The sector is poised for significant expansion in the coming years

Despite a decline in agricultural production as a percentage of GDP in the past decade, agriculture remains a key component of South Africa’s economy and one of the country’s largest employers. In the latter capacity, in particular, the sector has been touted as a major contributor to the government’s long-term economic and social development strategy, the National Development Plan (NDP) 2030. “Investing in agriculture is one of the most effective strategies for reducing poverty and hunger whilst promoting sustainability,” said Tina Joemat-Pettersson, the former minister of agriculture, forestry and fisheries and current minister of energy, at a speech on World Food Day in October 2013. “Investment is needed for conservation of natural resources and the transition to sustainable production.” With these goals in mind, and taking into account the sector’s central role in the NDP and other development plans, most local agricultural players are optimistic.

Land 

According to the Department of Agriculture, Forestry and Fisheries (DAFF), around 12% of South Africa’s total surface area of 122m ha is considered to be arable land, and just 22% of this is regarded as high-potential agricultural land. According to the UN’s Food and Agriculture Organisation, around 69% of the country is covered in permanent meadows and pastures, which is used for grazing; 8% is covered in commercial forests; urban areas cover an additional 8%; and a large percentage of the remainder is protected natural land.

South Africa is an arid country, and the small amount of available water is a major limiting factor in the agriculture sector. Approximately 1.3m ha of the land is irrigated, and 50-70% of the country’s water is used by the agriculture industry annually.

When apartheid ended in 1994 the great majority of South Africa’s land was owned or controlled by the relatively small white population, which had benefitted from decades of land policies favouring whites put in place by the National Party. Since 1994 the government has enacted a series of laws aimed at correcting this disparity by transferring a substantial percentage of the country’s land to black owners. The land reform programme, which has attracted much criticism since it was launched 20 years ago, has far-reaching implications for the agriculture sector (see analysis).

By The Numbers

In 2013 the sector as a whole contributed R57.9bn ($5.48bn) to GDP, on the back of primary annual agricultural production of R187.7bn ($17.78bn), according to DAFF. This was 1.7% of South Africa’s nominal GDP for the year, according to Statistics South Africa (Stats SA), down slightly from 2% in 2012, and well down on the sector’s annual GDP contribution of more than 6% in the 1970s, for example. The primary production figure is much larger than the GDP contribution as around 70% of primary output is used for intermediate products, and is not counted in GDP calculations as agricultural output.

According to DAFF, this decline is primarily the result of the expansion of the rest of South Africa’s economy over the past few decades, as opposed to a decline in agricultural production. Indeed, gross farming income across the sector increased by 8.6% in 2013, reaching R183bn ($17.3bn) at the end of the year. Livestock and animal products accounted for the majority of this, bringing in R87.4bn ($8.27bn) in 2013, up 7.4% from 2012. Horticultural products, meanwhile, brought in R47.8bn ($4.53bn) in 2013, up 13.4% from the previous year; and field crops brought in R47.7bn ($4.52bn) in the same period, up 6.1% from the previous year.

On The Up 

Agricultural production by volume rose by 2.7% in 2013, according to DAFF. This can be attributed to a 4% increase in poultry meat, and a similar rise in goat and sheep mutton, pork and beef production; a 2.3% rise in field crop production, including sorghum, soya beans, sunflower seeds, dry beans and sugar cane; and a 0.6% increase in horticultural production, including citrus and deciduous fruit. Prices for South African agricultural products rose by 4% on average in 2013, resulting in increased revenues for many farmers.

Despite falling GDP contribution levels, the gross value of agricultural production – a measure of the prices received by producers over the year – has increased on an annual basis for the past half decade, according to DAFF statistics. In 2013 rises in the value of sugar cane, soya bean, citrus and deciduous fruits, mutton and poultry contributed to an 8.5% jump in the overall value of the sector compared to the previous year.

Rising Costs

Prices for farming inputs jumped by 9% during 2013. Contributors to this rise included expenditure on seeds and plants, which was up by 12% over 2012; maintenance and repairs of machinery, which was up by 11.7%; building and fencing materials, up by 9.1%; animal health and crop protection, up by 9%; farm feeds, up by 8.2%; fuel, up by 7.2%; and fertilisers, up by 6.1%.

Expenditure on these and other agricultural inputs has risen on an annual basis over the past five years, with farm feeds, fuel and farm services seeing the largest annual spend. The high and rising cost of inputs is a key challenge. “First we should be concerned about the profitability of the sector,” said Hans van der Merwe, the executive director of Agri South Africa (AgriSA), a federal-level employer’s association. “It’s a challenging industry at present, but it is integral to the country in terms of food security, and the government has acknowledged this in the planning documents.”

