Lifting output of small value chains will ensure local is lekker
The government is drafting a localisation strategy as part of measures underpinning its economic reconstruction and recovery plan. The agriculture, food & beverages sector has accounted for 8% of SA’s annual imports over the past five years, an average value of $6.5bn. This makes it a worthwhile sector to be explored in promoting localisation.
The top 10 products on the import list account for 46% of all agriculture, food and beverages imports. These are rice (7%), poultry (7%), wheat (6%), alcohol (5%), sugar cane (5%), palm oil (4%), beer from malt (4%), protein concentrates (3%), sunflower oil (3%) and unspecified animal foods (2%).
This list might draw the attention of policymakers, or even persuade them to explore ways of reducing imports in this category. But this is not where the attention should be. The focus should be on small and niche value chains in which SA might have the capability to improve domestic production.
The top 10 imports list includes some products for which SA lacks a conducive climate to increase production, such as palm oil, wheat and rice, which account for 18% of the overall agriculture, food and beverages import bill.
It should be possible in the medium to long term to reduce imports of poultry products, sunflower oil, sugar cane and animal foods, by improving domestic production. In the case of poultry and sugar, the master plans and various trade instruments in place are policy steps that seek to support domestic production and reduce import dependency.
LABOUR INTENSIVE
Other imported products that are not part of the top 10 but are worth noting include live cattle, fruit juices, bottled water, coffee, soya bean oilcake, pork products, pasta, honey and beef. Closely studying this list and identifying products and value chains SA business can produce more of what will be essential in the drafting of the localisation strategy.
Another important aspect will be an increased focus on value chains that are labour intensive, so the strategy helps tackle SA’s core challenge: unemployment.
The country will need to implement its localisation strategy while remaining cognisant of its trading partners ’ perception of this strategy. It will have to minimise the use of trade instruments such as import tariffs and rather focus on providing incentives to develop the value chains that are identified as key.
SA’s annual agricultural exports have averaged $9.6bn over the past five years, and
WANDILE SIHLOBO
any trade policy instrument that signals increased protection for local sectors would not go down well with our trading partners.
The localisation strategy should rather be packaged and communicated as a way of boosting local production in employmentintensive subsectors that will help tackle the unemployment crisis.
Efforts will also have to be made to expand export markets for the products SA produces. In the case of agriculture, the horticulture sector is producing increasing volumes of fruits such as citrus. If this continues in coming years, we may need to find new markets for these products.
THE FOCUS SHOULD BE ON NICHE AND … LABOUR-INTENSIVE VALUE CHAINS THAT HAVEN T YET BEEN ’ EXPLORED TO THEIR FULL POTENTIAL
In addition to the EU markets in which SA is well established, increased attention needs to be paid to gaining access for SA’s agricultural products to India and China, which have large populations and where SA’s market share is still small at 0.5% and 0.3% respectively.
Both of these countries are part of the Brics group, which should ease the way to increased market access. However, policymakers need to be aware of the reciprocities these countries are likely to insist on, and calculate the effect they could have on other sectors of the SA economy.
There is room for a localisation strategy in SA’s agriculture, food & beverages sector, but the focus should not be on the top 10 imported products but on niche and labour-intensive value chains that haven’t yet been explored to their full potential.
Determining such value chains will require deep research, led by the department of trade, industry & competition with private sector players.
The use of trade policy instruments should be carefully thought through to prevent our existing trading partners from deeming SA a protectionist country.