Land Affairs, Ms Lulama Xingwana
12 June 2007
Role of agriculture in the economy of South Africa
Excellencies,
Ministers & Deputy Ministers
Members of Parliament and Provincial Legislatures
MECs of Agriculture in the nine provinces of South Africa
HODs of Agriculture in provinces of South Africa
Directors-General
Agricultural Research Council (ARC) CEO and President
President of Agri-SA,
President of National African Farmers' Union (NAFU),
President of Transvaal Agricultural Union (TAU)-SA
Chairperson of the National Agricultural Research Forum (NARF)
Members of the NARF
House of Traditional Leaders
Ambassadors
Programme Director
Ladies and Gentlemen
Background
This year is the 31st anniversary of 16 June 1976 of the Soweto and
connected uprising recalls the sacrifices our youth made in the struggle for
freedom that has brought progress and opportunities for our country. South
Africa has undergone enormous economic, social and political change since the
beginning of the democratisation process in 1994. The overall results have been
positive with a stronger and stable macro economy, better integration into the
global trading system, and progress in redressing past injustices and reducing
poverty. There are still many challenges facing the government and South
African society as a whole, including widespread unemployment and poverty, a
large unskilled workforce excluded from the formal economy, weak social and
educational systems.
The commercial agricultural sector adapted well to the policy reforms and
liberalisation efforts. However, economic and financial pressure on commercial
agriculture is substantial, and as with other sectors, farmers must adapt their
production and investment decisions to the market situation and overall
economic developments. These market pressures need to be considered in the
context of land reform and Black Economic Empowerment (BEE). The new entrants
into commercial agriculture (and into agricultural based services) are at a
considerable disadvantage relative to the more experienced operators in
responding to these challenges.
Continued land reform is one of the most important agricultural policy
challenges, in particular how to:
a) improve the land acquisition and resettlement process
b) create stakeholder consensus around the implementation strategy.
Greater flexibility in land acquisition options and more decentralised
community-driven decision-making would be positive steps. Moreover, assistance
to farmers is required to ensure that land reform results in the emergence of
viable farms. Development of the necessary technical and social infrastructure,
as well as an effective service sector are critical measures. Facilitating
economic integration between small and large-scale commercial units is another
policy challenge. The ability of the commercial sector to respond to increased
market opportunities will ultimately determine any gains from global trade
liberalisation. Farming policies need to be conducive to the adoption of
quality and productivity improvements for this sector to become more
internationally competitive and exploit its export potential.
The Republic of South Africa has a surface area of 1,22 million square
kilometres and a population of 46,9 million, making it one of the largest
countries on the African continent. It is also the largest African economy,
with a per capita Gross Domestic Product (GDP) of US$3 530 [US$10 492 in
(purchasing power parity) PPP terms] more than four times the African average.
However, the distribution of income is among the most unequal in the world. The
potential of South African agriculture is limited by the relative scarcity of
arable land and water resources.
South Africa has undergone immense social and economic change over the last
20 years, following the abolition of apartheid and fundamental reforms aimed at
creating a more open and market-oriented economy. An underlying principle for
virtually all government policy is to bring the previously excluded black
community into the mainstream economy through job creation and
entrepreneurship. Macroeconomic reforms have stabilised the economy, but
notable problems of high unemployment and poverty still remain.
The Marketing Act, in force since 1937, gave the government control over
domestic markets and trade. Partial reforms, mainly concerning domestic
markets, were implemented during the 1980s and early 1990s. However, it was in
1994-97 that the government introduced radical reforms, liberalising domestic
markets, foreign trade, and prices in the whole economy.
The current South African agriculture is highly dualistic with a small
number of commercial operations run predominantly by the white farmers and
large numbers of subsistence farms run by the black farmers. The problems and
opportunities are quite different for each group. Agricultural reform continues
with a series of measures to address past injustices including land
redistribution, agricultural support programmes to disadvantaged farming
communities, and a broad based programme of economic empowerment of the black
population in the agricultural and food sector.
