Local agriculture has faced some of its most tumultuous times in recent years, with sectors like livestock growing by up to R25 billion, while others have declined significantly. Dr John Purchase of the Agricultural Business Chamber reviews the role of agriculture in the local economy, and explains what it needs to do to become more competitive.
It’s important to note that while our existing commercial farming sector has responded well to changing local market pressures, it must now invest in developing international markets, especially in Africa. The ability of this sector to positively respond to increased market opportunities will determine if any gains are made from global trade liberalisation.
There is a serious need for research into increasing agricultural export potential. Increased competitiveness in this sector requires policies for quality and productivity improvements. This need for increased competitiveness is underscored by the marked decline in competitiveness from 1973 to 1993. Since 1993, thanks to the second phase of deregulation and the weak rand, the competitive status of the local agricultural sector has gradually increased.
Studying this competitive status since 1993, it shows that there have still been ups and downs because of a lack of confidence by the commercial agricultural sector due to political uncertainties. If these factors are turned around, agricultural competitiveness will again improve significantly. R egarding the performance of the local agricultural sector since 2000, the gross value of animal production increased from just over R20 billion in 2000/01 to just below R45 billion in 2006/07. Crop production’s overall performance increased from about R17,5 billion in 2000/01 to just over R20 billion in 2006/07. This is due to the decreases in grain prices, drought conditions and commercial farmers leaving the sector. O verall, horticultural production has increased slightly more than cropping since the latter increased from R12,5 billion in 2000/01 to R20 billion in 2006/07. Gross and net farming incomes similarly showed declines from 2002/03 to 2005/06, but a welcome increase in 2006/07.
Gross farming income for 2006/07 was about R85 billion, while net farming income for the same period was just below R30 billion. A number of people believe that this increasing trend will continue for the next three to five years. nother worrying trend is SA’s agricultural imports versus exports. Since 1998 there has only been one time (2004) when the country’s agricultural imports exceeded its exports. However, it appears that once again our agricultural exports are declining while imports are increasing. As a result, our agricultural trade balance in 2006 lay at just below R5 billion. This is significantly lower than the R10 billion in 2002. These two situations need urgent remedial action. Prospects for the local agricultural sector T he up-and-down cycles for this sector are normal. However, we need to be suitably prepared to meet the down times and to take advantage of the up times. The drivers of agricultural markets, such as economic growth, demographics, urbanisation, biofuel, climate change and agricultural market cycles are global phenomena and don’t only affect this country’s agricultural sector.
Regarding the growth cycle in agriculture, there is now a new era of strong and increasing demand for the sector’s products combined with volatile prices. The local agricultural sector must take advantage of this. Markets for agricultural products are becoming more varied, with most of sub-Saharan Africa requiring carbohydrate staples; China and Latin America needing eggs, meat, dairy, sugar, processed food and soft drinks; Eastern Europe demanding prepared meals and snacks; and North America, Japan, Western Europe and Australia seeking fresh and convenient segmented meals as well as diet, functional and organic foods. These varied demands create opportunities for everyone in SA’s commercial agricultural sector. The battle for biofuel With increasing input costs farmers will have to adapt their farming enterprises to remain economically and environmentally sustainable. The dramatic increases in international oil prices, for example, are likely to result in many farmers turning to conservation farming methods in future.
Farmers in some parts of the world will also have to produce much needed food crops as the growing demand for grain feedstocks for biofuel refineries takes a significant bite out of their reserve food grain stocks. There are already over 115 biofuel refineries in the US, and it will build one additional refinery per week for the next three years. There is going to be a strong and sustained growth in global food and fibre demand. Increased food prices are indicative of the struggle for supply to meet demand. If SA’s farmers can improve their production and marketing competitiveness, they can take advantage of this increased demand. However, they must remember that they will be competing against very tough competitors and in highly competitive markets. For local agriculture to meet these needs, it will first have to regain confidence after one of the worst droughts ever experienced. Factors such as insufficient black participation in local commercial agriculture, inadequate and inefficient support and delivery systems, and poor and unsustainable management of local natural resources need urgent remedying for local agriculture to be a viable participant in the future. Time to harvest the promise It’s promising to note that confidence in the local sector is again improving, and hopefully this will result in the sector taking advantage of the opportunities across the value chain of all agri-industries and agricommodities.
Farmers must prepare themselves by conducting market research and by drawing up relevant business plans. There should also be less political focus on the local commercial farming sector and more of an economic focus. The challenge remains in creating an investment-friendly environment in the local agricultural sector that will enable it to deliver the proverbial golden egg. – Lloyd Phillips |fw
