Beyond the field: Growing the economy through agriculture

Beyond the field: Growing the economy through agriculture

South Africa’s agricultural sector has proven to be a robust industry, contributing significantly to the country’s economic performance and employment for a large number of South Africans.

But the sector’s value is more than just employment and GDP figures, as it supports a number of other sectors, such as manufacturing. This means that the success of the agricultural sector is far-reaching: it can increase productivity and employment in several neighbouring industries.

SUPPORTING INDUSTRY THROUGH AGRICULTURE

The agricultural sector represents around 2.4% of the South African economy. But it has a much greater impact seen as it relies on a number of complementary industries. It purchases machinery and raw materials and relies on the logistics and freight industry to transport its produce.

If one considers the related sectors (agribusinesses), such as manufacturers, suppliers, processors, distributors, and traders, the contribution could be closer to 7%, according to estimates.

And as the agricultural sector continues to grow (its economic output increased by almost 20% in the third quarter of 2022), one can expect its impact on related agribusinesses to increase substantially.

The agricultural sector is essential for economic growth and recovery, as well as for creating jobs

According to Agricultural Business Chamber Chief Economist, Wandile Sihlobo, the sector recorded a favourable year in 2022. On the back of two very strong years, with almost 15% year-on-year growth in 2020 and nearly 9% year-on-year growth in 2021, it was anticipated that the sector would see some “pullback”, said Mr Sihlobo.

“The squeeze we anticipate results from mild declines in critical crop harvests such as maize, production challenges in the sugar industry, trade friction in fruits, vegetables, beef and wool, and widespread foot-and-mouth disease weighed on the sector’s performance this year,” he says.

“Still, the interlinked industries like the agricultural machinery industry benefited from generally good activities in various commodities of the sector where farmers were in a better financial condition.”

The ample crop harvest of the 2021/22 production season (and the 2020/21 and 2019/20 seasons), combined with generally higher commodity prices, specifically grains and oilseeds, helped boost farmers’ incomes and, after that, their ability to procure new agricultural machinery, explained Mr Sihlobo.

Mr Sihlobo did warn that this year could change the trend and show moderate agricultural machinery sales as the new machinery’s replacement rate will likely be lower than the previous years.

One of the industries that have seen sustained growth due to the success of the agricultural sector is the agricultural machinery sector.

Last year, South African tractor sales reached a 40-year high, according to figures released by the South African Agricultural Machinery Association. More than 9000 new tractors were sold in South Africa (a 17% year-on-year increase) and more than 370 combine harvesters were purchased.

INVESTING IN AGRICULTURE

The sales figures illustrated that farmers are still investing in their businesses, and show encouraging signs that the prices for agricultural commodities were “holding up”.

South Africa’s agricultural sector is considered modern, stable, and productive, making it an ideal market to target the 32 000 commercial farmers with agricultural machinery such as tractors.

According to the US Department of Commerce, the best prospect for importers lie in the sales of tractors, combine harvesters, drone technology, balers, planters, precision agriculture equipment and technologies, sprayers, and irrigation systems.

Farmers are increasingly looking for digital solutions to improve their agricultural yield, and there is growing interest in technology such as data management, machine learning, artificial intelligence, automation, and drone-based applications.

South Africa exports almost half of its agricultural produce, but this requires extensive support from processing businesses and transport suppliers.

In the last ten years, South Africa’s agriculture and agro-processing exports have averaged more than 10% of all the country’s exports. These goods need to be transported to South Africa’s harbours, and with only around 8% of all transport taking place by rail, the transport sector is a critical partner. The transport, storage, and communication sector makes up around 10% of the country’s economic activity and is valued at more than R300 billion. Increased agricultural activity is likely to push this value even higher.

The agricultural sector is essential for economic growth and recovery, as well as for creating jobs. But it has a far wider impact, helping to grow numerous related industries. Increasing the productivity of the agricultural sector will not only add to food security and reduce employment, but it will also unlock growth in a multitude of related industries.

WHAT PRODUCE DOES SOUTH AFRICA EXPORT?

South Africa’s agricultural exports have been estimated at around $3.4 billion. Among the top exported products are citrus, maize, apples, pears, wine, grapes, figs, dates, avocados, nuts, fruit juices, wheat, wool and sugar, among others.

Just over a third of all agricultural exports are purchased by African countries, with Asia the second largest agricultural export market at 28%. The European Union was third with 21%.

One of South Africa’s key markets is the United Kingdom, which accounts for 7% of South Africa’s agricultural exports.

Sources:Agbiz|TheConversation|Businessforsa|DailyMaverick|Statista|Trade.gov|Grainsa