The importance of agriculture in the overall economy has been declining over
the long term. Agriculture's share of GDP fell from around 6% in the 1980s to
less than 4% in 2001/02. However, agriculture remains an important sector in
terms of employment, accounting for 10% of formal (officially reported)
employment. Overall, the conditions for agricultural production are not
favourable in most of the country. Only 16% of agricultural area is potentially
arable and water resources are scarce in most regions. Natural pastures in
desert and semi-desert areas represent 83% of total agricultural area, and the
remaining area is used mostly for field crops and horticulture. The winter rain
area in Western Cape is the only region with very favourable production
conditions. The three main sectors of agricultural production in South Africa
are field crop production (33% of total agricultural output in 2001-03),
livestock production (40%) and horticulture (27%). Overall, agricultural
production is well diversified. However, due to adverse regional conditions,
farmers in some regions have little scope to diversify. The southern and
western interior (semi-arid area) is only suitable for extensive livestock
production (sheep, cattle). Intensive livestock farming (dairy, poultry and
pork production) is practised in the arable areas of the country, generally
closer to the major metropolitan markets or on the coast where access to
imported feed is easier. The country is a net importer of meat, most imports
being from the neighbouring Botswana and Namibia.
The South African economy, including agriculture, is increasingly integrated
in world markets. Three major political and economic developments of the 1990s
contributed to this process. The most important was the lifting of economic
sanctions against South Africa following the accession in 1994 of a democratic
government. The next radical change was the repeal of the Marketing Act of
1937, which led to establishment of a much freer economic and entrepreneurial
environment with major reductions in government interventions in domestic
production, marketing and trade.
The opening of the agricultural sector placed South Africa among the world's
leading exporters of such agro-food products as wine, fresh fruits and sugar.
The country is also an important trader in the African region. The beginning of
the current decade witnessed particularly strong agricultural export growth.
South Africa's agricultural export revenues reached almost 9% of the total
value of national exports. Europe is by far the largest Agricultural trade
balance importer, absorbing almost one-half of the country's agricultural
exports. The African market is the second most important destination,
accounting for around 26% of exports, with the Asian market slightly less
important with an 18% share. North America (the United States and Canada) plays
a relatively modest role as an export destination, absorbing only around 7%,
while exports to Latin America and Oceania are marginal.
At the end of the 1980s and early 1990s there was increasing evidence that
the continuation of highly interventionist policies was not economically
sustainable due to their distorting effects. In addition to economic factors,
globalisation and domestic social reforms contributed towards a relaxation of
stringent interventionist measures. Market reforms implemented in 1996
(Marketing of Agricultural Products Act) liberalised prices and trade in large
parts of the agro-food sector, including foreign trade (one notable exception
is the sugar industry).
South Africa has also established a number of preferential trade
arrangements with countries inside and outside the Southern African Development
Community (SADC) region. These reforms resulted in the lowering of the average
level of tariffs and simplification of the tariff structure while maintaining a
tariff escalation profile. The new trade arrangements improved access to
foreign markets for farmers but also exposed them more to external
competition.
As government we are renewing our pledge and wish to create a home for all
the people who live here. We need committed people to be our partners in
pushing back the frontiers of poverty and thus improving the quality of life of
those who were deprived for so many years.
The prosperity of the agricultural sector is linked to the extent to which
primary production is aligned to the needs of the economy, both in terms of
direct consumption of primary commodities and the demand for agricultural raw
materials at the manufacturing level. It is important therefore that the vision
for agriculture is seen in a broader view of the larger economy rather than a
narrow focus on primary agricultural production.
Our social and business partners should strive to ensure that agriculture
can:
a) contribute to economic stability, development and growth for the benefit
of all as the backbone of a thriving rural and provincial economy
b) play a harmonious part in the natural beauty and environmental stability of
our landscape
c) help to foster reconciliation, equitable transformation and stability, which
is the mainstream of a vibrant civil society and contributes to a safe and
secure rural life.
From the analysis by various classical and neo-classical authors, and
confirmed by quantitative analysis, it is clear that agriculture is able to
play an important role in economic development. Increased productivity, and
therefore lower production cost of food, in the agricultural sector of a
developing nation may lead to the ready availability of food and foreign
exchange earnings. This will not only lead to a better nurtured (and thus a
more productive) rural population, but also the resulting higher levels of
rural income will lead to both public and private capital formation and will
result in the development of a rural market for the industrial sector.
