The agriculture sector contributes about 1.6% to South Africa’s gross domestic product (GDP), below the 2.2% contribution that is needed for the sector to remain sustainable, Agricultural Business Chamber (Agbiz) CEO Dr John Purchase said at a recent conference focused on the state of the country’s agriculture industry. He also noted that per capita output is declining in the country, “which is concerning”.
Purchase highlighted that 2016 had been a challenging and tumultuous year for the agribusiness environment and farmers alike.
He said that deep and fundamental political divisions in government and the governing party, the threat of ratings downgrades to subinvestment grade, as well as an uncertain global political and economic environment were negatively affecting the sector.
He further stated that the country’s food security remained at risk.
A major challenge the sector faced was the prospect of a ratings downgrade, which could force South Africa to raise interest rates. But Purchase said “reckless and dangerous” statements by Economic Freedom Fighters’ leaders on land nationalisation without compensation or illegal land occupation, were also threats to the industry.
Purchase noted that not only did the ongoing drought of the past years continue its devastation over much of the country, but a declining economy and constrained consumers led to dampened demand and declining output.
“Given the additional policy uncertainty and the country’s deteriorating political economy, agricultural GDP and agribusiness confidence have been in significant negative territory for the most part of the year,” he said.
Purchase noted that, in real terms, South Africa’s overall agriculture trade balance, despite remaining positive, fell sharply by as much as 22% and 11% in the first and second quarters respectively.
“Domestic uncertainty, as well as unexpected international events such as Brexit and the election outcome in the US, will likely carry longer-term implications for South Africa’s key agriculture export markets,” he said.
However, Purchase did note that, in the last quarter of 2016, there was evidence of some recovery in the Agbiz/Industrial Development Corporation Agribusiness Confidence Index, and, with good rains falling in key production areas, this indicated a potential turnaround situation.
Agbiz economic and agribusiness intelligence head Wandile Sihlobo added that the index suggested that confidence in the sector may remain in positive territory for the first six months of 2017, largely driven by an expected improvement in agricultural conditions and production.
“This index serves as a leading indicator for the contribution of the agriculture sector to the GDP; therefore, positive improvements suggest that the agriculture sector could finally escape the current mediocre growth path . . . ,” he noted.
Sihlobo added that the agriculture sector provides roughly 6% of South Africa’s total employment and that expected growth in the sector could possibly have positive spillovers on the agriculture labour market.
“This would be a welcome recovery, following significant job losses in the earlier part of 2016, as farmers and agribusiness were constrained by the effects of the 2015 and 2016 El Niño-induced drought,” he said, making no mention of the recently proposed national minimum wage.