Employment in the sector has declined substantially over the past decade-and-a-half. According to a 2013 report commissioned by DAFF and the National Agricultural Marketing Council (NAMC), as of fourth-quarter 2013 an estimated 713,000 people were directly employed in the agriculture, forestry and fisheries sector, down from around 1.52m in 2002, for example. This drop can be attributed in large part to rising labour costs over the past few decades and the subsequent adoption of new technologies and techniques by commercial agro-food players, particularly in the grain segment. According to the Bureau for Food and Agricultural Policy, a local research group, as of the end of 2012 an average of 72.5% of agricultural labours were unskilled.

Oversight

Various entities are involved in regulating the sector. DAFF was established in July 2009 when the government combined components of the existing Department of Agriculture, Department of Water Affairs and Forestry, and Department of Environmental Affairs and Tourism into DAFF.

The Department of Environmental Affairs, which was also established as a result of the reshuffle, oversees various aspects of natural resource management policy, and works closely with DAFF in this and other areas. Other government departments involved in the sector include the Department of Rural Development and Land Reform (see analysis), the Department of Labour, and the Department of Trade and Industry (DTI).

Sector financing involves various public entities. The Land and Agricultural Development Bank of South Africa is a key credit source for farmers and other industry players. The institution offers a variety of loans – including mortgages – along with other financial products and services. In a similar vein, the state-owned Development Bank of Southern Africa, which has a mandate to finance economic development across all sectors in South Africa, maintains an active agriculture portfolio. Finally, the Industrial Development Corporation (IDC), a parastatal organisation that falls under the umbrella of the Economic Development Department (EDD), provides funding for agriculture-related projects.

Other key entities include the Agricultural Research Council, which is the country’s principle agricultural research entity; the NAMC, which falls under DAFF and has a mandate to link domestic producers with international markets; AgriSA, which was launched as the South African Agricultural Union in 1904 and continues to represent various segments of the industry; and the Agricultural Business Chamber, a major private association of agribusinesses. A substantial number of segment-specific private associations, unions and other related entities are also involved in various segments of the industry, such as Grain South Africa, the Citrus Growers Association of Southern Africa and the South African Sugar Association (SASA), for example.

The sheer number of public and semi-public entities involved in the sector is a key challenge moving forward. “In some cases the various government organisations operate under different policies and pursue different long-term plans,” Robert Matsila, project manager of the agro-industries business unit at the IDC, told OBG. “Unifying activities under a singular policy priority should be the priority, and all other policies should be subservient to one national strategic objective.”

Policy

Long-term sector development is taking place according to a handful of policy blueprints developed by various entities. Under the NDP, a top-level economic development plan launched in August 2012 and overseen by the National Planning Commission (NPC), agriculture is considered a key driver of economic growth and employment, particularly in rural areas.

The government plans to create close to 1m new jobs in agriculture by 2030, primarily by expanding irrigation on arable land. The NDP also includes a comprehensive, district-focused plan for the transfer of 20% of all commercial agricultural land to black farmers. While the cost of the land reform component is expected to be shared equally by all stakeholders, this remains a controversial and complex policy (see analysis).

Agriculture figures prominently in other national-level economic development programmes, including the New Growth Path (NGP) and the latest Industrial Policy Action Plan (IPAP). The NGP, launched in 2011 by the EDD, is focused primarily on job creation as a means of poverty alleviation, and aims to create 5m new jobs by 2020. As in the NDP, a considerable percentage of these new jobs are expected to come from expansion in the agriculture sector. The sixth iteration of the IPAP covers 2014-17, and is concerned with scaling up South Africa’s industrial base. The strategy, which was developed and is overseen by the DTI, includes a component aimed at expanding the nation’s agro-processing.

DAFF’s APAP, a five-year rolling plan that has been in development since 2012, is expected to be put in place by the end of the 2014. While the details of the strategy had yet to be released at time of press, the APAP is thought to be based on a four-year agricultural action plan that was jointly adopted by the BRICS economies in 2011. Under this initiative the BRICS countries have agreed to cooperate on a handful of agriculture-related issues, including climate change, food security, trade and investment, and technology use. The APAP is also expected to include a blueprint for achieving the numerous agriculture-related objectives described in the NDP, the NGP and the most recent iteration of the IPAP. The APAP is being developed in conjunction with DAFF’s internal Strategic Plan for the period 2012-17.

Additional agriculture-related strategies in place or under development include the National Policy on Food and Nutrition Security, launched in August 2013 by DAFF with the Department of Social Development; and the Fetsa Tlala Integrated Food Production Initiative, which was launched in late 2013 by President Jacob Zuma and aims to boost food security and support smallholder and subsistence farmers (see analysis).

