It is often said that the macroeconomic standing of the agricultural sector has diminished over time – and this argument is supported by the sector’s declining share of GDP, which fell from 4.2% in 1996 to 2.4% in 2018.
What is not captured in this narrative, however, is the fact that the value of the agricultural sector has grown by almost 46%, from R50.5bn to R74.2bn over the same period.
This means that South Africa’s primary agricultural sector is not becoming insignificant – it is only that other sectors, particularly the services sector, have grown at a faster pace.
In 2018, the South African agricultural economy contracted by 4.8% year-on-year owing to a poor summer grains harvest on the back of drier weather conditions at the start of the season, and also lower horticultural harvest at the start of the year due to tail-end effects of the 2017 Western Cape drought.
Agricultural production and trade
Notwithstanding this, the developments on the agricultural trade front were generally positive, as South Africa’s agricultural exports grew by 7% y/y to US$10.6bn, a record level in a dataset starting from 2001. This was underpinned by increased exports of oranges, grapes, wine, maize, apples, wool, lemons, mandarins and pears, among other products.
Over the same period, imports increased marginally to US$6.7bn. The key imported products were rice, wheat, offal, palm oil, whiskey, live cattle and oilcakes for animal feed.
Overall, this subsequently led to a 21% y/y increase in South Africa’s agricultural trade balance to a record US$3.9bn.
From a destination point of view, the African continent and Europe continued to be the largest markets for South Africa’s agricultural exports, collectively absorbing 66% of total exports in 2018, measured in value terms.
In more detail, Africa remained South Africa's largest market, accounting for 39% of agricultural exports. The leading products to these markets were beverages, fruit, vegetables, wool, sugar and grains.
Asia is also an important market for South Africa’s agricultural exports, demanding a 25% export share in 2018. Wool, fruit, grains, beverages, vegetables and meat were the leading products exported to this particular region. The Americas and the rest of the world accounted for 5% and 4% shares. Exports to these regions were also dominated by fruits, beverages, vegetables, tea, sugar and grains.
What is also worth noting in terms of imports is that South Africa has an import substitution objective through its Industrial Policy Action Plan, but the substitution of some of the key imported agricultural products is unlikely in the foreseeable future, as South Africa does not have favourable agro-ecological conditions, specifically for the production of palm oil and rice. About 23% of the overall 2018 agricultural imports were rice, wheat, offal, and palm oil.
In the case of wheat and offal imports, there could be a decline in the coming years if the domestic revitalisation process of these sub-sectors succeeds.
The most recent data from the International Grains Council suggest that South Africa’s 2019 rice imports could amount to 1.1 million tonnes, up by 10% from 2018. But the import value might not be higher than in 2018, due to comparatively lower rice prices on the back of a large global harvest of 491 million tonnes in the 2018/19 production season.
In terms of palm oil, South Africa’s imports increased by 5% per annum over the past 17 years to a record 472 874 tonnes in 2018. Throughout this period, the leading suppliers were Indonesia and Malaysia. The trend is unlikely to change this year due to growing domestic demand. At Agbiz, we estimate that South Africa’s palm oil imports for 2019 could reach 477 603 tonnes.
From a national policy perspective, in his 2019 State of the Nation Address, President Cyril Ramaphosa signalled that potential expansion in agricultural production would mainly be on export-oriented products.
There is already a clear pathway for this initiative as South Africa is currently well-positioned in terms of export markets, and there is clarity about products that show a growing demand in the world market.
With that said, South Africa’s agricultural trade prospects for 2019 are not as positive as the previous few years, as unfavourable weather conditions in parts of the country could lead to lower production, particularly in grains. The current ban, although there are negotiations underway to lift it, on the exports of beef is another factor that could lead to reduced exports in 2019. The expectations of a relatively smaller wine harvest could also weigh on trade in 2019. The sub-sector that could still show solid export performance this year is horticulture. Be that as it may, I still expect a positive trade balance for South Africa’s agriculture in 2019.
Amid the uncertainty posed by domestic factors – such as policy uncertainty which is reflected by despondency in a range of Confidence Indices, climate change and policy – the country’s agricultural labour market also experienced downswings but ended 2018 on a positive footing.
Agricultural labour market
After experiencing a decline in employment in the second and third quarters of 2018, South Africa’s agricultural sector recorded a slight rebound in employment in the fourth quarter to 849 000 jobs. The quarterly uptick was boosted by increased activity in livestock, fisheries and forestry subsectors.
This was mainly spread across four provinces, namely; Western Cape, KwaZulu-Natal, Mpumalanga and North West. Meanwhile, the rest of the other provinces experienced a quarterly reduction.
Looking ahead, over the foreseeable future, South Africa’s agricultural economy could continue to operate within the context of increasing uncertainty due to challenges posed by climate change – which remains largely unaddressed, as well as global trade developments where there is rising protectionism in some key markets – even with countries that South Africa has trade agreements with.
The overall performance of the upcoming production seasons will partly depend on the interplay of the aforementioned factors.
• Sihlobo is chief economist of the Agricultural Business Chamber of SA (Agbiz).