“Farming looks mighty easy when your plough is a pencil, and you’re a thousand miles from the corn field.”
– President Dwight D Eisenhower
This paper was delivered at the Etienne van Heerden Veldsoirée on 23 September 2023.
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Overview of agricultural regions and value chain
South Africa’s agricultural sector is largely export-orientated. In quarter one of 2023, South Africa’s total agricultural product exports amounted to US$2,8 billion, up by 4,0% from US$2,7 billion in quarter four of 2022. The main drivers of this increase were favourable weather conditions and higher commodity prices.
Maize, wine, fresh grapes, fresh plums, soybeans, wheat, fresh or dried avocados, dried grapes, sugar cane, maize seed for sowing, crude soybean oil, fresh peaches and nectarines, and wool were some of the top exportable products in 2022 and in the first quarter of 2023. The African continent remains the main market for South Africa’s agricultural exports. Europe was the second major export market, accounting for a 32% share, followed by Asia (21%) and the Americas (8%).[i]
The agricultural economy is a dual economy, with both well-developed commercial farming and more subsistence-based production in the remote rural areas. The dominant activities include intensive crop production, with mixed farming in areas characterised by winter rainfall and high summer rainfall, cattle ranching in the bushveld and sheep farming in the arid regions.[ii]
In 2017, 2 610 large farms (those with an annual income of more than R22,5 million) constituted 6,5% of the total number of farms in the commercial agriculture industry. They accounted for 67,0% of total income and 51,4% of total employment. This was in contrast to the 18 710 micro farms (annual income below R1 million) which made up almost half of the total number of farms. These accounted for just 1,9% of total income and 6,0% of total employment. A further 300 000 smaller-scale farming operations are operated mostly by black farmers and are not VAT-registered. A further 2,3 million households are engaged in some form of agricultural production activity.[iii]
With its linkages to agro-processing, agriculture also provides significant upstream and downstream employment and economic growth multiplier opportunities. The footprint for agriculture and agro-processing is significantly larger than their contribution to the overall economy of 2% and 5% respectively.[iv]
South Africa’s food value chain is complex in nature. It consists of a web of formal and informal interactions between agricultural inputs, logistics, farmers, spazas, bakkie traders, processing plants, shipping, retailing, biosecurity and more. A disruption of activities at any single point in the value chain will have knock-on implications for others.
Furthermore, problems with cross-cutting services, such as transportation of employees and goods, could impact at multiple nodes simultaneously. In this regard, the importance of logistical services within the chain to ensure efficient movement of products, services and labour, cannot be overemphasised.[v]
In terms of population growth, South Africa’s population is growing at almost 2% per year. The population of 49 million in 2009 is expected to grow to 82 million by the year 2035. Food production or imports must more than double to feed the expanding population, and production needs to increase using the same or fewer natural resources. In addition, the demand for certain food types will shift as more people become wealthier. South Africa is urbanising rapidly: 63% of South Africans are already living in urban areas, and the statistics will rise to 71% by 2030. By 2050, eight in 10 people will be living in urban areas, and this will increase demand on basic infrastructure requirements.[vi]
Overview of natural resources
The basis of a self-sufficient economy is food, water and energy security. South Africa has a total land surface of 122 million hectares. Of this, 84,8 million hectares are classified as agricultural land. Only 13,8 million hectares (11%) were cultivated in the form of crop fields in 2020. A total of 12% of the country is suitable for growing rain-fed crops.[vii]
Only 9,3% of South Africa’s land can be classified as having high agricultural potential. A total of 65% of the high-potential agricultural land is found in Mpumalanga, KwaZulu-Natal and Limpopo. According to the 2018 Land-Cover (DEA, 2018), 440 000 hectares of land in the former homelands are barren or eroded; 13% of the total barren or eroded land constituted high-potential arable land that has likely gone out of production for a longer period of time.[viii]
South Africa has very few natural lakes, and the country’s rivers have highly variable flows between seasons and between years. Rivers located in the wetter regions of the country, mainly in the east, tend to be perennial, while those in the drier regions, mainly in the west, are seasonal.
