INCLUSIVE SOCIETY INSTITUTE
Rejuvenating South Africa’s Economy – A Perspective from the Agriculture Industry April 2022
Copyright © 2022 Inclusive Society Institute 50 Long Street Cape Town, 8001 South Africa Registration: 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute
DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members. All records and findings included in this report, originate from a panel discussion on developing a new economic blueprint for South Africa, which took place in March 2022
Author: Mariaan Webb, Creamer Media Writer Edited by: Daryl Swanepoel
Contents Abbreviations & acronyms...........................................................4 Introduction...................................................................................5 Identifying weaknesses...............................................................6 • Ailing infrastructure ...................................................................................................6 • Brain drain....................................................................................................................7 • Environmental concerns.............................................................................................7 • Labour cost and relations..........................................................................................8 • Limited producer support...........................................................................................8 • Livestock theft............................................................................................................8 • Policy uncertainty.......................................................................................................8 • Research and training capacity...............................................................................10 • Trust deficit and lack of social cohesion...............................................................10 • Veterinary support.....................................................................................................10
Suggestions for fostering growth .......................................... 12 Conclusion.................................................................................. 14 References.................................................................................. 15
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Abbreviations & acronyms
AAMP........................................................................ Agriculture and Agroprocessing Master Plan BFS............................................................................................................ Blended Finance Scheme GDP...............................................................................................................gross domestic product ISI............................................................................................................. Inclusive Society Institute NDP.........................................................................................................National Development Plan
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Introduction South Africa has a well-developed agricultural sector, which is a key driver of economic growth. Good rains during the summer and winter seasons helped boost agricultural activity in 2021. Together with a rise in animal products, increased wheat production boosted the industry by 12.20% in the fourth quarter of 2021, contributing to 1.20% gross domestic product (GDP) growth in the final three months of the year. Economic growth of 4.90% was recorded for the full year, after contracting by 6.40% in 2020 (Stats SA, 2022). The agriculture industry provided employment to 829 000 people in the third quarter of 2021 (Stats SA 2021). The agriculture sector ensures that South Africans not only have enough food, but it also has a vital role to play in foreign earnings and exports. In 2020, South Africa became the world’s second-biggest exporter of citrus after Spain. While the industry delivered a stellar performance in 2021, industry association AgriSA has warned that there are many challenges that could derail its continued success, chief among them the country’s crumbling infrastructure. The impact of deteriorating economic infrastructure was a key point of discussion during the Inclusive Society Institute’s (ISI’s) recent interaction with the agriculture sector as part of an economic research project. The industry’s concern about the state of the country’s roads, railways and port infrastructure echoes that of the mining industry, which is also heavily reliant on State-owned infrastructure for bulk exports. This report is a summary of the themes that emerged from the engagement that the ISI held with the agriculture industry. The first part deals with the industry’s views on the factors hampering economic growth and development and the second part seeks to provide some answers about interventions that could place South Africa on a higher economic growth trajectory. The ISI’s research project will culminate in a new economic blueprint for South Africa.
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Identifying weaknesses Ailing infrastructure The agriculture sector’s growth and its contribution to the South African economy, although positive, continues to be hindered by crumbling infrastructure, particularly economic infrastructure such as roads, ports, railways, telecommunication networks and electricity generation. The agriculture sector is increasingly shifting from rail to road transport to move goods between provinces and to ports for export. The modal shift is driven by the steady decline in the efficiency of the State-owned rail industry, partly owing to theft and vandalism of critical infrastructure. The ‘Ctrack Freight Transport Index’ illustrates the change in fortunes between rail and road, particularly since the Covid-19 lockdown. Ctrack’s road freight index reached a level of 129.90 points in January 2022, compared with rail freight’s index level of 81.70 in the same month (Ctrack, 2022). In the 2021 financial year, agricultural products accounted for only 0.60% of Transnet revenue from commodities transported (Transnet, 2022). There is concern that an increase in the number of heavy trucks on the roads results in more safety incidents, damages the road infrastructure and results in more congestion. For example, to load a vessel with a 55 000 t carrying capacity, requires 1 617 trucks loaded with 34 t each, the equivalent of a line of trucks 37 km long. Poor road infrastructure, particularly in rural areas where farmers rely on gravel roads, further
“The agriculture sector’s . . . contribution to the South African economy . . . continues to be hindered by crumbling infrastructure . . .”
increases production costs to the industry.
