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SA agricultural sector still good for investment - FNB

13th February 2013

By: Idéle Esterhuizen

  

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Despite the challenges facing South Africa’s agricultural sector, its outlook remained positive, confirming it as a desired investment destination for banking firm First National Bank (FNB), agriculture information and marketing head Jan van Zyl said on Wednesday.

The country’s agricultural sector had, in recent months, been wracked by labour unrest over wages, with Labour Minister Mildred Oliphant increasing the minimum wage from R69/d to R105/d from March 1. This had already resulted in the loss of over 2 000 jobs in Limpopo and experts feared this was only the tip of the iceberg.

Van Zyl quoted a study by FNB former chief economist Cees Bruggemans, which showed that South Africa’s agricultural sector was vulnerable, with 20% of farmers producing 80% of the country’s food and fibre value chain and contributing up to 20% of the country’s gross domestic product (GDP).

Although imports and exports were currently balanced, farmers were under threat and have called on the agricultural sector to boycott South Africa’s export of agricultural goods.

Despite this, South Africa was capable of providing enough food for its people. A yearly study by the Food and Agriculture Organisation has revealed that South Africa produces 600 g of starchy food per person a day (pp/d), 300 g of fruit and vegetables pp/d and 150 g of meat or fish pp/d.

On a global scale, Van Zyl said financial services provider BlackRock was also optimistic about investing in the global agricultural market, stating that the demand for animal feed would significantly increase in the coming years, as consumers in emerging markets earned more money and shifted more towards a meat-based diet.

Biofuels were also said to create incentive to buy agricultural equities. In 2000, land use for global ethanol production was about ten-million hectares. This was projected to rise to 120-million hectares by 2015.

“On the one hand, it will reduce the acreage available for other crops and, on the other, it will directly affect the demand for sugar, corn and oilseeds or biodiesel,” Van Zyl said.

ECONOMIC OUTLOOK

FNB chief economist Sizwe Nxedlana warned that, although South Africa’s economic growth would expand this year, it would be constrained by poor sentiment.

He stated that cost-push pressure would place upward pressure on inflation during the first half of 2013, but that core inflation would be contained, while some rand appreciation would lead to lower inflation in the second half of 2013 and the first half of 2014.

Inflation was expected to average 5.7% in 2013 and 5.3% in 2014.

Nxedlana expected interest rates to remain lower for longer.

Despite weak growth, upward inflationary pressure in the first half of 2013 and the wider current account deficit would limit room for a rate cut. Further rand depreciation would lead to earlier interest rate hikes.

Internationally, progress made on policy issues had brought back confidence and there was increasing evidence of improving global growth momentum, with the first upgrade in consensus global growth forecast in a year-and-a-half.

Slow global GDP growth was expected in 2013. At 3.1% year-on-year, this was marginally up from 3% in the 2012 financial year and was anticipated to reach 3.9% in the 2014 financial year.

However, Nxedlana noted that this recovery was off a low base and would be constrained by fiscal austerity with slack inflation likely to be low as a result.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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