Animals

Around 53% of the agricultural land in South Africa is dedicated to cattle, sheep and goat farming. Animal production as a whole has accounted for more than 40% of the country’s agricultural GDP in recent years. At the end of August 2013 around 80% of the nation’s 13.9m head of cattle were to be used for beef production, while the other 20% were dairy cattle.

South Africa’s dairy industry is relatively small by global standards, contributing 0.5% of overall global production, but it is the country’s fifth-largest agricultural segment domestically. The majority of domestic milk consumption is met by local production, though both milk and milk-product imports have increased in recent years on the back of rising demand. Red meat production (which includes beef, mutton and pork) accounted for around 14.6% of the gross value of overall agricultural production in the country as a whole in 2012-13.

Poultry Sums

Poultry is among the most important segments by both value and volume. According to the South African Poultry Association (SAPA), poultry products accounted for 66% of domestically produced animal protein consumption by volume in the country in 2012, when the industry (including imports) supplied 2.35bn tonnes of poultry meat and eggs in total. In 2011 per capita consumption of poultry meat in South Africa was 36.3 kg and per capita egg consumption was 9.6 kg, compared to 16.5 kg of beef, 4.6 kg of pork and 2.8 kg of mutton and goat combined, for example.

Poultry imports, which accounted for 20% of domestic consumption in 2012, according to SAPA, have grown considerably, putting pressure on the domestic industry. In recent years Brazil, which is the source for more than 50% of the total poultry imports into South Africa, ramped up export of low-priced frozen broiler chickens and related products to South Africa, undercutting local production, and prompting SAPA and other industry players to call for an anti-dumping duty on Brazilian poultry imports. While this duty was imposed for a few months in 2012, it was cancelled in 2013 after Brazil filed a complaint with the WTO.

Instead, in late 2013 South Africa’s government raised tariffs on various imported chicken products by 8.75 percentage points on average, which brought tariffs up to 82% on the import of whole birds, for example. The long-term consequences remain to be seen, though the issue of poultry imports is expected to remain contentious. Preliminary anti-dumping duties ranging from 22-73% were introduced in July 2014 against imports of frozen bone-in chicken from Germany, the Netherlands and the UK, expiring in January 2015.

Other animal products produced in South Africa include ostrich meat, leather and feathers; fisheries products; and wool and mohair. The ostrich industry dates back to the mid-19th century. During the so-called second ostrich feather boom (1900-14), the birds were farmed solely for their feathers, which fetched high prices in Europe. Today ostriches are farmed mainly for their meat, which is low in fat and cholesterol, and rich in iron and protein. As of the end of 2013 South Africa was the dominant supplier of ostrich products, accounting for 70% of global supply, according to DAFF.

Commercial fisheries contribute 0.5% to GDP on an annual basis. Wild capture activities dominate the local industry, while aquaculture remains relatively underdeveloped. South Africa is a net exporter of fish, selling around 160,000 tonnes of fish to foreign markets on an annual basis in recent years.

Grains

Maize has been the most important grain crop by value over the past half decade, accounting for 46% of the gross value of South Africa’s field crops from June 2008 to June 2013, according to DAFF. Other major field crop contributors include sugar cane, which accounted for 14.2% of the total over the same period, wheat (10.6%), hay (8.7%) and soya beans (7.1%).

Two types of maize are produced in South Africa: white maize (48% of the annual maize crop), which is primarily sold for human consumption; and yellow maize (52%), which is used as animal feed. From June 2012 to June 2013 the gross value of the maize produced in the country was R23.8bn ($2.25bn). Most of this production comes from three provinces: Free State, which produced 41% of the maize crop; Mpumalanga, with 26%; and North West, with 14%. Other maize-producing provinces include Northern Cape, KwaZulu-Natal and Gauteng, each with 5-6% of annual production.

Sugar

According to data from DAFF, the South African Cane Growers’ Association and SASA, South Africa produced 18.9m tonnes of sugar cane on an annual basis between 2003 and 2013, which has resulted in sugar production of 2.2m tonnes per season. Sugar processing is carried out by six milling companies, which operate 14 mills in total in the cane-growing regions of KwaZulu-Natal and Mpumalanga. The majority (83% in 2012-13) of the sugar produced in South Africa is sold domestically, and the remainder is exported.

In April 2014 the import tariff for sugar was increased by 58% from $358 a tonne to $566 a tonne, following a recommendation by the International Trade Administration Commission. SASA had wanted it raised to $764 a tonne to prevent imports from affecting the sustainability and competitiveness of the domestic industry. The rural development and land reform minister, Gugile Nkwinti, said the government wanted to cut down on food imports to keep prices under control.