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Identifying weaknesses Port infrastructure is also not adequately equipped to deal with demands from the agriculture sector. Port inefficiencies can cost producers of yellow maize up to R200/t, while rail line inefficiencies can add another R150/t. The industry argues that it is imperative that South Africa improves its rail and port infrastructure to ensure the country’s global competitiveness. Transnet is considering various initiatives to improve inland and port logistics, including increased private-sector participation. Telecommunications is another area where the farming community lacks infrastructure. Land-line infrastructure has been stolen in rural areas and has been overtaken by a shift to cellular technology. However, as farmers are dispersed and often in very rural areas, the industry is not a priority for profit-driven cellular companies. A lack of connectivity is a major productivity constraint and a security concern.
Brain drain South Africans with experience in farming are in high demand in other parts of the world, particularly in the US. In 2019, about 275 000 workers entered the US on the H-2A programme that allows for US farmers to hire migrant labour to assist with planting, cultivating and harvesting. While more than 90% of these labourers arrive from Mexico, South Africans accounted for the second-most in demand workers. About 7 000 South Africans successfully obtained H-2A visas in 2019 (Business Insider, 2022). As these are seasonal employees, these South Africans often ‘learn, earn and return’. However, as the number of South African citizens emigrating abroad continues to rise, farmers are among those selling up and leaving the country, with Canada and Australia popular destinations.
Environmental concerns There is threat to agricultural soils from mining and fracking. The Centre for Environmental Rights published a report in 2016 that showed how some of South Africa’s best agricultural soil has been decimated because of coal mining in Mpumalanga.
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Identifying weaknesses Labour cost and relations Although farmers, like other economic stakeholders including government, want a decent wage for their workers, given the set of inflated costs the sector is forced to contend with, the cost of labour remains a concern for the industry. In 2021, farm workers’ wages were equalised with the minimum wage, resulting in a double-digit increase. It is argued if wages are too high, farmworkers will be priced out of the market and farmers may turn to mechanisation to remain competitive. The industry’s relationship with labour also has an impact on policy developments, and certain demands could derail progress. Further, labour legislation should not be made more complex, making permitting success, for instance, dependent on labour outcomes.
Limited producer support Compared with many international competitors, South Africa’s agriculture sector does not receive direct support from government. Citing an internal study by AgriSA, a participant in the ISI roundtable discussion noted that of relevance to the country, is that four of South Africa’s emerging market counterparts, which had significant budget allocations to agriculture, experienced average yearly GDP growth of 3.40% over a ten-year period.
Livestock theft Livestock theft is a major concern for the industry. According to the National Stock Theft Prevention Forum, livestock theft is costing the economy about R1.40-billion a year (Independent Online, 2021). Although stock theft is not new, what has changed is that the crime is now perpetrated by organised syndicates, rather than ordinary thieves. Whereas those stealing for survival will take only a few animals, criminal syndicates operate on a larger scale. Such syndicates often also target railway lines or power infrastructure.