As a result of unpredictable flows, large numbers of dams and inter‐basin transfer schemes have been constructed in South Africa to increase the reliability of water supply for users. Most large rivers have been impounded, and 98% of the country’s surface water supply options have already been developed. There is very limited opportunity for more dams and transfer schemes. In most catchments of the country, water demand outstrips current water availability.[ix]
South Africa is dominated by oceanic climate types, followed by hot and cold semi-arid climates. South Africa is a semi‐arid country, with an average annual rainfall of 465 mm, compared with the world average of 860 mm. The climate is characterised by an uneven, poorly predictable and highly seasonal distribution of rainfall, while potential evapotranspiration rates exceed rainfall over most of the country. Droughts are common and are often followed by equally devastating floods, not to mention devastating fires.[x]
Overview of agricultural growth
The agricultural sector expanded by 13,4% and 8,3% in 2020 and 2021 respectively. Real agricultural GDP is projected to contract by 1% in 2023, and growth in real terms is projected to slow down over the medium term, specifically for field crops. The private sector has invested approximately R150 million per annum in research and development to provide the industry with the latest technology and cultivars to ensure global competitiveness.
The private sector has also partnered with the government to unlock export markets. Citrus is South Africa’s largest agricultural export product. Citrus exports alone offset the top four imported agricultural products, namely rice, wheat, palm oil and poultry.[xi]
The story of the South African soybean industry is hailed as one of the biggest successes with respect to a targeted import replacement programme, with a common vision pursued by government and the private sector. Twenty years ago, South Africa produced only 220 000 tonnes of soybeans, while the latest estimate for the 2023 production season puts soybean production at 2,8 million tonnes.
In essence, a favourable investment environment coupled with clear policy mandates by the Department of Trade, Industry and Competition (DTIC) triggered private sector investment in two million tonnes of processing capacity during the early 2010s. These investments, in combination with extensive cultivar trials and the introduction of the technology levy to incentivise seed companies to provide South African producers access to the latest seed technology, ignited the rapid expansion in production.[xii]
Fresh fruit accounts for approximately 35% of South African agricultural exports. Fruit exports include citrus fruit, pome fruit, stone fruit, table grapes, subtropical fruit, berries and other exotic fruit – exported to more than 100 destinations. Vegetables are also exported from South Africa. The economic value generated from these exports is in excess of $3,3 billion. Considering sharp increases in input and shipping costs, the need for additional market access to keep prices at sustainable levels becomes even more pertinent. Furthermore, critical maintenance in irrigation scheme infrastructure has fallen behind, and water losses are estimated at approximately 30%.[xiii]
The avocado industry has expanded from around 13 000 hectares in 2010 to almost 19 000 hectares to date. Volume is expected to grow to 250 000 to 300 000 tonnes by 2028 to 2029. Apple and pear export volumes grew by 41,81% and 16,70% respectively from 2010 to 2019. This coincided with a growth in peach and nectarine exports, which has shown strong growth in volume and value over the last decade. The number of export cartons was 55% more in 2019 than in 2010, driven by the demand for nectarines. With a total value of more than R60 billion projected for 2029, foreign revenue is expected to contribute 70,14% of the combined overall earnings in the citrus, table grape, pome and stone fruit industries.[xiv]
Between 2011 and 2021, beef exports grew at an average annual rate of 18%. However, volumes have stagnated in recent years, and in 2022 beef exports dropped by 6% compared with 2021. China and the Middle East have opened up for meat exports. Consumers have access to a wide range of meat products, across various price points. While meat prices increased post-lockdown, it was insufficient to cover spiralling feed costs, which were driven largely by global factors such as weather conditions and the ongoing war in Ukraine. Amid a myriad of additional challenges such as persistent loadshedding, animal disease outbreaks and haphazard municipal service delivery, the sector’s resilience has been tested to the extreme.[xv]
There are myriad opportunities in horticulture, field crops and livestock due to growing demand in local, regional and global markets. These include import substitutions (grains, oils, animal products), sustainable agriculture technology solutions (eg hydroponics), agri-related RE technologies, and drone and mobile communications agri-applications.[xvi]
Big data is moving into agriculture in a big way. Sensors on fields and crops are starting to provide literally granular data points on soil conditions, as well as detailed info on wind, fertiliser requirements, water availability and pest infestations. GPS units on tractors, combines and trucks help determine optimal usage of heavy equipment. Data analytics help prevent spoilage by moving products faster and more efficiently. Unmanned aerial vehicles, or drones, patrol fields and alert farmers to crop ripeness or potential problems. Individual plants are monitored for nutrients and growth rates. Analytics looking forward and back assist in determining the best crops to plant, considering both sustainability and profitability. Agricultural technology also helps farmers hedge against losses and even out cash flow.[xvii]
Overview of hunger and food insecurity
In 2019, 17,3% of South Africans were estimated to be suffering from moderate to severe food insecurity; 7,0% were estimated to be affected by severe food insecurity. The provinces worst affected by moderate to severe food insecurity and severe food insecurity were the Northern Cape (28,8% and 15,4%) and North West (28,0% and 11,4%). One out of five South Africans (23,6%) in September 2020 were affected by moderate to severe food insecurity, while almost 14,9% experienced severe food insecurity.