The expansion of the industrial sector will lead to new job opportunities
for which the agricultural sector is supposed to release labour. Due to the
unique income elasticity of demand in developing countries, this in turn will
again lead to increased demand for agricultural products, and therefore the
start of a new cycle or, in other words, an upwards spiral of economic growth.
It is therefore clear that productivity in the agricultural sector can play an
important catalytic role.
Given the prominence that agriculture receives in both the New Partnership
for Africa's Development (Nepad) and the G8's response, this message is
evidently taken to heart. At the same time it is important to recognise that
the future of South Africa is inexplicably linked to that of Africa. Thus, the
agricultural development of Africa is also to the long-term advantage of South
Africa.
An option to be considered is to actively support agricultural development
in Africa and, almost more important, to diligently support local farmers to
extend their production base to the rest of Africa. In addition to everything
said previously, it makes good business sense for our farmers to
internationally expand their production base:
a) to make use of selected and high quality natural resources in other
countries
b) as part of a risk-management strategy various forms of risk (natural,
social, economic, price, structural) can be spread over more than one
production base
c) new market opportunities (both domestic and international through
third-country trade agreements) may arise from this base
d) opportunities to leverage capital (specifically development capital) are
present
e) opportunities for joint ventures with various partners (third country) do
exist.
Agriculture's role goes beyond a pure economic analysis of the contribution
of the sector to the economy, because its relative importance cannot be argued
in merely economic terms. Economic objectives stand secondary to social and
political objectives and it would therefore be na�ve to make use only of
standard economic indicators to explain the relative importance of
agriculture.
The role that agriculture plays in society changes during the process of
economic development. In less developed economies, agriculture is more geared
toward the provision of food and social security. A large proportion of the
population typically lives in rural areas, many are dependent on agriculture as
a sole or supplementary source of livelihood, and only a few are able to
produce a marketable surplus. During the process of development, however, the
role of agriculture shifts towards:
a) the creation of stronger backward linkages with the suppliers of inputs
such as fertilisers, pesticides and herbicides, animal feed manufacturers,
legal, financial and management advisers, etc
b) the creation of stronger forward linkages with food processors,
marketers, packaging suppliers, retailers, etc.
c) the earning of foreign exchange through the export of farm commodities
and processed agricultural products.
These linkages create additional wealth in the sectors that supply goods and
services to agriculture in the form of additional employment, higher wages and
increased profits. These 'multiplier' effects therefore benefit the rest of the
economy. In addition to such economic benefits, however, the activities in the
sector also create externalities or spillover benefits for society as a whole.
Examples of such 'non-traditional' benefits include the provision of food
security to the poor, the provision of rural amenities that form the basis of
agro-tourism, the provision of a better balance between rural and urban
populations, and the attraction of foreign investment, etc.
Agriculture's share in total output of the economy (gross domestic product)
declines as an economy develops. In South Africa, for example, agriculture's
share of GDP has declined from above 10% in the 1960s to below 3% currently.
However, this does not mean that agriculture has become less important, merely
that the sector has grown more slowly than the rest of the economy, and at the
same time has served as a 'springboard' for economic development in the country
as a whole. The GDP contribution of agriculture was, for example, approximately
R0,7 billion in 1965, and reached R25 billion in 2002.
In concluding I believe that together we need to inspire excitement and
vibrancy in addressing issues such as global competitiveness, enhancing
people's quality of life, transformation, access and participation, adding
value and attracting more investment.
Our common vision should guarantee sustained participation in the South
African agricultural economy by all stakeholders that recognise the need to
maintain and increase commercial production, to build international
competitiveness and to address the historical legacies and biases that
restricted the growth and development of agriculture.
Within the past ten years, wide-ranging reforms created a good base for
continuation of efforts to address further, often profound, economic and social
challenges facing South Africa. While important progress has been made, there
is much more to be done in South Africa to redress social inequalities, reduce
poverty, and increase equitable access to economic opportunities for all
segments of the population. Balancing more inclusive social policy with a
stable and open macroeconomic environment, in which both the role of further
agricultural development and the limits of agriculture's contribution are
clearly recognised, is the fundamental challenge.
Thank you.
Issued by: Department of Agriculture
12 June 2007
Source: Department of Agriculture (http://www.nda.agric.za/)
