ferred.

The prob­lem with this fail­ure is that it has led to rad­i­cal pro­pos­als that could lead to out­comes sim­i­lar to those ex­pe­ri­enced in Zim­babwe.

There has also been very de­clin­ing gov­ern­ment con­tri­bu­tion to re­search & de­vel­op­ment and an in­ten­sive ex­ten­sion ser­vice. The R& D gap has been partly filled by the pri­vate sec­tor.

While in­ter­na­tional mar­ket ac­cess has im­proved and there is ev­i­dence of global com­pet­i­tive­ness, do­mes­tic com­pe­ti­tion has be­come much tougher. Ex­am­ples of this in­clude the inf lux of poul­try prod­ucts, frozen potato chips and in­creas­ing wheat im­ports.

Hectares planted with wheat are now one third of what they were in the late 1980s. This is be­cause it is cheaper to im­port wheat than to grow it. The same is true of cot­ton. In the early 1990s, more than 100 000ha used to be planted with cot­ton. Now only one tenth of that is planted be­cause cheaper prod­ucts can be im­ported.

SOME POS­I­TIVE OUT­COMES

De­spite t he l i mited agricu l t ura l po­ten­tial and re­source scarcity, SA has man­aged to make sub­stan­tial im­prove­ments in many ar­eas. It re­mains one of the main ex­porters of agri­cul­tural prod­ucts to the most lu­cra­tive mar­kets in the de­vel­oped world. It ex­ports cit­rus, wool, av­o­ca­dos and nuts to the US and hor­ti­cul­tural prod­ucts, wine and tea to the EU.

SA has also found new mar­kets. Its big­gest trad­ing part­ners are now in Africa, over­tak­ing the EU, which used to dom­i­nate most facets of trade.

Th e r e ha s al s o be e n mor e diver­si­fi­ca­tion in terms of prod­ucts such as soy­beans. These are in high de­mand glob­ally and in­vest­ment is in­creas­ing to sup­port pro­duc­tion. Pro­duc­tion has been in­creased with the use of fewer hectares due to tech­nol­ogy adop­tion and the plant­ing of ge­net­i­cally mod­i­fied or­gan­isms (GMOs).

Gov­ern­ment played an in­stru­men­tal role by open­ing up mar­kets, cre­at­ing the en­vi­ron­ment and ad­just­ing poli­cies to al­low the pri­vate sec­tor to take ad­van­tage of op­por­tu­ni­ties. It also opened up mar­ket ac­cess be­yond what was re­quired by the WTO.

POL­ICY CON­CERNS

Some of the con­trib­u­tors to the sec­tor’s poor per­for­mance have been pol­icy im­ple­men­ta­tion and the panic these have caused among farm­ers. Land re­form is one pol­icy area that will need to be de­signed and im­ple­mented bet­ter.

There ar e ot her gover nment pro­grammes that were pur­sued with the aim of trans­form­ing the sec­tor, but the im­ple­men­ta­tion, eval­u­a­tion and mon­i­tor­ing thereof have been very poor. Sup­port of small­hold­ers and black farm­ers was in­ad­e­quate and was with­out men­tor­ship.

Tech­nol­ogy trans­fer/adop­tion and ex­ten­sion ser­vices were ei­ther poor or non-ex­is­tent in many ar­eas. And some na­tional poli­cies are not help­ful to farm­ers to com­pete in global terms be­cause the cus­to­di­ans are sep­a­rate gov­ern­ment de­part­ments. Even if these is­sues were ad­dressed, SA will re­main a high-cost pro­ducer, which presents its own set of chal­lenges.

In the 1970s, South Africa was home to 2m farm work­ers. How­ever, by 2014, this fig­ure had sunk to 700 000.

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