Agriculture has potential to ignite SA’s recovery, but finance and policy constraints weigh

26th February 2021 By: Marleny Arnoldi - Creamer Media Online Writer

Agriculture has potential to ignite SA’s recovery, but finance and policy constraints weigh

The South African agriculture sector is one of a few sectors that have proven to be resilient throughout the Covid-19 pandemic and has been earmarked by government as a cornerstone of the country’s economic reconstruction and recovery.

The sector, together with State departments and other social partners, is in the final stages of drafting an Agricultural and Agroprocessing Master Plan, which identifies industries that can play a critical role in developing the sector and bring about the necessary transformation towards an inclusive sector.

Food security has been cited as a key intervention for economic recovery in the Economic Reconstruction and Recovery Plan, which consequently requires a significant contribution from the agriculture sector.

Engineering News & Mining Weekly cited Agriculture, Land Reform and Rural Development Minister Thoko Didiza in October as stating that the sector should be at the centre of the country’s and Africa’s economic recovery in the post-Covid-19.

However, before agriculture can help to reduce unemployment and contribute more to economic growth, the crucial issue of getting the Land Bank back on track must be resolved, says industry organisation Agri SA executive director Christo van der Rheede.

“Without access to affordable financing, it will be near impossible to achieve the outcomes contained in the National Development Plan Chapter 6, which refers to the role of agriculture in the reconstruction of an economy.”

While the National Treasury plans to refinance the Land Bank, Van der Rheede emphasises the need for the bank and government to first institute proper oversight and governance to ensure the long-term financial sustainability of the bank.

He further highlights the need for an efficient turnaround strategy for the bank – which provides 28% of the country’s agricultural debt – and suggests that it be co-managed with the private sector going forward.

It was reported on January 3 that the Land Bank’s financial losses had widened by 211% to R2.8-billion in the year ended March 31, 2020, compared with a loss of R902-million in the year ended March 31, 2019.

According to the Auditor-General of South Africa’s calculation, the bank needs a R7-billion government bail-out to ease a cash crunch and continue operating, consequently enabling it to take on new clients and meet existing clients’ needs.

Master Plan Not Enough

Van der Rheede says although an agriculture master plan is necessary for transformation and growth to occur, government also ought to look into prohibitive laws and regulations that undermine investor confidence in the sector, particularly commercial agriculture.

Such laws and regulations, which are touted as tools for land reform and redistribution, include the 2020 Expropriation Bill, due to be published for public comment within the next few months before it is promulgated.

Commercial farmers will not, he says, acquire land for expansion if there are no guarantees that the property will not be taken arbitrarily; the same argument applies to new farmers.

Other legislation also inhibits the subdivision or transfer of land; for example, land that is owned by churches or farmers wanting to subdivide their land.

“Land that is owned by people is the biggest driver of commercialisation in agriculture, since land can be presented as collateral to a financial institution for funding.”

He states that Ceres, in the Western Cape, has an average gross domestic growth percentage of 4% every year, owing to a high level of land ownership and resultant commercialisation in the area.

“The principles of ownership mark the difference between a poverty-stricken area, with high levels of food insecurity and unexploited production potential, and a job-creating, growth-generating commercialised area.”

While government owns about 5 400 farms, the vast majority of these are not productive and are in a state of dilapidation, he states.

“We need to maximise commercial agriculture output by supporting and expanding the sector through the right ownership principles and financing support to ensure regional food security and increased export earnings,” Van der Rheede highlights.

Commercial farmers employ up to 800 000 workers yearly, usually pay more than the minimum wage and generate a lot of revenue, including much-needed foreign exchange from exports.

They not only ensure food security and generate employment and economic growth but also take it upon themselves to invest in human capital, Van der Rheede adds.

“They build creches on farms, send young people to colleges and support sports activities, besides other opportunities.”

Additionally, about 7 000 commercial farmers contribute about R500-million every year to the Agricultural Sector Education and Training Authority through skills levies, while the sector has also forged partnerships with various financial institutions for the funding of new farmers.