Policy uncertainty Policy uncertainty is among the chief structural constraints holding back economic growth and development in South Africa (IMF, 2022). Uncertainty about land reform, particularly the issue of expropriation without compensation, and property rights in general, continue to rattle the agricultural industry, threatening much-needed investment in the sector. A study commissioned by AgriSA and conducted by economist Dr Roelof Botha has quantified the economic output and job losses that the country would face should it pursue expropriation without compensation. Botha’s study involved a future perspective on the likely macroeconomic
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Identifying weaknesses impact of the policy. The study forecasts a cumulative loss of economic output over nine quarters amounting to R735-billion in one scenario and R1.15-trillion in a second scenario. The policy will lead to substantial job losses (Botha, R, 2021). The National Assembly in December 2021 failed to pass the amendment to Section 25 of the Constitution to allow for expropriation without compensation. AgriSA has said Section 25 does not pose an obstacle to land reform, concurring with findings by a high-level panel led by former President Kgalema Motlanthe, and that it is rather factors such as inadequate budgets, poor implementation, corruption and a lack of political will that hold back land reform (AgriSA, 2021). The organisation has warned that an attempt to expropriate productive land without compensation will not only undermine growth of the sector, but will damage South Africa’s economy and the country’s standing internationally. Another major contributor to policy insecurity is that plans change too often, owing to the fiveyearly electoral cycle. The agriculture sector believes that South Africa is not “policy poor” and that it should rather focus on implementing plans, such as the National Development Plan (NDP). There is cautious optimism about the Agriculture and Agroprocessing Master Plan (AAMP) and the Blended Finance Scheme (BFS). The AAMP aims to accelerate land reform by implementing a comprehensive land agrarian strategy and finalising restitution claims, as well as mitigating and preventing the outbreak of diseases among livestock and products in the agricultural value chain. The BFS, relaunched in 2021, will leverage private funding to support investments to enhance agricultural production by black farmers through deliberate, targeted and well-defined financial and nonfinancial interventions (DALRRD, 2021). These plans are specific, the goals and objectives are clear, and they are measurable with timelines linked to each. A final point on policy uncertainty centres on black economic empowerment. Although the reasons behind the policy are understood, the challenge rests with how it is being implemented.
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Identifying weaknesses Research and training capacity Agricultural colleges, of which there are 11 in South Africa, play a vital role in producing future farmers and scientists. The research and training at some of the agricultural colleges is not deemed suitable, with the focus tilting towards subsistence farming and food security, instead of state-of-the-art research that will keep South Africa on the cutting edge of agricultural development. Practical experience among graduates from colleges and universities is also lacking.
Trust deficit and lack of social cohesion A trust deficit exists between the agriculture sector and government. Farmers are less willing to participate in land reform or other government-led initiatives, such as Statistics South Africa enquiries, when they feel that the country’s progress is threatened by corruption. Farmers feel despondent when provincial and local governments misuse the money allocated for operational expenses. There is also a perception that government spends too much of its wage bill on high-paying jobs, and too little on administrators who ensure the optimal functioning of the State. The distribution of public-service personnel across various income levels has shifted dramatically in the past decade-and-a-half, according to a 2020 study by Intellidex. Using inflation-adjusted income bands, the Intellidex analysis indicates a declining share of personnel earning less than an inflation-adjusted R20 000 a month – from 85% of staff in 2006/7 to 48% in 2018/19 – and a rising share of those earning above that figure (Intellidex, 2020). Further, South Africa’s success in achieving its developmental State goal has been questioned, with participants arguing that more active citizenry is needed, and that higher levels of social unity and cohesion are required among different racial and cultural groups. The NDP envisions building South Africa into a developmental State, which relies on the capabilities of people to improve their own lives, while the State intervenes to correct historical inequalities (NDP, 2012).
Veterinary support South Africa has a severe shortage of veterinarians. According to Professor Vinny Naidoo, Dean of the Faculty of Veterinary Sciences at the University of Pretoria, South Africa needs at least 100 veterinarians per million people. Currently, about half of this number are registered in the country (Farmers Weekly, 2022). Rural areas are the worst affected by the shortage. It is estimated that there is one veterinarian for every 800 small-scale livestock farmers. A shortage of veterinary support has big implications for productivity.
