Cape Town - From an agribusiness perspective, this year’s budget speech comes against the backdrop of high food price inflation, a recent positive upturn in agribusiness confidence, and a convergence of factors that are now generally more favourable to agricultural production.
This follows on severe drought conditions over the past few years that resulted in the agricultural sector going into an extended and severe recession since early 2015, according to Dr John Purchase, CEO of the agriculture chamber Agbiz.
“That said, the budget speech itself presented a fairly positive and optimistic outlook, projecting economic growth of 1.3% in 2017, up from 0.5% in 2016 and a declining consolidated budget deficit of 3.1% of gross domestic product (GDP) in 2017/18, down from 3.4% in 2016/17. However, interest on gross debt will still amount to a significant R169bn,” said Purchase.
Of particular interest to agriculture and agribusiness is the extent to which the Budget Speech reflected the new emphasis on “radical economic transformation” and inclusive growth, vis-à-vis land reform (redistribution and restitution). Spending on agriculture, rural development and land reform will increase by 2% from just under R26bn in 2016/17 to R26.5bn in 2017/18, and amounting to nearly R30bn in 2019/20.
Of this amount, the budget allocated for land redistribution has declined by 3%, from R1.23bn in 2016/17 to R1.19bn in 2017/18. Meanwhile, the allocation for restitution increased by 2.5%, from R3.17bn in 2016/17 to R3.25bn in 2017/18. In the light of the fiscal discipline required by Finance Minister Pravin Gordhan, there is limited evidence to suggest a new radical transformation agenda in light of the budget allocations outlined in his speech.
However, the budget speech seems to offer some scope for improved sector transformation through farmer support and development, with budget allocation increasing by 10% to R3.79bn, from R3.43bn in the previous fiscal year. Important to note that the effectiveness of this quantum increase will largely be contingent on how efficiently the departments utilise and implement their line programmes.
“So, while the message of radical economic transformation has been emphasised, both in the budget and the SONA (State of the Nation Address), it appears the sector will likely experience more of the same. In that sense, in the medium term – where budget allocations for agriculture, rural development and land reform are set to increase by an average annual rate of 4.7% up to 2019/20 – we can expect a modest pace in the sector’s transformation.
"Obviously, transformation of the sector is not incumbent on the public sector only, and the private sector also needs to implement sustainable transformation, including through the long-awaited new AgriBEE Sector Code. But to transform sustainably, economic growth is an absolute imperative, as Minister Gordhan correctly emphasised,” said Purchase.
Of concern to the agribusiness sector is the above inflation rate increases in excise duties on alcohol, specifically wine, and tobacco. A further concern is the introduction of a tax on sugary beverages, including for both intrinsic and added sugar beverages, this year. While the indication is of a reduced rate of tax, the impact on the industry, including potential job losses, will need to be assessed as a matter of urgency.
“All in all, Minister Pravin Gordhan and his team have done an exemplary balancing job under extremely difficult economic and political pressures. Under the circumstances, he has inspired and shown courageous leadership and statesmanship,” said Purchase.
“Despite very difficult circumstances, Minister Pravin Gordhan delivered a budget that was indicative of his realisation that the current economic trajectory is unsustainable and that a new approach is required," said Johannes Möller, president of Agri SA.
“The minister emphasised the need for the economy to grow above the projected growth rate of 1.3% as this falls well short of our NDP goals and is not sufficient to reduce unemployment or impact significantly on poverty and inequality. As was indicated by the minister a joint effort by all stakeholders will be required to achieve this goal,” Möller said.
However, according to Möller not enough was said with respect to curbing the high levels of corruption, nor was the drain on the fiscus brought about by the state-owned companies addressed firmly enough. Taxing people in high income brackets might have been the right and soft option for now but it will not suffice as a medium-term option, given structural problems clearly present on both the income and expenditure side of government finances.
“From an agricultural perspective, the R30bn spending on agriculture, rural development and land reform over the medium term is appreciated provided it will serve the purpose of what it is intended for. The focus of this spending should be on commercial agriculture i.e. moving land reform beneficiaries towards commercial production and increasing productivity of existing commercial agriculture.
"It is also critical that we find innovative technics to attract young people in the sector. Land reform must prioritise willing and capable (that is know-how) young farmers - most of the spending in agriculture must be directed towards this purpose. This is very important for the sustainability of the sector,” said Möller.Read Fin24's top stories trending on Twitter: