Agriculture will carry economy

Johannesburg - South Africa’s agricultural sector is poised to boost its gross domestic product (GDP) contribution this year, provided that improved rain patterns are maintained.

Absa, one of the country’s biggest lenders to the sector, sees farming output improving this season, after grain production dropped by about a fifth in 2016.

Grain SA, the country’s biggest grain lobby group, sees an improvement but remains concerned by late rains and wind damage in the west of the country.

South Africa’s worst drought since records began more than a century ago slashed farm production by more than 20%, forcing the country to import genetically modified maize for the first time since 2008.

Commercial farmers were also forced to destock, resulting in an acceleration of food prices of about 60%, and a near-zero GDP growth in 2016.

“Agriculture will carry the economy a bit next year,” Ernst Janovsky, head of Absa AgriBusiness, told City Press in an interview. “Going into next year, volumes are going to go up and that will bring the total growth rate to about 2%.”

The Reserve Bank estimates growth may tick to about 1.2% in 2017. Apart from the drought, which also hit most of southern Africa and as far north as Ethiopia, lower commodity prices and a poor investment environment militated against faster economic expansion.

With the El Niño weather conditions associated with drought weakening and being replaced by La Niña conditions, above-normal rainfall was expected, though it might be late in some parts, Janovsky said.

While dam levels were expected to improve from December, the impact of the drought in the past four seasons will continue to be felt for some time.

Grains

Grains would lead the recovery in agriculture, said Wandile Sihlobo, head of economic and agribusiness intelligence at the Agricultural Business Chamber. Overall, the area planted for grains is estimated at 15% more than the previous year, which should boost production by between 20% and 30%.

Maize production, the biggest component within grains, is estimated at around 9.2 million tons after the estimated 7.16 million tons for the 2015/16 season. South Africa is traditionally a maize exporter to its southern African neighbours and normally produces 12 million tons of maize.

Livestock was decimated by the drought, with farmers slaughtering as many as 16 000 cattle a week at the peak, compared with the average requirement of 5 500 a week, Sihlobo said. Stock rebuilding would push prices up and food inflation higher in 2017, he said.

“It will take at least two to three years for a full recovery,” Sihlobo said, with some crops, such as sugar, taking longer.

Cane production has dropped by 27% since 2013, according to Absa and will probably drop another 2% in the 2016/17 season.

Oilseeds such as soya beans, sunflower and other winter grains were also forecast to recover, said Dirk Strydom, manager for the grain economy at
Grain SA.

However, this was dependent on farmers in the west of the country being able to plant in the week or so of the optimal planting window that remains.

“Current weather conditions are still in favour of a ... La Niña weather pattern,” Strydom said. “If the variables fall into place, it is expected that South Africa can again produce close to surpluses.”

Other key risks remained, increasing financing costs, including insurance, late rains in the west and the volatile rand exchange rate, he said.

Once surpluses were achieved, the bigger challenge was achieving export competitiveness, he added.

Both Absa AgriBusiness’ Janovsky and Grain SA’s Strydom said political posturing on land reform, such as the Economic Freedom Fighters’ demand for compulsory acquisition of land without compensation, risked the country’s food security.

“Grain SA supports land reform within the confines of the South African Constitution,” Strydom said.

Janovsky said agriculture was being transformed by technology, creating a whole value chain much bigger than the sector’s meagre 2.6% GDP contribution. Factored together, these value chains in the food processing industries boosted the sector’s contribution closer to 30%.

“Technology is changing the value chain substantially,” he said. “Agriculture is actually food and fibre. And if you really look at the whole value chain, it’s the input side that’s been more than utilised in agriculture. On the output side are the food manufacturers; it’s the guys making the cookies, the guys making the pastas and everything else. And then there are the retailers actually selling the food and delivering the time value for the consumer.”

New production technologies were also reshaping the future of production with some, such as those for vegetables, moving into buildings.

The microbiological production of energy products and artificial production of meats was also moving farming into urban areas, bringing the farmer closer to the consumer.