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Identifying weaknesses
In a globalised, trade-oriented world, veterinarians working in food production are crucial for the management of international trade in animal and animal products, disease diagnostics and surveillance. The Food and Agriculture Organisation of the United Nations recommends a ratio of one veterinarian per 100 000 livestock units. Using this norm would result in the State requiring 253 State veterinarians to carry out disease control, laboratory diagnostics and veterinary public health (Department of Agriculture, Forestry and Fisheries, 2015). A veterinary strategy has been drafted to address the issue. The strategy was published in 2015, but its implementation has not gained traction, making it difficult to effectively curb diseases. Besides a veterinary shortage, problems with veterinary medicine regulation have also been raised. It reportedly takes between three and five years to have a vaccine registered. The South African Health Products Regulatory Authority has committed to clear its veterinary backlog and to reduce registration timeframes for new registrations to 12 months and major Type II variations to between three and six months, however, these timeframes are not being met yet (Health for Animals, 2021). Poor implementation of animal biosecurity systems and the enforcement of disease control regulations limit the ability of rural farmers to participate in major contracts. Fast-food chain McDonalds, for instance, uses A-grade meat from South Africa, Namibia and Botswana for its local operations, but has said that it could use C-grade meat if it had enough supply (Sunday Times, 2014). Rural farmers in Africa are major producers of C-grade grass-fed beef, but because they lack traceability systems, they cannot supply large food chains. The commercial ostrich production industry, which in 2011 experienced an outbreak of highly pathogenic avian influenza, had to implement livestock traceability systems to continue to be able to sell into export markets. To implement a livestock traceability system required the buy-in from an entire industry, from farmers, to abattoirs and processing plants. The ostrich industry also established a private laboratory to do rapid testing to European standards, instead of relying on the State to provide testing. The commercial ostrich production industry, which is reliant on exports, advocates adopting a do-it-yourself attitude if the State does not cooperate.
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Suggestions for fostering growth Focus points to accelerate growth
Create an enabling environment
Establish rural farmers’ associations
To create jobs, to continue to ensure food security and to increase exports, South Africa must create a conducive environment for farming investments and ensure that the industry is globally competitive. The State is starting to remove itself as the central figure and is aspiring more to partnering with the private sector. Establish community farmers’ associations to formalise the industry into a stronger agricultural front. The initial idea of incorporating black farmers into existing agricultural associations had limited success, owing to language barriers, and a better structure must be devised. New entrant farmers must also be better assisted to ensure that they are financially viable and environmentally sustainable.
Formalise informal trade
More small-scale farmer support
To help formalise the informal agricultural market, an online trading platform must be established to trade farming produce. There are currently several such platforms under development, but it requires a more centralised approach.
Provide access to more veterinary support, including veterinarians and animal health technicians, for small-scale farmers in remote regions to improve on disease control. Focused education and training sessions at communal dipping sites could be introduced to train smaller farmers in early disease detection. Rapid tests must be acknowledged by authorities and used at these points for effective disease control. A national livestock identification and traceability system must be implemented to better manage disease control and to combat animal theft.
Prioritse infrastructure investment
Crumbling infrastructure has major implications for the continued growth of the agriculture industry. Government must prioritise investment in the repair and maintenance of critical infrastructure.
Pursue passive income more strategically
As renewable-energy investments gain momentum in South Africa, energy farming has become a passive income for many in the farming community. Commercial farmers and the State, on behalf of emerging farmers, must better share these ‘windfall’ gains. Commercial farmers must guard against being perceived as ‘greedy’.
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Suggestions for fostering growth Government must reduce the amount of red tape and Reduce red tape and lessen bureaucracy that farmers, and businesses in general, face. monopoly power
Monopoly power, for instance in the banking sector, must also be reduced to enable smaller farming participants to flourish. The integration of digital technology into agriculture is a major opportunity for the industry to benefit from ‘smart farming’ advances. However, this requires improved connectivity.
Subsidise
Challenges associated with economically motivated cellular
telecommunications
companies providing suboptimal services to sparsely populated farming communities may require that mobile companies subsidise rural areas with the profits made from densely populated areas. Find effective and sustainable plans to make land reform a
Sustainable land reform
success. This must happen in the existing policy and legislative framework, including programmes such as blended finance and the AAMP. South Africa must add more value to its agricultural production
Seek out value chain
by seeking out agroprocessing opportunities. More engineering
opportunities
technicians must be trained to assist those entering the agroprocessing industry.
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Conclusion The agriculture sector represents a high-potential sector of the South African economy – as driver of economic growth, export earnings and employment. Supportive government policy has an important role to play in enhancing the growth and development of the agriculture sector and ensuring that it remains globally competitive. Political stability, policy certainty and labour flexibility are focus points that the industry requires to continue with ongoing investment.