The female population is more likely to be affected by both moderate to severe and severe food insecurity compared with their male counterparts. Almost half of female-headed households did not have an employed person living in the household in 2020. Income from salaries has declined, while more households reported receiving an income from grants between 2017 and 2020. Households involved in food production have been below 20% in the four years under review. Domestic food price inflation (measured as year-on-year change in the food component of a country’s Consumer Price Index (CPI)) remains high.[xviii]
South African exports to the rest of the world have performed better than exports to Brics partners. While the country’s exports to the rest of the world grew by 24% from 2012 to 2022, total exports to Brics countries grew by only 16%. South African exports to its Brics partners are highly concentrated. In 2022, 90% of South Africa’s export value to Brics countries consisted of only 10 products (zinc ores, copper, manganese ores, iron ores and chromium ores).
South Africa’s foreign equity portfolio investment inflows and outflows are very regionally concentrated. The UK is the largest recipient of South Africa’s foreign portfolio equity outflows, and the largest providers of portfolio investment have been the USA (for equities) and Belgium and the USA (for debt). AGOA allows for tariff-free access to the US market for qualifying products in sub-Saharan Africa.[xix]
Total South African exports to the USA in 2022 amounted to $10,955 billion, or ±R200 billion. Agricultural products amounted to approximately $566 million (57% in two product lines: citrus and nuts), or ±R10 billion. The total tariff benefit that South African exporters receive as a result of AGOA is ±R2 billion. AGOA beneficiary countries should develop AGOA utilisation strategies. More than 600 American companies currently operating in South Africa employ approximately 220 000 people and generate income roughly equivalent to 10% of SA’s GDP.[xx]
Overview of infrastructure challenges
The Green Drop Report 2022 provides feedback on all water service institutions (private companies, municipalities and other government institutions). There are 995 wastewater networks and treatment works: 850 municipal wastewater treatment systems, 115 systems owned by the national and provincial Departments of Public Works, and 30 privately owned systems. Only 23 wastewater systems achieved Green Drop Status. A total of 334 (39%) municipal wastewater systems were identified to be in a critical state in the 2022 report, compared with 248 (29%) in 2013.[xxi]
South Africa’s road network is approximately 750 000 km in length and is said to be the tenth longest road network of any nation. Responsibility for it is split as follows: (a) primary intercity, with economic roads managed mainly by Sanral on behalf of the Department of Transport (DoT); (b) the secondary and tertiary intercity network, primary access and mobility roads, managed largely by the nine provincial departments; and (c) the urban and rural municipal roads, managed by local authorities.
