Down on the farm, eyeing land debate
On Tuesday, I posted a tweet saying that the second-quarter contraction in SA’s agricultural economy was largely due to the tail-end effects of the Western Cape drought and the delayed summer crop harvest. This met with wide-ranging commentary. Some agreed with my sentiments, while others attributed the decline to uncertainty regarding land reform.
Here is a bit of context before I delve into the matter. After contracting by 33.6% quarter on quarter on a seasonally adjusted and annualised basis in the first quarter of this year, SA’s agricultural economy entered a technical recession in the second quarter following a further 29.2% quarter-onquarter, seasonally adjusted and annualised contraction.
So where does the Western Cape story come in?
The Western Cape mainly produces winter crops and high-value horticulture. The bulk of the winter crops, such as wheat, barley and canola, together with summer fruits (stone fruit and grapes), are typically harvested between November and March, which somewhat coincides with the firstquarter agricultural economic data, with tail-end effects also mirrored in the secondquarter numbers. The province experienced a decline in output due to the 2017 drought.
Does the story end with the Western Cape? No — in a typical season, one would expect that the output of the summer-cropgrowing regions would somewhat be mirrored in the second quarter leading on to the third-quarter agricultural economic growth numbers. But this year is different.
The key issue is the delayed harvest in the summer-crop-growing areas of SA, particularly the grain and oilseed production regions.
This is on the back of a late start of the summer crop season due to unfavourable weather conditions earlier in the year.
Let me provide some numbers.
This has been a fairly good season, with aboveaverage maize production of 13.8Mt, a record soybean harvest of 1.6Mt, a large sunflower seed crop of 858,605 tonnes, improvement in sugarcane production to roughly 18.5Mt, and general improvement or recovery in the livestock sector.
Does this mean the debate over expropriation without compensation does not matter?
Of course it does matter, but, as I’ve briefly demonstrated, at this stage it has had a minimal impact on growth numbers.
What is clear, however, is the slightly growing despondency among agribusinesses and the farming community, as mirrored in the Agbiz/IDC Agribusiness Confidence Index.
Agricultural analysts typically use the index to gauge the health of the agricultural sector, as well as the potential investment path. There is a good correlation between agribusiness confidence and investment in the sector.
One data point we observe closely, but which is also not a perfect indicator of measuring investment reaction to policy changes in the short term, is gross fixed capital formation. This declined 3% year on year to R16.2bn last year.
This decline was largely on the back of unfavourable weather conditions in some parts of SA, which somewhat constrained investment. Going forward, however, policy uncertainty could further weigh on investment. In the meantime, we look at agribusiness confidence levels as a guide to the investment path for the year.
In the second quarter of this year, the index declined from 58 index points in the first quarter to 54. With the results still above the neutral 50-point mark, albeit having declined, this means the agribusiness sector was still optimistic about business conditions in SA.
Be that as it may, the decline in confidence is concerning. Agbiz pointed out in its statement of the second-quarter index results that the uncertainty around landreform policy, particularly expropriation of land without compensation, remains a key risk that could potentially undermine investment in the sector.
At this point, however, farmers are in wait-and-see mode.
We have not seen a notable dent in investments in the sector yet.
Additionally, investment figures are not yet available for the period in which the debate escalated to be a major risk to the sector.
Suggestions that the proposed policy of expropriation without compensation affected agricultural fortunes in the second quarter might be premature.
The deterioration in confidence could lead to a decline in investment in the sector if uncertainty continues for longer around the proposed land-reform policy. This will then affect growth in the coming year or so, depending on what happens during the planting period, which commences next month, among other factors at play.
Going forward, policy uncertainty could further weigh on investment
Sihlobo is head of agribusiness research at the Agricultural Business Chamber (Agbiz).
Twitter: @WandileSihlobo