Green shoots in an otherwise barren landscape

The South African agriculture sector was the sole positive contributor to GDP in the second quarter of 2020.

In general, the South African agricultural sector is weathering the Covid-19 storm with aplomb, being the sole positive contributor to gross domestic product (GDP) in the second quarter of 2020, when the country went into hard lockdown.

When the government declared a national state of disaster on 15 March, to facilitate a coordinated approach to community transmission of coronavirus in the country, the sector responsible for food security was declared essential.

The Department of Agriculture, Land Reform and Rural Development identified monitoring and support as the two broad categories within which government interventions could be managed.

Government support
Availability and stability of food supply as well as price monitoring was seen as a critical area. This was in large part due to the high percentage of the population in the low and vulnerable economic population groupings, whose restricted movement meant seeking part-time work was no longer an option during the hard lockdown.

Support from the department was mainly aimed at agricultural producers, with emphasis again being placed on the more vulnerable – being small-scale and communal farmers.

“The move to classify the agriculture sector as an essential service relatively insulated the sector from the impact of Covid-19, though some sub-sectors remained in lockdown [tobacco, wool and mohair, wine and alcoholic beverages]," explained Agri SA CFO Etienne van der Vyver. “The government also intervened to ensure exports of livestock and agricultural commodities to ensure global and national food security. This policy move from the government safeguarded the sector from an entire collapse but moreover, the financial interventions also played a part. These include the R1.2 billion ring-fenced to assisting mainly distressed small-scale farmers and more indirectly, the South African Reserve Bank’s swift reaction to lower interest rates at the time.” 

Agri SA is a federation of agricultural organisations comprising provincial, commodity and corporate members.

Now, more than eight months into the extended state of disaster, data from StatsSA and AgBiz Research shows that the Western and Northern Cape provinces, the country’s major wine producers, suffered a drop in employment by 31 percent and 15 percent quarter-on-quarter, respectively. When viewed from an annualised basis, the decrease comes in at 37 percent and 8 percent, respectively – with the North West and Free State also recording a decrease in employment.

Sector masterplans
The agricultural sector was already earmarked for government support pre-Covid, with the local poultry and sugar industries crafting sector masterplans, in conjunction with the Department of Trade, Industry and Competition, to stem cheap imports that have led to a decrease in employment.

“As the SA sugar industry already produces more sugar than its population consumes, these imports increase the surplus of sugar within the country. Combined with the effects of the decreased demand arising from the Health Promotion Levy, this results in locally produced sugar being exported by the industry as raw (unrefined) sugar, at the ruling world sugar price," explained Tongaat Hulett CFO Rob Aitken. "The cost of production of sugar in South Africa is higher than the current world sugar price, resulting in sugar being exported at a loss."

Aitken sees the finalisation of the sugar sector masterplan, crafted under the Department of Trade, Industry and Competition, as a highlight for the industry in 2020.

According to Izaak Breitenbach, general manager of the SAPA Broiler Association, poultry consumption reduced from 200,000 tonnes per month pre-Covid down to 170,000 tonnes per month, and this drop in demand impacted pricing negatively, while poultry stocks built up in cold-storage facilities.

“In terms of the poultry industry masterplan, which was signed exactly a year ago this month, the industry committed to increase capacity, local production and job creation. The industry production volumes did increase by 5 percent since November 2019 and the excess production exacerbated this scenario. Initially imports reduced by about 20 percent but since September 2020 imports have again increased to 47,000 tonnes per month, which represents in excess of 30 percent of all consumption," he said. 

Izaak explained that if this is not addressed in 2021 it will lead to significant cutback in the local industry, job losses and negative impact on economic growth. A massive R6.1 billion left South Africa in terms of imports, bolstering the economies of other countries including the USA, Brazil and the EU.

In its integrated annual report for the year ended June 2020, RCL Foods, which is involved in both the sugar and poultry industries, noted that the dumping of surplus poultry and sugar in the largely unprotected local market has impacted severely on the viability of the local poultry and sugar sectors, leading to job losses which add to the existing burden of unemployment and food insecurity.

Interestingly, just a few days after its AGM on 13 November, 2020, the food manufacturer issued a voluntary SENS on the JSE, announcing a strategic review that “includes an assessment of various categories underpinning the RCL business which have different value drivers, whilst preserving the scale and efficiency benefits achieved”.

Performance
Despite this, agriculture is now being seen as providing the first green shoots in a generally barren economic landscape – led by horticulture, field crops and livestock.

According to the most recent Bureau for Food and Agricultural Policy (BFAP) perspectives on agriculture’s performance report, the sector has contributed 0.3 percentage points to the overall GDP, an increase of 15.1 percent from the first quarter of 2020.

When comparing to the similar period in 2019, removing the need for seasonal adjustments the relative metric shows that agriculture grew by 8.9 percent in real terms.

This positive agricultural performance was largely due to strong harvests coming out of a number of drought years.

The second contributing factor was the timing of the lockdown, with planting seasons largely coming to a close at the end of March, thereby containing input cost fluctuations driven by varying worldwide pandemic responses.

Agricultural performance is expected to remain strong in the third and fourth quarter, with strong citrus exports continuing and early expectations pointing to a good winter crop.

2021 forecasts
Chief economist Wandile Sihlobo from AgBiz, an association of agribusinesses operating in South and southern Africa, predicts that agriculture will continue to show positive growth next year, although at a lower rate than the 10 percent year-on-year expansion predicted for 2020.

“The same is true for food price inflation which we continue to believe won’t exceed 5 percent year-on-year in 2021 (from an expected 4.5 percent year-on-year in 2020 and the actual rate of 3.1 perccent year-on-year in 2019)," he said. “The potentially larger harvest in 2021 could result in softening commodities prices from the higher levels experienced in October, where maize and soybean prices are up by over 20 percent year-on-year."

Wandile explained that the reasons for such an increase are demand-driven and weaker currency effects. From February 2021, if the favourable weather conditions and generally large harvests view holds for South Africa (and the entire Southern Africa region), the commodities prices could soften notably and that will bode well for food price inflation.