The majority of road authorities, provincial and municipal, do not have up-to-date knowledge of the condition of their road systems. Only a minority of authorities maintain a pavement management system. Knowledge of the condition of their road systems, together with knowledge of the usage of the system, is essential for prioritisation of expenditure.[xxii]
South Africa has nine commercial ports, namely Saldanha Bay, Cape Town, Mossel Bay, Port Elizabeth, Ngqura, East London, Durban and Richards Bay, with the ninth being the much smaller Port Nolloth. All these ports are wholly owned by the South African government. Its business unit, the Transnet National Ports Authority (TNPA), is responsible for the ports and associated infrastructure. Given that some of the ports already operate close to capacity, major capital investment would need to be made to increase cargo handling capacity. Transnet and its subsidiaries have therefore been seeking to capture growth opportunities through partnerships and collaborations, making use of private sector participation. Private sector investors have already indicated their interest in initiatives such as the Durban hub strategy.[xxiii]
The declining trends in rail, as opposed to road market share, are a major policy failure. The decline in freight tonne performance across all freight segments since the last IRC publication is evident. Increased vulnerability to theft, sabotage and vandalism, and therefore increased costs of security and repair or replacement, applies across the railway system, with the Passenger Rail Agency of South Africa (PRASA) and Transnet Freight Rail (TFR) networks most severely impacted. The haemorrhaging of technical and financial engineering skills in the country, the collapse of institutions and the dire ramifications of state capture have all conspired to degrade the quality of the infrastructure offering in the country. [xxiv]
Data on Eskom’s power generation and energy availability for the first half of 2023, provided by researchers at the CSIR, show that the performance of Eskom’s fleet has continued to decline. Eskom’s declining energy availability factor (EAF) trend continued in the first half of 2023. The EAF refers to the average percentage of power stations available to dispatch energy at any given time. A higher EAF percentage would end loadshedding, but the average EAF for the period 1 January to 30 June 2023 was languishing at 53,8%, compared with 59,4% for the same period last year.
Last year, 419 MW of wind and 75 MW of solar photovoltaic capacity were added to the national grid, according to the CSIR’s annual statistics on power generation and energy availability data for 2022. Eskom burned diesel to the value of R12,4 billion in four months. Power purchase agreements have been signed with 19 projects from Bid Window 5 of the Renewable Energy Independent Power Producer Programme, and six projects from Bid Window 6 are expected to reach commercial close by September this year. The last two bid windows should result in a total of 2 300 MW of new capacity being added.[xxv]
Overview of financing challenges
The 2023 National Budget serves as a roadmap for the country’s economic, fiscal and social development. The structure of the national budget will determine our long-term future trajectory. While the minister of finance focused on the energy crisis, debt relief to Eskom, transport and logistics, and fiscal health, the question still remains how government will practically solve the pressing socioeconomic issues that face the country.
Will the trade-offs in this budget result in adequate long-term solutions to solve our economic situation? Social services are allocated the lion’s share of the budget, R1,35 trillion. The amount budgeted for economic development amounts to R237,6 billion. Is this sufficient, as real GDP growth for South Africa is expected to grow from 0,9% in 2023 to 1,8% in 2025? Notable risks to the economic outlook will continue to persist in the absence of meaningful budget allocations to get the economy growing.[xxvi] Hence this will continue to put pressure on the private sector to step in. For how long will the private businesses remain committed to working with government to address the major concerns plaguing the economy? It is clear that the trade-offs in this budget will not lead to long-term solutions to stabilise our economy in order to achieve sustainable growth.
An amount of R701,2 billion for salaries is budgeted for. The budget for goods and services amounts to R305,2 billion. Capital spending amounts to R192,8 billion. Transfer payments, which include welfare, financial aid, social security and government subsidies for its state-owned enterprises, amount to R685 billion. Meanwhile, the debt services cost amounts to R349 billion.
According to the Reserve Bank, to achieve good outcomes, countries need a broader macroeconomic strategy that delivers key outcomes – particularly fiscal sustainability – and that contributes to a growth-friendly environment. It begs the question whether the return on all the money invested in salaries, goods and services, capital spending, transfer payments and subsidies has led to good outcomes as alluded to by the Reserve Bank.
In the 1990s, the newly elected democratic government introduced a series of reforms that supported the longest period of uninterrupted growth in South Africa’s history. The three main building blocks of these reforms were a floating exchange rate, which freed the country from costly and unsuccessful exchange rate interventions; inflation targeting, which led to lower interest rates and more stable prices; and, perhaps most importantly, fiscal constraints. Together, these reforms helped steer the country through the emerging market crises of 1998 and 2001. But because they involved discipline and caution, they were not very popular. A populist approach was embarked on which did not take into account either the volume or the quality of spending.
