Agricultural output could account for a quarter of this year’s economic growth, reports Simon Segal
THE most recent estimates from South African Agriculture Union economist Koos du Toit are that the good rains should see a 20% rise in the gross value of farm output this year to R35- billion (R28,9-billion was realised in 1995). On the farms, this should translate into R12,5-billion in gross profits (R9,7-billion).
Du Toit reckons the rains are directly worth as much as an extra percentage point to South Africa’s economic growth rate this year compared to an average agricultural season. With most economists forecasting gross domestic product (GDP) growth of 3% to 4% this year, the rains could thus account for a quarter of this year’s economic growth.
Standard Bank’s Rudi Wilsenach, senior general manager of agriculture, is more sanguine. He is looking at agriculture adding an extra 0,25 to 0,5 percentage points to GDP growth this year.
What is not disputed is that just about every area in South Africa has enjoyed good rains and regional economies will benefit hugely.
With total capital assets of nearly R70-billion, contributing 4% to 6% to South Africa’s GDP and employing 16,5% of the economically active population, the economic importance of agriculture is immense.
The main beneficiary is the maize industry where crops of over nine million tons, even 10-million tons, appear likely. This will be double last year’s miserable crop and means some 2,5-million tons of maize could be exported into an international market where dollar prices of maize are 22% up on a year ago, and the rand has dropped. Du Toit guesses that maize exports could bring in R1,2- billion this year.
The wheat crop is estimated at 2,3- million tons (1,8-million last year) which should cover domestic consumption. Sugar is expected to yield 2,2-million tons this year (1,8- million), while horticulture output is anticipated to grow 10% to 12% and animal production should remain constant as herds are rebuilt.
Unifruco, the export marketing arm of the deciduous fruit industry, is looking at exporting 50-million cartons this season, the same as last season which brought in R2-billion.
Standard Bank calculates that total agricultural exports have risen from 4,7% of South Africa’s total exports in 1983 to 7% in 1994.
In 1994, when South Africa enjoyed a bumper agricultural season, agricultural exports totalled R8,3- billion and imports R4,9-billion. Du Toit is looking at around R8,5-billion to R9-billion in exports this year and R5,5-billion to R6-billion in imports.
The trend is clear — in a deregulating agricultural industry imports are increasing more rapidly than exports.
In 1995 farm debt rose 7,5% to R19,6- billion or 26% of farm assets. Du Toit reckons this ratio could fall to 24% this year, but notes this is still too high. “A comfortable level is 20%.”
Commercial banks are the largest financiers of this debt. Standard Bank estimates banks have a 34% share, the Land Bank 23% and agricultural co- operatives 20%.
As for food prices, the producer prices of field crops rose 28% in 1995, horticulture products 9,5% and livestock only 3,6% (thanks to competition from importers). These producer price hikes are not neatly correlated with retail price movements in 1995. For consumers grain prices rose 6,4% in 1995, meat 10% and fruit 17,3%.
Over this year Du Toit is looking at food prices rising an average 6% to 10%, in line with the consumer price index. But producer prices will fluctuate — falling 6% to 10% for field crops and rising 8% for horticulture products and 5% for livestock.
So the rains will bring more food, although not cheaper, and contribute favourably on a net basis to the GDP and balance of payments.
Looking beyond the numbers, the rains will make the traumatic reforms in the agricultural sector easier. The industry is moving towards market- determined pricing, greater exposure to imports and thus international competition, land reform and less regulation.