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Downgrades, slow growth could negate benefits of record maize harvest

Jun 25 2017 18:01

Johannesburg - SA's credit downgrades and slow economic growth could negate the benefits of this year's record maize harvest, according to Wessel Lemmer, senior agricultural economist at Absa.

Statistics SA recently indicated that the agricultural sector had increased 22% in the first quarter of 2017 and that a record maize harvest is expected this year.

South Africa is likely to harvest a record 15.6 million tonnes of maize in 2017, double last year’s output. According to Lemmer, this puts the country into the position of being a net exporter of maize, with a forecast of about 4 million tonnes of exportable maize.

“We can expect that the record harvest will have a stabilising effect on food price inflation. However, other factors - such as weak economic growth and further credit downgrades - may lead to high input costs, fuelled largely by a weaker exchange rate and the possibility of higher interest rates. This could negate some of positive effects of the bumper maize harvest,” says Lemmer.

READ: All not rosy for SA maize exports - expert

According to Lemmer, even though the rand has not yet been affected negatively by the recent sovereign downgrades, there is still a risk that it could weaken. This could result in increased inflation above the 6% target set by the South African Reserve Bank.

“For farmers, a weaker rand increases the cost of imports, such as fuel, fertiliser, pesticides, machinery and equipment. This in turn would mean an increase in production costs and more expensive food in the domestic market. Imported consumer goods can also be expected to become more expensive for the local consumer, who is already experiencing pressure on disposable income,” explains Lemmer.

“On the other hand, farmers who produce a surplus in commodities for export markets will benefit from a weaker rand, which should improve their incomes. However, the imports of agricultural machinery and equipment will become more expensive as well.”

The recent announcement by Stats SA that South Africa’s gross domestic product contracted by 0.7% for the first quarter of 2017, indicating that the country has entered into a technical recession, also does not bode well for the industry’s growth prospects.

The contraction follows the GDP decline of 0.3% in the fourth quarter of 2016 – with South Africa experiencing only 0.3% growth overall in 2016. The main contributors to the contraction were the trade and manufacturing industries.

Trade declined 5.9% and manufacturing contracted 3.7%. The agriculture and mining industries were the only sectors which made positive contributions. Agriculture increased by 22.2%, its first positive growth after eight consecutive quarterly contractions.

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absa  |  sa economy  |  agriculture  |  maize
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