The third-largest field crop by value in recent years, wheat is grown primarily in the Western Cape and Free State. South Africa is a net wheat importer. Local wheat producers supplied 45% of domestic consumption in 2012-13, with the rest coming from imports. Other major field crops include hay, soya beans, barley, sunflower seeds, groundnuts, canola, cotton and dry beans.

Horticulture

Major horticultural crops in South Africa include citrus fruits, grapes, apples, pears and quince. The citrus industry, which is centred in Limpopo, the Eastern Cape, Mpumalanga, the Western Cape and KwaZulu-Natal, is largely export-orientated, with around 62% of overall production going to foreign markets in 2012-13. South Africa is a major producer of oranges, grapefruit and lemons. Oranges accounted for just under 69% of total citrus production in 2012-13, and around 70% of citrus exports in the same period.

In late 2013 the EU banned South African citrus after citrus black spot disease was found in oranges originating in the country. The ban was lifted in May 2014, but since then stricter plant safety rules have been implemented and the threat of a further ban remains. South Africa has referred the EU to the WTO over the threat, the trade and industry minister, Rob Davies, said in October 2014. Davies called the threat “protectionist”, saying there was no scientific consensus to support the EU’s claim that fruit from South Africa with the fungal disease could infect European orchards.

However, in August 2014 the US Department of Agriculture announced a potential regulatory change that may increase South Africa’s opportunity to export citrus. The proposed rule that would expand the regions of South Africa that would be eligible for citrus export into the US, provided growers implemented certain requirements to mitigate citrus black spot disease.

Should the US change its rules, fruit from Limpopo and the Eastern Cape could be added to that from the Northern Cape and the Western Cape for export to that market. The agriculture, forestry and fisheries minister Senzeni Zokwana welcomed the news.

In terms of deciduous fruit, South Africa is a major producer of apples, pears, table grapes, peaches, nectarines, apricots and plums. Over the past decade producers of these fruits have become increasingly focused on processing. Since 2008 the majority of local production has been processed into juice. For example, in 2012-13 more than 90% of the apple crop and 36% of the pear crop was turned into juice. The same year 49% of the domestic deciduous fruit crop was exported, either fresh or processed, according to DAFF.

The country is also a major exporter of dried fruit, including seedless raisins, sultanas, currants, peaches, apricots, pears and prunes; sub-tropical fruit, particularly bananas, pineapples, avocados, mangoes and guavas; and vegetables, including tomatoes, onions, potatoes, cabbage and carrots.

Viticulture

In 2012 South African wine producers accounted for 4% of global production, making the country the eighth-largest wine producer in the world. Key wine-producing regions include the Western Cape and parts of the Northern Cape. In 2012 wine production was up 8.1% on the previous year, according to DAFF. Just over 68% of the wine grapes used in the industry in 2012 were white, while the remaining 32% were red. Major grape varietals in 2012 included Chenin Blanc, which accounted for 21.2% of total wine- and juice-making for year; Colombar, with 21.1%; Sauvignon Blanc (7.1%); Shiraz (7%); Cabernet Sauvignon (6.4%); Chardonnay (5.8%); and Merlot (4.7%).

In 2012, 48% of the country’s total domestic production of 1.09bn litres of wine (including juice and concentrate for non-alcoholic beverages) was exported, up from 43% in 2011. The majority of the nation’s wine exports go to the EU (69% in 2012), and 22% of the total goes to the UK. Other major markets include the US and Canada (11%), and East Asia and Australia (11%).

Outlook

South African farmers and other agriculture players face high input costs, complex and shifting land reform regulations (see analysis), labour unrest, dilapidated infrastructure and increasing competition from elsewhere. All of this has contributed to the challenging domestic economic environment in the sector in recent years. These issues have been exacerbated by the government’s push to transform the industry into a major generator of jobs and rural development in the two decades since the end of apartheid in 1994.

However, many local players are looking forward to continued expansion. In the areas of legislation, oversight, policy framework and ability to implement and enforce large-scale development programmes, South Africa ranks well above most other African countries and many other nations around the world. Major South African agro-related companies – such as Tiger Brands, Clover and Shoprite – have expanded steadily throughout the continent over the past decade, becoming key regional players in the process.

With the population of Africa expected to more than triple by the year 2100, demand for food and other agricultural products is expected to grow substantially for the foreseeable future. “South Africa provides an excellent base for exploration into the rest of the African continent,” said Matsila. “Taking into account the importance of the sector to the government’s long-term development plans, growing regional and domestic demand, and the country’s long-standing reputation as a major centre of agricultural production, the future looks bright provided the right investments are made.”