Tracy Davids leads Commodity Markets and Foresights Research and is a director at the Bureau for Food and Agricultural Policy (BFAP). Ferdi Meyer is the managing director and leads Value Chain Analytics at BFAP. He is also an Extraordinary Professor at Stellenbosch University.

A decade has passed since the National Development Plan (NDP) was published. It identified agriculture as the main sector to drive development opportunities in South Africa’s rural areas. Agriculture has strong linkages to upstream and downstream industries and thus expansion at the primary level will spill over into the wider development of rural economies. Besides the opportunities for inclusive expansion in farming in areas that are currently underutilised, agriculture is typically the biggest employer of labour in rural areas, and capital invested on farms is often a precursor of further investment in newly developed industries that follow such development.

The strong up-and-downstream employment and economic multipliers suggest that agriculture could be the engine for inclusive growth in South Africa. The agriculture sector is currently in another planning phase with the drafting of the Agriculture and Agro-processing Master Plan (AAMP) and it provides another opportunity to align critical interventions to support growth in the sector according to the NDP’s vision of an inclusive and thriving rural economy built on a strong agricultural value chain.  

Achieving this vision requires a portfolio approach towards inclusive agricultural and agro-processing transformation. Our food system combines highly diverse value chains with a wide spectrum of producers linking to a range of formalised and sophisticated markets on the one extreme and completely informal markets on the other. Efforts are now required to reduce the persistent dualism in the sector, driving development and enabling a diverse range of primary producers and value chain operators to flourish.  

Successful transformation will result in more smallholder farmers producing for local markets, ensuring regional food security, and, where possible and viable, linking into formal or tailor-made value chains, growing their businesses. Nevertheless, the largely urbanised population and economically important international trade balance will still depend on commercial farming operations of both black and white farmers and corporate agribusinesses. The sustainable existence of a strong and healthy commercial sector is vital for the burgeoning smallholder sector, as larger farmers create the critical mass of demand for research and technologies, input supply networks and value chains that will incorporate, expand and adjust to also serve the smallholder sector better if properly targeted. 

The AAMP identified various cross-cutting preconditions and value chain specific interventions and reforms. Simulations suggest that successful implementation could increase real agricultural GDP by 14% above baseline projections by 2030. Total gross production value from agriculture could increase by R32-billion in real terms, and the share of black farmer output could increase to more than 20% in most industries where transformation has been lagging, with current estimates from the National Agricultural Marketing Council averaging below 10%. 

This outcome requires the successful implementation of particular interventions and cannot yet be incorporated in the current baseline outlook, which is a “business-as-usual” scenario that reflects muted growth in farm output over the coming decade. The purpose of the baseline, which we summarise below, is to provide a clear benchmark of current realities that can serve as a roadmap to pinpoint required interventions that will lead to improved socioeconomic performance.  

The 2021 edition of the BFAP Baseline, generated by the Bureau for Food and Agricultural Policy (BFAP) system of economic models, presents an outlook of agricultural production, consumption, prices and trade in South Africa from 2021 to 2030. The analysis is based on assumptions about various factors such as weather conditions, the macroeconomy and global markets. Macroeconomic assumptions are based on a combination of projections from the International Monetary Fund, the World Bank and the Bureau for Economic Research, while global commodity market projections are generated by Fapri at the University of Missouri. 

In 2020, South Africa’s agricultural sector was a shining light in a difficult year. Amidst various restrictions to curb the spread of the pandemic, the economy contracted by a record 6.4%. Agriculture, along with government services, was the lone positive contributor, growing by 13.4% and yielding a trade surplus of more than $4-billion. The pandemic also highlighted the sector’s broader footprint, its complex interlinkages with the rest of the economy and the often underrated contribution of the informal sector. Despite unprecedented challenges across the value chain, food supply remained steady, and consumer food price inflation averaged a tolerable 4.8% for the year.  

In a high world price environment, short-term prospects for the sector remain upbeat. BFAP expects further growth of 7.6% in real agricultural GDP in 2021, underpinned by a bumper harvest for most major crops, sold at high prices, and record exports of most major fruit categories.  

The medium-term baseline growth path is conservative, and acceleration will require a favourable environment, underpinned by certain preconditions for inclusive growth. These include:

• Stable, conducive policy and investment environment;
• Comprehensive, sufficient and predictable infrastructure as well as service provision and maintenance including electricity, roads and water with well-functioning municipalities;
• Comprehensive farmer support programmes; and
• Effective state services (eg, trade affairs, port authorities, veterinary services, biosecurity, plant health, agricultural research etc).

These preconditions and the environment that they create will ultimately determine long-term growth trajectories. Within specific sectors, they must be complemented by targeted interventions to unlock growth. 

Livestock, the largest agricultural subsector, has ample potential for accelerated, inclusive growth. Strong progress over the past decade was underpinned by substantial investments in intensive operations producing chicken, eggs and pork. The beef industry also shifted from a net importing to a net exporting position and wool exports have been hailed as a success, specifically because comprehensive support programmes boosted output from smallholder communal farms, delivering into export markets.

However, growth projections for the coming decade are balanced on a knife’s edge. Domestic consumption growth is expected to slow due to weaker spending power; thus production growth will rely on expanded exports. The animal health system, an essential precondition to achieve this, is currently inefficient in managing disease outbreaks, which hampers productivity and limits export opportunities. 

Accelerated growth in livestock production will also enable expansion of field crops, as animal feed is a key market offtake. Under baseline assumptions, including stable weather, further real growth in the value of field crops beyond 2021 is limited. Even for soybeans, one of the most dynamic sectors in recent years, growth could slow as the industry moves towards self-sufficiency. Although a major milestone, this introduces the need to compete sustainably at export parity levels, which can be enabled by introducing new seed technology and germplasm, along with a constant drive toward improved farming practices, better efficiency in handling and processing, and investment in logistics – especially transport to coastal areas where almost one-third of soybean meal is consumed. 

Investments that improve transport efficiency and port logistics will also support the competitive, export-orientated horticultural sector. Export orientation makes this sector less sensitive to domestic spending constraints and it is currently reaping the rewards of more than a decade of investment.  

Export volumes could rise further by roughly 50% by 2030. While successful in itself, this will bring significant price pressure in many markets, highlighting the need for the government to negotiate favourable, competitive access to new export markets, and to invest in upgrading port facilities. 

Furthermore, critical maintenance in irrigation scheme infrastructure has fallen behind, and water losses are estimated at approximately 30%. While on-farm water-use efficiency has improved with the rising prevalence of netting, expansion and maintenance of infrastructure in existing irrigation schemes will be critical for new entrants to enter the sector successfully. 

Overall, creating an enabling environment that encourages inclusive and sustainable growth in food value chains requires a holistic and integrated approach. Agriculture is well-known to be exposed to various short-term risks associated with external events like weather, global market prices and exchange rate fluctuations, but the long-term growth trajectory will be strengthened by establishing the preconditions that determine long-term inclusive growth. 

BFAP has for a number of years argued that the opportunities for this brighter future for agriculture will not materialise under the current policy regime, despite clear opportunities for growth, employment and increased participation of black farmers. The interventions being tailored under AAMP should be focused on improving these preconditions first, and the various social partners will need to agree on concrete actions, of which each should be held accountable with clear timelines of execution. DM