Serious macroeconomic decline followed, along with some of the lowest growth rates in South Africa’s history. A renewed commitment to addressing debt levels is needed, taking into account the cost of the transition to low-carbon economies. South Africa also needs to make better use of the financing they can attract to achieve higher economic growth with more sustainable capital. It is clear that the return on public money invested is poor, to say the least. For example, in the latest findings of the International Reading Literacy Study, South Africa has produced one of the worst reading with meaning results. The assessment done with grade four pupils revealed that 81% cannot read with meaning.
Underspending is another challenge. Government underspent R15,8 billion in the 2022/23 financial year, ie 1,4% of its available budget of R1,1 trillion. Social Development’s underspending of R6,4 billion, or 2,6% of its budget, is the result of lower than expected payments from its monthly Covid-19 emergency relief grant of R350. Underspending by other departments includes Water and Sanitation’s R861 million (4,6%), Human Settlements’s R621,3 million (1,9%), Transport’s R591 million (0,6%), Higher Education and Training’s R462,9 billion (0,4%) and Agriculture, Land Reform and Rural Development’s R428 million.
The Department of Agriculture, Land Reform and Rural Development’s overall allocation amounts to R17,2 billion. This is far less than the contribution by the private sector, whose production loans by now amount to R220 billion. In order for the private sector to access capital, they need to provide collateral.
Comparing the investment by the private sector to produce food for the country, with that of the state via DALRRD, the contribution of the former far exceeds that of the state. In fact, the actual amount budgeted for actual food production by the state is insignificant – a mere 1%.
The bulk of the money goes into administration. Is it effectively and efficiently used? No. The state’s inability to assist the private sector in combating outbreaks of animal diseases is a case in point. The private sector, in turn, produces food on the back of debt. Total farming debt has increased by 6,4% and is estimated at R204 930 million for the year ended June 2022, compared with R192 632 million at the end of June 2021.[xxvii]
We are living through the dual crises of biodiversity loss and climate change driven by the unsustainable use of our planet’s resources. Scientists are clear: unless we stop treating these emergencies as two separate issues, neither problem will be addressed effectively. The Living Planet Index (LPI) – which tracks populations of mammals, birds, fish, reptiles and amphibians – reveals an average 69% decrease in monitored wildlife populations since 1970. The earth has already warmed by 1,2°C since pre-industrial times. While climate change has not been the dominant driver of the loss of biodiversity to date, unless we limit warming to less than 2°C, and preferably 1,5°C, climate change is likely to become the dominant cause of biodiversity loss and the degradation of ecosystem services in the coming decades.[xxviii]
Overview of land reform
The Department of Agriculture, Land Reform and Rural Development is the custodian of a total of 10 454 652 hectares (ha) of land. A total of 1 289 583 ha under the custodianship of the Department of Agriculture, Land Reform and Rural Development have been subject to active long-term agricultural leases in the past five years. In the past five years, 8 173 ha were transferred to individuals and businesses. Another 104 850 ha were transferred to communities by the Department of Agriculture, Land Reform and Rural Development.[xxix]
Over the past five years, the Agricultural Land Holding Trading Account failed to achieve most of the set targets. The programme acquired 373 055 ha out of a total targeted 464 468 ha. It planned to support 278 farmers per year, but supported only 185 farmers during the five-year period. Inefficiencies in the implementation of policies meant post-settlement support. Beneficiaries face poor infrastructure on farms, inadequate access to agricultural inputs, and group tensions (eg for agricultural extension, business management, and lack of legal support from official agencies).
