Farming income outlook

Real gross farming income is expected to increase strongly over the next two years, but the outlook for the rest of the coming decade
is not so rosy. Denene Erasmus reports.

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Driven by high world agricultural commodity prices, South African farmers can expect strong growth in real gross farming income over the next two years. But after that, real gross farming income will decline in line with weakening commodity prices. This was one of the main assumptions in the Bureau for Food and Agricultural Policy’s (BFAP) agricultural baseline outlook for 2012 to 2021 (Baseline 2012).

The Baseline 2012 was compiled under the leadership of Dr Ferdi Meyer of the University of Pretoria and launched recently.
According to the report, the next decade will be characterised by a stagnant and declining oil price, a dampened global and local economic growth rate and a gradual depreciation in the exchange rate.

However, a rise in field crop production due to signifcant intensifcation of production and a consistent intensification and expansion in meat, eggs and dairy production was expected in order to supply the rising food demand. “Industries that are likely to expand over the outlook period, compared to the previous decade are soya beans, canola, chicken, eggs, beef, pork, sheep, meat and dairy,” according to the Baseline 2012.

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The demand for food in general was expected to grow consistently mainly due to population growth, according to the report. But this was not expected to translate into strong, continued income growth over the baseline period (2012 to 2021). “The recovery of commodity prices in 2011 boosted the real gross income of the agricultural sector by 13%. Thus, the real gross income for field crops is expected to increase by 6,3% in 2012 and a further 13% in 2013. But, beyond 2013, the growth rate will be stagnant as local prices in real terms are expected to remain flat,” stated the report.

Meanwhile, a projected growth in real disposable income, animal production and domestic prices was expected to spur the gross income of animal products to an annual average growth rate of 3,5% from 2013 to 2021. The Baseline 2012 said that in 2013, SA would reach its highest area under production of field crops since 2004. Production is due to expand by almost 300 000ha on the back of increases in commodity prices that were expected to exceed the increase in input costs by a significant margin in the 2012/2013 season.

“This is a drastic turnaround in the outlook for the SA field crop industries for the 2012/2013 production season forecast period,” said the report. Over the baseline period, the demand for potatoes and wheat-based products was projected to grow by 18% and 20% respectively, while the consumption of maize meal was projected to remain stagnant.

Furthermore, although the consumption of chicken meat was projected to maintain a rapid growth rate of approximately 4% per year, it would not match the sharp increase of 70% (i.e. average annual growth rate of 7%) of the past decade, mainly because of a projected lower rate of increase in real per capita income for the period 2012 to 2021.

“Some 2,4 million tons of chicken meat will be consumed by 2021 and production is anticipated to grow by 29% from 1,4 million tons to 1,8 million tons over the next decade, implying that South Africa will remain a net importer of chicken meat,” according to the Baseline 2012 report.

Overall, slower economic growth of the major global players will affect South African economic growth negatively. Therefore in the Baseline 2012, the real per capita gross domestic product was projected to peak at 4,2% in 2016 and then gradually decline to just below 4% by 2021. Also, oil prices were projected to decline from their current relatively stable band (US$110 to US$120) to about US$90 per barrel by 2021.