In an unfavourable macro-economic environment, Gear could confound plans to provide the necessary support for agriculture, writes Asghar Adelzadeh of the NIEP in the sixth of a series on economic policy
THERE have been several attempts to specify and quantify the contribution of agriculture to South Africa’s broader economy. Most concur that the sector’s direct contribution to gross domestic product, employment and exports has declined significantly in the post-World War II period.
Agriculture, however, plays a larger indirect role in the economy through linkages with other sectors. Studies have shown that increases in agricultural production have large positive impacts on growth, employment and the balance of payments.
For every R1-million of expenditure on agricultural production, the overall economic output increases by R6,4-million.
Agriculture also has a strong multiplier effect on employment. More jobs are created in agriculture with increased production than for any other sector of the economy.
However, studies show that in the face of an unfavourable macro-economic environment, domestic policies which are aimed at encouraging agriculture to play a role in job creation and redistribution may flounder.
This argument is not unique to South Africa. In a variety of countries, domestic farming policies have been unable to compensate for macro-economic policies which are unfavourable to agricultural production.
In South Africa, the World Bank has argued for a land reform programme that concentrates on investments in the former bantustans and the redistribution of land, through market mechanisms, both of which should lead to the creation of a class of ”emerging farmers”. The process of ”downsizing” farm size, according to the World Bank, will lead to a more dynamic rural economy and to greater employment and income creation among low-income groups.
The Macro-economic Research Group/International Labour Organisation policy proposals, on the other hand, place a very different emphasis on the potential of agriculture for job creation and growth. They single out investment in agro-industry and social infrastructure as the key macro- economic strategies for growth and job creation in rural South Africa. They argue that a policy which targets agro-industry creates new jobs, improves rural livelihoods, and has the potential of stimulating the economy as a whole.
How does agriculture fare under the growth, employment and redistribution (Gear) strategy?
* One of Gear’s central objectives is to transform the economy to an export-driven economy. A major policy initiative to enable this involves removing a series of ”constraints”.
While domestic agricultural policies do not feature as one of the ”constraints” hampering the economy, the implications of the policy for agriculture are clear. An accelerated approach to reductions in tariffs, subsidies, quotas and exchange controls will certainly have serious implications for a sector that historically was well-protected and was focused on local markets and national self-sufficiency.
* Gear ignores the possible role of commercial agriculture in South Africa despite its prominent, albeit indirect, role in the economy. It fails to recognise the potential this sector has for economic growth and job creation, particularly in rural areas.
Gear also ignores the features of the manufacturing-agricultural complex – its labour-intensity and the potential for dynamic linkages with other sectors of the economy – which made it an obvious target for investment in the African National Congress’s pre-election economic thinking.
* Gear’s broad emphasis on export- orientation is, coincidentally, in line with the sub-sectors of agriculture that have the greatest potential for employment creation and growth. Exports of high value foods – vegetables, citrus, grapes and deciduous fruit – are expanding much more rapidly than field crops like maize, wheat and oil seeds, the traditional strength of the agricultural economy.
Horticultural farmers also employ more labour at higher wage rates than field crops and animal products, the other two main agricultural sub-sectors. Any expectation that South African horticultural exports will experience the same kind of rapid growth rates experienced in Chile, Brazil and Taiwan must, however, consider the global environment that permitted these countries to expand their export industries so rapidly.
International competition may also limit the extent to which South African agricultural exports can expand. Exporters are already competing with countries which all have the same counter-season advantage as South African growers.
The potential for growth in high-value food exports and, by implication, employment growth, foreign exchange earnings and dynamic linkages with other sectors of the economy depends on international market conditions.
International conditions may not permit the rapid expansion of exports as was the case for countries like Chile during the 1970s and early 1980s.
* The employment and growth potential associated with high-value food exports must also be weighed against the costs of a free-trade oriented economy to farmers and farm workers producing field crops like maize, wheat and oil seeds for the domestic market.
While exporters will emerge as winners in an open economy, the agricultural losers will be maize, wheat and oil seed farmers. Competing with maize and wheat imported from the United States or the European Union will be extremely difficult for South African farmers.
* There is an enormous political will in South Africa for small-scale black commercial farming. Land reform, the construction and maintenance of rural infrastructure and assistance to ”emerging” farmers are the strategies which appear to be directed towards improving the livelihoods of the rural poor.
Small ”emerging” farmers represent the cornerstone of land reform and rural poverty alleviation. Whether small-scale farmers will be able to grow to deliver on these high expectations in a neoliberal and open macro-economy is very much in doubt. How will ”emerging” farmers fare under Gear and what impact will it have on rural poverty?
* Gear’s assistance to small-scale black farmers will be temporary and they will not be protected from market forces through the subsidies and protection that white commercial farmers enjoyed for so long.
Once emerging farmers have received an initial grant, assistance will take the form of ”streamlined extension” and in the development of marketing strategies. This shift is in line with a policy that prepares new farmers for an open economy and a public investment programme that is constrained by strict Budget deficit targets.
* The similarities between Gear and a structural-adjustment programme also means that the international experience of small farmers under structural adjustment must be instructive. Most case studies suggest that, in the absence of direct state intervention, small-scale farmers are less likely to succeed in a ”free-market” environment.
One of the more common results of structural adjustment is the concentration of production and land in fewer hands. Under a neoliberal economic environment, for instance, the experience of maize farmers in Mexico, threatened by highly subsidised maize from the US and Canada under the North America Free Trade Agreement, indicates that the ability to respond effectively to international competition depends on the scale of the operation and on direct state assistance.
While large farmers with access to credit and marketing institutions were able to diversify and modernise production, small farmers found themselves without institutional support in a market-driven economy.
For small-scale farmers state assistance was vital, but in a neoliberal macro- economy, they were left largely destitute of institutional support, precisely at a time when they need full access to these services to modernise maize production and diversify cropping patterns towards higher value crops.
* Finally, Gear’s emphasis on small-scale farming must be measured against its potential for alleviating and eradicating rural poverty. There are two issues which suggest that emerging farmers cannot be the only solution to rural poverty.
The first is that rural land reform programme that is aimed at increasing the efficiency of ”emerging” farmers is unlikely to reach the poorest households and is much more likely to assist farmers who are already earning part of their income from farming. The second issue is that even if a small-farmer scheme were successful in targeting the rural poor, it is doubtful that enough farmers could be targeted to have a meaningful impact on rural poverty.
Current estimates suggest that there are about 11-million poor people in the rural areas. A land-reform scheme that is successful in creating 50 000 additional new small-scale farmers would, however, not have a major impact on the millions of rural households who have depended on wage incomes in order to survive.
Small-scale farming, as the lynch-pin to land reform, thus faces two overwhelming challenges: first, it is not likely to benefit from a neoliberal macro-economic environment; and, second, those farmers who are successful will not be numerous enough to have a significant impact on rural poverty.
While Gear is silent on the role of commercial agriculture, its emphasis on export promotion is in line with those sectors of agriculture that are already expanding rapidly.
The success of rural poverty alleviation for wage-workers in this sector depends on improving conditions through equity schemes and union organisation. Unfortunately, both of these are in a sense voluntary.
Gear’s emphasis on smallholders is highly problematic, given the equal or greater emphasis it places on fiscal austerity and an open economy. Local and international evidence suggests that smallholders do not fare well in a neoliberal environment and that when they do, it is through state support.
This article is based on a paper commissioned by the Land and Agricultural Policy Centre from the National Institute for Economic Policy and written by Dr Charles Mather of Wits University’s Geography Department