Agri­cul­ture gives us some­thing to smile

The Star Early Edition - - OPINION & ANALYSIS - Nehru Pil­lay Nehru Pil­lay is gen­eral man­ager for Re­search and In­tel­li­gence at the Land and Agri­cul­tural De­vel­op­ment Bank of South Africa (Land Bank).

WITH THE an­nounce­ment last Tues­day that South Africa has slipped into a tech­ni­cal re­ces­sion fol­low­ing two con­sec­u­tive de­clines in gross do­mes­tic prod­uct (GDP) of 0.7 per­cent dur­ing the first quar­ter of 2017 and 0.3 per­cent dur­ing the fourth quar­ter of 2016, it may be dif­fi­cult for any­one to re­main pos­i­tive about the econ­omy or any prospects for growth in the short to medium term.

How­ever, last week’s an­nounce­ment by Statis­tics South Africa (Stats SA) showed pos­i­tive GDP growth in two sec­tors – agri­cul­ture and min­ing. While this growth was not enough to off­set the over­all con­trac­tion in the econ­omy, it un­der­scores the po­ten­tial of agri­cul­ture to be­come an an­chor for pos­i­tive eco­nomic growth.

The agri­cul­tural sec­tor GDP growth was par­tic­u­larly im­pres­sive in the first quar­ter of 2017, at 22 per­cent quar­ter-on-quar­ter an­nu­alised, the first signs of pos­i­tive growth fol­low­ing eight con­sec­u­tive quar­ters of neg­a­tive growth, which was largely driven by per­sis­tent drought con­di­tions across the coun­try.

This re­cov­ery bodes very well for con­sumers, who are al­ready ben­e­fit­ing from lower food in­fla­tion, with prices on most maize-based prod­ucts tracked by Stats SA lower in April this year com­pared to March.

Trend may re­main

Over­all food in­fla­tion de­creased from 8.7 per­cent in March to 6.7 per­cent in April. This trend is ex­pected to re­main in place in the short to medium term.

With maize be­ing one of the key in­puts into live­stock farm­ing, farm­ers will ben­e­fit from the de­crease in maize prices, al­low­ing them to re­build cat­tle herds which were af­fected by the re­cent drought. As both in­puts and out­puts be­come cheaper, the spin-off for con­sumers could be even lower food prices in the near fu­ture.

For mar­ginal farm­ers, lower maize prices may put pres­sure on their prof­its, though in many cases, the fall in maize prices will be bal­anced by the in­creased out­put, po­ten­tially less­en­ing the im­pact on farm­ers’ in­comes.

Good sum­mer rain­falls have re­sulted in bet­ter than ex­pected har­vests of sum­mer grains, the full im­pact of which is likely to be felt in the sec­ond quar­ter of the year. The lat­est in­for­ma­tion from the Crop Es­ti­mates Com­mit­tee at the De­part­ment of Agri­cul­ture, Forestry and Fish­eries in­di­cate that sum­mer grains are likely to reach 18.03 mil­lion tons this year.

Maize and soya beans are the stars of the show, with growth in ex­cess of 100 per­cent and 66 per­cent re­spec­tively, be­ing fore­cast for th­ese crops.

The im­prove­ments in soya bean pro­duc­tion have served to en­hance the ca­pac­ity util­i­sa­tion of the county’s soya bean crush­ing plants from 15 per­cent month-on-month in March to 33 per­cent in April 2017.

Im­proved weather

Pro­duc­tion in­creases off the back of im­proved weather con­di­tions are also be­ing buoyed by re­newed in­vest­ment within the agri­cul­tural ma­chin­ery mar­ket. After plum­met­ing by 23 per­cent month-on­month in April, trac­tor sales re­bounded by 23.9 per­cent month-on-month in May.

This was on the back of sta­ble and rel­a­tively stronger rand/dol­lar ex­change rate, cou­pled with ex­pec­ta­tion of a large sum­mer grain and oil seed har­vest, boost­ing farm­ers’ con­fi­dence to in­vest in equip­ment. The sim­ple eco­nom­ics be­hind this is that greater har­vests mean greater earn­ings (all things be­ing equal), en­abling farm­ers to rein­vest into the sec­tor.

The Ag­biz/IDC Agribusi­ness Con­fi­dence in­di­ca­tor, which has con­sis­tently in­creased over the past three quar­ters, re­mained above the 50 in­dex point mark. This in­di­cates that the out­look for the agri­cul­tural sec­tor is largely pos­i­tive.

On the em­ploy­ment front, the agri­cul­tural sec­tor noted in­creases dur­ing the third and fourth quar­ters of last year, which in­di­cate the jobs po­ten­tial the sec­tor holds.

Land Bank, for ex­am­ple, is work­ing to cre­ate part­ner­ships be­tween es­tab­lished com­mer­cial play­ers in the sec­tor and emerg­ing farm­ers to drive eco­nomic trans­for­ma­tion and so­cial in­clu­siv­ity.

As more part­ner­ships are forged and more sec­tor play­ers be­come aligned, the out­look on em­ploy­ment can only im­prove.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.