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References AgriSA. 2021. Focus on effective implementation of land reform plans, December 7, 2021. [Online]. Available at: https://agrisa.co.za/media/focus-on-effective-implementation-of-landreform-plans [accessed March 21, 2022]. Botha, R. 2021. Expropriation without compensation: A looming catastrophe, March 12, 2021. [Online]. Available at: https://www.farmersweekly.co.za/opinion/by-invitation/expropriationwithout-compensation-a-looming-catastrophe/ [accessed March 21, 2022]. Ctrack. 2022. Transport ad Freight Index Report, February 24, 2022. [Online]. Available at: https://ctrack.com/za/february-2022-transport-and-freight-index/ [accessed March 21, 2022]. Department of Agriculture, Forestry and Fisheries. 2015. South African veterinary strategy (2015 – 2020), October 2015. [Online]. Available at: https://www.nda.agric.za/docs/media/veterinary%20strategy%2003%2010%202015%20 revision%2016(a).pdf [accessed March 21, 2022]. Department of Agriculture, Land Reform and Rural Development. 2021. Official guide to South Africa 2020/21, 2021. [Online]. Available at: https://www.gcis.gov.za/ sites/default/files/docs/resourcecentre/pocketguide/7AgricultureLandReformRural Development2021.pdf [accessed March 21, 2022]. Farmers Weekly. 2022. SA’s dire animal health situation is a constraint on livestock production, January 12, 2022. [Online]. Available at: https://www.farmersweekly.co.za/agri-news/south-africa/sas-dire-animal-healthsituation-is-a-constraint-on-livestock-production/ [accessed March 21, 2022]. Health for Animals, 2021. Global benchmarking survey 2020, May 2021. [Online]. Available at: https://www.healthforanimals.org/wp-content/uploads/2021/05/gbs2020-report-for-southafrica-final-with-covers.pdf [accessed March 21, 2022]. Independent Online. 2021. Farmers sleep with one eye open as stock theft costs SA R1.4bn annually, February 26, 2021. [Online]. Available at: https://www.iol.co.za/business-report/ economy/farmers-sleep-with-one-eye-open-as-stock-theft-costs-sa-r14bn-annually-29972e205e9d-4aed-a90c-0bed356ebd61 [accessed March 21, 2022]. Intellidex. 2020. The Public Sector Wage Bill – an evidence-based assessment and how to address the challenge, November 2020. [Online]. Available at: https://www.intellidex.co.za/wp-content/uploads/2020/11/Intellidex-Public-Sector-Wage-BillNov-2020.pdf [accessed March 21, 2022]. International Monetary Fund. 2022. IMF Country Report No 22/37, February 2022. [Online]. Available at: https://www.imf.org/media/Files/Publications/CR/2022/English/1ZAFEA2022002. ashx [accessed March 21, 2022].
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References National Development Plan. 2012. NDP 2030, Our future – make it work, August 12, 2012. [Online]. Available at: https://www.gov.za/sites/default/files/Executive%20Summary-NDP%20 2030%20-%20Our%20future%20-%20make%20it%20work.pdf [accessed March 21, 2022]. Stats SA. 2021. Quarterly Labour Force Survey Q3 2021, November 30, 2021. [Online]. Available at: http://www.statssa.gov.za/publications/P0211/Presentation%20QLFS%20 Q3_2021.pdf [accessed March 21, 2022]. Stats SA. 2022. South African economy records a positive fourth quarter, March 8, 2022. [Online]. Available at: http://www.statssa.gov.za/?p=15214 [accessed March 21, 2022]. Sunday Times. 2021. Fast Food: Behind the Golden Arches, May 11, 2014. [Online]. Available at: https://www.timeslive.co.za/sunday-times/lifestyle/2014-05-11-fast-food-behind-the-goldenarches/ [accessed March 21, 2022]. Transnet. 2021. Integrated report for 2021, October 29, 2021. [Online]. Available at: https://www.transnet.net/InvestorRelations/Pages/Annual-Results-2021. aspx [accessed March 21, 2022].
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This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions separately from any other entity. It is founded for the purpose of supporting and further deepening multiparty democracy. The ISI’s work is motivated by its desire to achieve nonracialism, nonsexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental State. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. www.inclusivesociety.org.za
