He also provides more information about the latest developments in the agricultural sector. Here is Sihlobo...

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When reflecting on the year, Sihlobo describes it to be an eventful year filled with positive results for the agriculture and food sector. In this week's note, which is the last note of 2020, he highlights some of the highs and lows experienced in the agricultural sector this year. 

Agbiz’s first note for the year 2020 was released on 13 January which highlighted two threats that were forthcoming at the time in the sector. These two threats were identified as drought and biosecurity with specific reference to African swine fever and foot-and-mouth disease. Sihlobo adds that “at the time, it looked as though 2020 would not be much different from 2019, which was a challenging year in which the sector’s gross value-added contracted by -6.9%. The areas that were experiencing drought at the time were mainly the Eastern Cape, Northern Cape, North West, Limpopo and parts of the Free State. About 80% of the intended area for maize had been planted in these areas, with farmers hoping for rain that could change the fortunes.

“In terms of biosecurity, the food-and-mouth disease outbreak which was reported at the end of 2019, constrained exports of animal products and wool at the time. By the end of January, however, the outlook for the sector had turned positive. It had finally rained across the country and the crop looked promising, despite most of it having been planted outside the optimal window,” says Sihlobo.

“As the season progressed and the crop promised to be one of the best in history, Covid-19 concerns intensified in China, and at the start of March, we worried about the disruption on South Africa’s exports to the Asian region in a year which promised an abundant harvest. It was not long before South Africa also recorded its early cases of Covid-19 infections and the country went into lockdown by end of March 2020. 

At the time, one of the key questions confronting policymakers and general members of the public was whether South Africa would be self-sufficient for a long period as more and more countries went into lockdown, and consumers were panic-buying food products. However, it quickly became clear that South Africa’s formal food supply chains are resilient and functioned throughout that rushed period with minimal interruptions, except for those who were partly affected by regulations, and soon fixed. Importantly, the government’s decision of leaving large parts of the agriculture and broader food sector operational since the onset of the lockdown provided conducive business conditions, relative to other sectors of the economy which faced more severe restrictions during various stages of the lockdown.

“During this period of heightened uncertainty, joint efforts between government, private sector and research institutions such as the Bureau for Food and Agricultural Policy (BFAP) proved invaluable to keeping the agriculture and broader food sectors operational and meeting consumer needs. BFAP created a weekly agricultural value chain tracker covering all aspects of the sector. This proved an essential tool as challenges emanating from it were elevated to the legislators to be tackled swiftly to ensure the continuity of the sector. Through the BFAP Covid-19 tracker, potential challenges at the ports which could have led to prolonged delays in shipments were noticed early and resolved, and there were generally various interactions with industry players throughout the various stages of the lockdown. The potential delays in exports were a great concern as South Africa’s agricultural sector is export-orientated. More so as the 2019/20 production season was bountiful, with large volumes of field crops and horticultural produce to export than in previous years.

“It is through these efforts that South Africa’s agriculture sector saw record quarterly export earnings of US$3.2 billion in the third quarter of the year, which is an increase of 5% on a year-on-year basis. Importantly, South Africa’s agriculture gross value-added expanded by 15.1% q/q on a seasonally adjusted and annualised basis in the second quarter of 2020, following an expansion of 27.8% q/q in the first quarter. The ban on livestock exports was lifted earlier in the year, as some regions of the country were cleared of foot-and-mouth disease. Statistics South Africa will on Tuesday 8 December 2020, be releasing the third-quarter GDP data. We expect positive growth for the agricultural sector, but much milder than the previous two quarters. 

"For the year, we estimate that South Africa’s agriculture gross value-added could expand by 10% from the previous year. Others, like BFAP, are more optimistic, estimating a 13% y/y expansion. This is all on the back of a large harvest in all major agricultural subsectors, specifically field crops and horticulture. The livestock sector did experience challenges of lower demand during various stages of the lockdown, but it is now adjusting well (aside from the rising feed prices).

“This positive picture, however, was at the aggregate level. A deep dive in the sector shows that the wine, tobacco and floriculture industries were amongst the hardest hit by the ban on sales during the various stages of the lockdown. The industry communicated the potential impact of the ban on the cashflow of businesses, especially those with a domestic focus, which is primarily small and medium-sized family farms. The Western and Northern Cape, who are the major producers of wine in South Africa, saw employment in the third quarter of 2020 fall by 31% and 15% quarter-on-quarter, respectively. When viewed on an annual basis, the Western and Northern Cape’s primary agriculture employment fell by 37% and 8%, respectively. In the case of the Western Cape, agricultural employment in the third quarter of 2020 was at the lowest levels since the last quarter of 2014, at 136 729.

“At aggregate levels, South Africa’s agricultural employment held firm relative to losses that we observed in other industries. There were roughly 807 882 working in primary agriculture in the third quarter, down by 8% from 2019. The losses in the Western and Northern Cape were somewhat offset by gains in other provinces, especially those with field crops and horticulture. Nevertheless, the real impact of the economic pain in the farm-working communities of the aforementioned provinces that experienced job losses persists. The better numbers are merely an indication of national performance.

“On a more positive note; the large harvests and continuation of the food value chain activities with minimal interruptions also provided subdued food price inflation. In the first ten months of 2020, South Africa’s food price inflation averaged 4.5% y/y. This is a notable improvement compared to drought years such as 2016, where food price inflation averaged 10.8% y/y. There were nonetheless, communities that struggled with food access, but one can argue that such challenges were not primarily caused by rising food prices, rather the lack of buying power as people lost jobs during the various stages of the lockdown.

“We are now sending this particular note as our last for the year, and we are more optimistic than in 2019 when we gazed forward to 2020 with worries of drought. South African farmers intend to increase the area planting for summer crops by 5% y/y in the 2020/21 production season, and there are prospects of La Niña rains, which we are already experiencing. The rains have improved soil moisture and supported the planting activity. However, the one factor less talked about, yet an important aspect that worries various stakeholders in agriculture at the moment, is the potential lack of financing. Part of this could be traced from the liquidity challenges faced by the Land Bank and effects thereafter in other businesses. This remains an overhanging risk for the sector.

“We look to 2021 with an optimistic eye of yet another strong performance for the sector, albeit the growth numbers won’t be double digits, in part because of base effects. We also look forward to a year of subdued food price inflation, which for the overall year should average at levels not exceeding 5% year-on-year, although earlier months of the year could show higher numbers on the back of elevated grains prices this year. The pass-through could appear earlier next year but soon dissipate due to the expected large grains harvest,” says Sihlobo.

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