Support has been affected by double-dipping, which occurs when beneficiaries benefit from or access production support more than once. Over the past five years, some policies have been phased out or discontinued or have become defunct. Despite the changes in policies, performance remains poor. Policies on farmer development support keep changing. Property management spending exceeds land acquisition spending. Commodity organisations need to provide technical support and training to farmers, with financial institutions focusing on the transfer of grant support to farmers.[xxx]
Most of the farms that received funds from the Recapitalization and Development Programme (RADP) had medium to commercial potential. The assessment of the performance of the farms revealed that RADP did not have a significant impact on productivity. Of the 529 farms that received RADP, 132 (24%) produced at a medium and commercial scale combined, broken down as 13% and 11% respectively. The remainder of 397 (76%) either performed at the livelihood level or were not productive. RADP played a modest role in improving farm infrastructure. Generally, the assessment also revealed that RADP farms performed slightly better than non-RADP farms. The majority of RADP beneficiaries had low to fair capability ratings. Many low-potential beneficiaries received RADP with little resulting increase in productivity. Challenges included late/incomplete disbursement, misallocation and disputes between service providers and farmers.[xxxi]
In conclusion
Agriculture and agro-processing exports have averaged 11% of the country’s overall exports, up from 9% in the decade before. Japan, China, India, Saudi Arabia, Bangladesh, the Philippines and South Korea are key markets in which South African agribusinesses and farmers are interested in expanding their presence. The agricultural sector grew by 4,2% in the second quarter of 2023, fuelled largely by a good summer harvest of grains, and oilseed commodities coupled with solid horticultural exports.
In the second quarter of 2023, South Africa exported agricultural products worth R60,2 billion, which is almost 13% higher than the corresponding period last year. Annual consumer inflation slumped to 4,7% in July from 5,4% in June. Food inflation in South Africa eased for a fourth straight month to 9,9% in July 2023. And whom must we thank?[xxxii]
References
[i] NAMC, 2023. South Africa’s agricultural export performance: Quarter one, 2023.
[ii] Waldner, F et al, 2017. National-scale cropland mapping based on spectral-temporal features and outdated land cover information. PLoS ONE 12(8):e0181911.
[iii] Stats SA, 2020. Census of commercial farming: Financial and production statistics. 2017.
[iv] BFAP, 2021. BFAP Baseline Agricultural Outlook for 2021-2030.
[v] BFAP, 2020. Clarifying and managing essential goods and services across agricultural value chains is critical for food security.
[vi] Statista, 2021.
[vii] WWF, 2014. Understanding the food-water nexus.
[viii] DALRRD, 2019. National land capability evaluation raster data layer, 2017. Pretoria.
[ix] WWF, 2018. Farming for a drier future.
[x] Nel, JL and Driver, A. 2015. National river ecosystem accounts for South Africa: Discussion document for advancing SEEA Experimental Ecosystem Accounting Project, October 2015. South African National Biodiversity Institute, Pretoria.
[xi] BFAP, 2023. BFAP Baseline Agricultural Outlook for 2023-2032.
[xii] South Africa’s Department of Agriculture, Land Reform and Rural Development (DALRRD), 2023.
[xiii] FPEF, 2023. Fresh Produce Directory.
[xiv] BFAP, 2023. BFAP Baseline Agricultural Outlook for 2023-2032.
[xv] BFAP, 2022. BFAP Baseline Agricultural Outlook for 2022-2031.
[xvi] IDC, 2023. Presentation to Kgodiso Trust.
[xvii] Sparapani, Tim, 2017. How big data and tech will improve agriculture, from farm to table.
[xviii] Stats SA, 2022. Measuring food security in South Africa: Applying the Food Insecurity Experience scale.
[xix] Business Day, 2023. China’s in trouble: Why that’s bad news for South Africa. 24 August 2023.
[xx] Nedlac, 2023. Economic and employment trends, September 2023, Issue 6.
[xxi] SAICE, 2022. Infrastructure report card for South Africa.
[xxii] SAICE, 2022. Infrastructure report card for South Africa.
[xxiii] SAICE, 2022. Infrastructure report card for South Africa.
[xxiv] SAICE, 2022. Infrastructure report card for South Africa.
[xxv] Daily Maverick, 2023. Electricity minister Ramokgopa’s report card after six months on the job has been less than electrifying.
[xxvi] National Treasury, 2023. National Budget.
[xxvii] DALRRD, 2023. Annual Budget.
[xxviii] WWF, 2022. Living Planet Report 2022.
[xxix] National Assembly, 2022. Written reply on question 990.
[xxx] GTAC, 2022. Agricultural Land Holdings Trading Entity.
[xxxi] DALRRD, 2022. Report on the Recapitalization and Development Programme (RADP).
[xxxii] Stats SA. Consumer Price Index, 23 August 2023.
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