In today’s global economy agribusinesses face an increasingly competitive trade and production environment. According to Lindie Botha, an agricultural economist at the Agricultural Business Chamber, economic growth in South Africa rose spectacularly from 1995 to 2005, but the contribution of agriculture decreased. Botha doesn’t believe this is in itself cause for concern. “We are an industrialised and developing country. We are supposed to have decreasing contribution in our primary sectors, because the manufacturing and services sectors grow as we industrialise and develop,” she explained. However, she believes that the decrease has happened too fast and is too drastic. “It is alarming, but this does not mean we should step away from agriculture and not invest in it,” she said. T he average annual percentage real change in government spending on agriculture between 1993 and 2005 indicates that the sector has experienced a negative growth in expenditure of 4%. One of the reasons for this decrease is that before 1993 a large percentage of government spending went on subsidies and regulation of the market.
“What do we actually want when we ask government to start spending on agriculture?” queried Botha, pointing out that the sector was not asking for subsidies, but for proper infrastructure such as roads, marketing, research and development and technology improvement. Botha also warned that the Department of Agriculture and Land Affairs’ inability to spend its budget meant the treasury would be reluctant to allocate more to the sector. “This must be re-addressed,” she said. Pressure to grow by 10% D r Malcolm Dodd, a cold chain specialist at the Perishable Products Export Control Board, said a Harvard group of economists, appointed in 2005 by the national treasury to develop a growth path for South Africa, had indicated that the economy was doing well, but that some fundamentals were not in place.
They pointed out that the country had too much credit and that the agricultural sector, one of the biggest employers in the country, had shed a significant number of jobs. he Harvard group also said agricultural exports must grow by 10%. “That is possible and is an opportunity for the sector to create opportunities for people within it,” Dodd said, adding that the large sum of money returned to the treasury by the Department of Agriculture indicated that money was available for the sector, but that there was an inability to ensure it is invested and managed correctly. “We are not helping ourselves to achieve 10% growth at all,” he said. Dirk Esterhuizen, project manager at the Industrial Development Corporation (IDC), said agribusinesses must take cognisance of changes in consumer demands, demographics and the global food system to remain competitive. Coupled with this, the sector must create more winning industries. “We have industries that are winners globally, but we also have struggling ones that are just surviving. The main issue is to find out why this is and rectify the problems,” Esterhuizen said.
What makes a winning industry? Agriculture and the broader economy need winning industries, as they create jobs and are the engine of a healthy economy, according to Esterhuizen. Sugar, groundnuts, oranges, apricots, grapes, lemons, plums and peaches are examples of winning industries, and in value-adding maize milling, raisins, processed mohair, wine, processed sugar, essential oils and fruit juices are performing well. Avocados, mangoes, potatoes and wheat milling are declining high performers and maize, apples and pears are struggling industries. Esterhuizen believes research and development are crucial for an industry to succeed. “The higher the rate of return on research done, the higher the competitiveness of the sector,” he explained. Hamish McBain, a consultant for Tiger Brands, said South African agribusiness must assess why some industries such as tomatoes are not considered “winners”. “Why are we not winning in this industry? Because we do it in the same old way,” McBain said, adding that Chile’s tomato production should be an example for South Africa, especially the way in which they integrate small growers (whom they call peasant farmers) with large processing facilities.
They export 80% of their product in the form of tomato paste. “If they can do it, why can’t we?” he asked. Cooperation between sectors is vital “Perhaps the answer lies in cooperation,” said Peter Lekhethe, an agricultural development officer at the IDC. There was not enough cooperation between government, research bodies and the private sector, said Lekhethe. South Africa could be as competitive as China, perhaps not in mass production but in better products, if more research is done. McBain agreed. He said the improvement in tomato production, for example, was not the sole responsibility of individual farmers, but should be a joint effort between government, farmers and processors. “Time and again one finds that success depends on the cooperative effort of various sectors,” he said, commenting that this principle could also be applied to many niche areas, such as the essential oils industry, in which South Africa could also be successful. Esterhuizen said agriculture must add more value to its products, as this is the only way to increase profits.
“The value of the producer in the consumer rand spent is shrinking over time because of value-adding.” The volume of agricultural products traded globally between 1960 and 2003 has grown by 8% per annum, but the value of products has grown by 35% per annum. “So there is more trade in value-added products than in commodities,” he explained. Esterhuizen said changes in the categorisation of the food market should also be noted. “The basic categorisation of meat, vegetables, dairy and grains is expanding,” he said. New categories such as convenience, indulgence, health, ethics, variety and value for money must also be catered for. “Consumers need more selection, sensation, healthy qualities, information, quality, service and flavour for less time, price, effort and risk,” he said. Different countries, different markets, different consumers How one addresses the needs of changing consumer preferences depends on one’s market and how developed a country is.
Esterhuizen explained that in Africa, the focus is very much on survival and staple foods are important. Mass markets such as China, India and Latin America need products such as eggs, meat, sugar and soft drinks. More developed countries focus on health issues, and in these markets organic produce is the buzzword. According to Esterhuizen, the organic market industry will be worth US0 billion by 2010. Supply-chain interactions The Agro Chain Competence Foundation foresees that in future agri-food processors and retailers will no longer compete as individual entities. Instead, they will collaborate as a strategic value chain and compete with other value chains in the market place. Agriculture will become more relationship-based and this will cause changes in the global food system, said Esterhuizen. The value chain will function on a demand-pull basis, instead of supply-push; there will be extensive information sharing; and the primary focus will be on value and quality, instead of cost and price. “The Food and Agriculture Organisation’s statistics indicate that Africa is a net importer of food, despite the fact that Southern Africa has high-quality arable land,” he said. The US, in comparison, is a net exporter. Esterhuizen said one of the reasons for this could be producer support in the form of subsidies. “The playing fields are very uneven, but we have no choice but to compete,” he said. |fw