Given the Land Bank’s situation, this may become an increasingly necessary undertaking, Van der Rheede notes.

Gross farming income totalled R27.87-billion in 2018/19, with expenditure on intermediate goods and services reaching R154-billion. During the same financial year, exports of agricultural products earned the country R109-billion, while farming debt was recorded at R180-billion.

Van der Rheede suggests that, instead of curtailing ownership, which is what government seeks to do with the expropriation approach, the focus should be on expanding ownership.

He believes that ownership should be transferred to previously disadvantaged people, especially in former homelands and poverty-stricken areas. Lamentably, there doesn’t seem to be any political will to do this.

“Government is obsessed with ideology, which stands in the way of wealth creation for all South Africans. The Master Plan does, however, address some of these aspects by focusing on key principles, such as policy ambiguity and market development, and ensuring that infrastructure is built to ensure that exports can take place.”

Resilient Performance

In its gross domestic product data for the second quarter of 2020, Statistics South Africa indicates that the agriculture, forestry and fishing sector was the only positive contributor to GDP growth, growing by 15.1%, while the South African economy declined by 51% quarter-on-quarter.

However, despite its resilience, which has seen it continue to keep South Africans fed throughout the pandemic, the agriculture sector also suffered some knocks in 2020 that impacted on its ability to contribute to overall economic recovery, at least in the short term.

Employment in agriculture fell by 31% quarter-on-quarter in the Western Cape and by 15% quarter-on-quarter in the Northern Cape when South Africa suffered its highest levels of lockdown.

Commodities such as wine grapes, barley for beer and maize for whiskey were particularly affected when government imposed a third alcohol ban in late 2020.

Van der Rheede explains that a ban of this type impacts on not only farmers but also manufacturers, distributors, logistics operators, packaging companies and even other sectors, such as tourism, hospitality and entertainment.

“It is imperative that government rather adopt a holistic approach to the issue, especially if it expects these sectors to survive and contribute to national economic recovery,” he avers.

Existing Impediments

Agricultural Business Chamber (Agbiz) economist Wandile Sihlobo, in an opinion piece published by Agbiz in January, says the Agriculture and Agroprocessing Master Plan should map areas that still have untapped potential, particularly the former homeland regions of South Africa, as a means of developing the agriculture sector.

He believes that a crucial step is to understand why agricultural development has lagged over the past two decades in such areas, while output in the commercial agriculture areas has more than doubled since 1994.

“There are several reasons which explain this disparity in fortunes, the major ones being lower levels of investment in agriculture and a lack of infrastructure. With respect to investment, poor land governance in the former homelands and some underused land-reform farms have been the key impediments.

“The lack of infrastructure has been compounded by poor service delivery in various local municipalities, especially those in the former homelands of South Africa,” Sihlobo says.

He states that, given these structural challenges, the Master Plan will have to articulate ways and means of increasing investment and improving or capacitating local governance.

Sihlobo further states that agriculture is a long-term economic activity with relatively modest returns. Therefore, the South African government would have to clarify its long-term view on land reform policy for not only commercial farming areas but also the former homelands, where investment and commercial agriculture could have the most impact.

Sihlobo notes that much has been said about the need for basic infrastructure, such as roads, ports and electricity, but there are some aspects that, if executed properly, can aid the recovery of the agriculture sector, including government better fulfilling its administrative and regulatory tasks.

“These aspects have been constraining the growth and transformation of the sector for many years and require serious attention. Linked to this is a good land administration system, and effective registration of title deeds and land rights in a well-functioning deeds office.

“The proper recording and confirmation of land rights will encourage individual entrepreneurs to invest in their farmland and thereby trigger the commercialisation and growth of the agriculture sector,” he explains.

Agriculture development after Covid-19 will require deeper and greater participation of the private sector; however, effective private-sector participation first demands that government provides greater levels of policy certainty, he notes.

Van der Rheede shares this sentiment, believing that the last thing the sector needs are more restrictive laws, with collaborative partnerships being the way to go.