Performance of the agricultural sector in South Africa Prepared by the National Agricultural Marketing Council Presented by Ronald Ramabulana Agri Food Summit, Polokwane, 31 July 2008 1
Agriculture’s contribution to the GDP • Contribution to GDP dropped from 21% in 1910 to between 3 – 5% over the last decade. • Declining contribution frequently misinterpreted as agriculture’s declining role in the country’s economy. • Rather, agricultural growth was slower relative to other sectors. • Part of a broader transformation of the economy, i.e. • Moved from economy dependant on primary sector (agriculture and mining) to a broadly diversified manufacturing and services economy.
It macro economic impact much clearer when looking at inflation trends in South Africa • Latest information published by Statistics South Africa food price inflation year-on-year (May 08) was 17 percent Source: Stats SA, 2008.
Earner of foreign exchange • Agriculture a net earner of foreign exchange, e.g. in 2006 • Exports amounted to approximately R26.9 billion, and • Imports to approximately R20.5 billion. • Agriculture has made an enormous contribution to foreign exchange earnings • This in turn helped the country to meet its foreign debt obligations, often under difficult circumstances.
Earner of foreign exchange • However, net trade more or less sideways since 2002. • In 2007 imports were more than the value of exports in 2007, using WTO definition. • Includes primary and processed agricultural products • The main challenges lies with processed agricultural products
Other, 15% Edible Fruit and Nuts, 30% Wool, Not Carded Or Combed, 3% Miscellaneous Food, 3% Cereals, 4% Tobacco, 5% Preserved Food, 9% Beverages, 19% Sugars, 10% South African Agricultural Export Products (Million Rands) - 2006
Top Agricultural Export Destinations – 2006 (R mill) Source: South African Revenue Service (World Trade Atlas)
Cereals, 17% Other, 20% Cocoa, 3% Fats and Oils, 13% Baking Related, 3% Sugars, 3% Meat, 10% Preserved Food, 3% Spices, Coffee, Tea, 3% Beverages, 9% Tobacco, 3% Food Waste, 8% Miscellaneous Food, 5% South African Agricultural Imports (Million Rands) 2006
Top Agricultural Import Origins – 2006 (R mill) Source: South African Revenue Service (World Trade Atlas)
Agriculture as employer • Since 1996 the total number of workers in agriculture has remained fairly constant • Ratio between permanent and other workers has changed. • Currently agriculture accounts for between 8 and 9 percent of total employment. • In 1950’s it 28 percent of the labour force • Supplementing household income and/or contributing towards food supply for more than 2,5 million rural households • This is invaluable and can not be under estimated.
Agriculture’s linkages with the rest of the economy • Backward linkages • Purchases of goods such as fertilizers, chemicals and implements • Forward linkages • Supply of raw materials to industry and the food supply chain in general • Approximately 70 percent of agricultural output is used as intermediary products in other sectors
Agriculture’s linkages with the rest of the economy • GDP multiplier for agriculture is 1.51. (Mullins ,2004) • Increase of one rand in agric production will result in an R 1.51 increase in the GDP of the country. • On par with the GDP multiplier for the total average economy of 1.58. • Labour multiplier of 24.17 outweighs all other sectors (Mullins, 2004) • Well above the same multiplier for the economy as a whole of 8.16.
Provider of food: Production struggling to keep up • Population grew by 32.2% from 1991 – 2007 • population growth does not include unregistered immigrants • Increase in per capita income • Agricultural production increased by 10% over the same period • Challenges: • Climate change • Drought policy • Availability of water and quality of water • Increase productivity • Maintain and improve profitability
Rising input costs • Rising input costs globally and domestically seriously threatens the sustainability of the agricultural sector • Mainly three factors reasons for increasing input costs, namely: • the ongoing hikes in oil and natural gas prices, • very high demand for fertilizer due to increased production for food and bio-fuel and • very high demand for food in world and specifically in China and India.
Rising input costs(…continue) • Crude oil prices have soared nearly 70 percent in the past 12 months • Local prices are further negatively influenced by high shipment cost and the Rand/US$ exchange rate. • Diesel 0.05% S Gauteng and diesel 0.05% S Coast increased by 90.4 and 92.8 percent, respectively from December 2005 to June 2008. • Comparing year-on-year for June 2008 prices increased by 61.4 and 62.9 percent, respectively. Source: South African Petroleum Industry Association (SAPIA), 2008.
The effect of diesel price increases on the cost of production Source: Department of Minerals and Energy, 2008 Media GrainSA, 2008
Rising input costs(…continue) • Fertilizer prices experienced significant increased over the last year or so. • From 2007 to June 2008 selected fertilizer prices increased as follows: • Local MAP and international DAP increased with 103.3 and 134.7 percent, respectively. • Safex Spot Price of white maize and wheat increased by 15.3 and 58.2 percent, respectively.
Investment in agriculture Source: DoA, 2008. 18
Research and Development (R&D) Public-sector financing remains the dominant source of funding of R&D, But public funding has come under severe pressure in South Africa in recent years. Total spending: Research related institutions 19 Source: Liebenberg, 2008.
Public Agricultural Research Intensities Source: Pardey and Liebenberg, 2007 20
Current events a window of opportunity!! • Agriculture can respond if the environment is created • Both emerging and commercial • Agriculture the backbone of the rural economy of SA, thus ability to revive rural economies • It can provide a significant contribution to address current socio-political challenges, e.g. food price crises
Consider changes in maize production on food prices Much larger crop expected