Can SA grow its agri sector and improve food security in the current environment?

Can SA grow its agri sector and improve food security in the current environment?
By Greg Talbot, CEO, Tal-Tec

The agricultural sector was the unsung hero of the economy in 2020 making an outsized contribution to gross domestic product. In 2021, the agriculture, forestry and fishing industry contributed nearly R129bn to the country’s GDP in 2021.

This year, however, has been more challenging with rising input costs including higher fuel and fertilizer prices, rising interest rates impacting the cost of debt, high inflation and amongst the most severe load shedding experienced in years. Challenging conditions in the second quarter of 2022 resulted in activity in the agriculture, forestry and fishing sectors decline by 7.7%, according to Stats SA.

The recent Transnet strike, which led to the logistics utility declaring force majeure at its port operations, has not helped given that the fourth quarter is typically a busy one for agricultural exports. South Africa exports around half of its agricultural produce. Exports of food, fibre and beverages in the fourth quarter of 2021 constituted 23% of the total value of the exports last year, amounting to $2.8bn.

Encouragingly, government has recognised the value of the agri sector both in terms of ensuring food security as well as its contribution to GDP. The Department of Agriculture, Land Reform and Rural Development was allocated R17.3bn in the 2022/23 budget, a R400 million increase from the previous year.

The Economists global food security index says South Africa has improved its food security relative to the rest of the world. The country has moved up in the index from 70th in 2021 to rank 59 out of 113 countries in 2022. The index considers food affordability, availability, quality and safety, and safety and sustainability. Wandile Sihlobo, the chief economist at the Agricultural Business Chamber of SA, says despite the improved ranking, South African cannot afford to be complacent and needs to continue focusing on improving its food security by expanding agricultural production and job creation.

That’s certainly the intention behind the Agriculture and Agro-processing Master Plan (AAMP) – announced earlier this year – which aims to grow the sector’s output by nearly R32 billion by 2030. The AAMP is the first multi-holder stakeholder process to accurately quantify the investment needed into various catalytic interventions required for growth in the sector. It plans to ensure growth of the sector by resolving policy ambiguities; ensuring food security, expand production and the creation of employment; and drive the development of a localised food, import replacement and expanded agro-processing sector.

There is no question that investments are required if the agricultural sector is to grow. The knock-on effect of higher interest rates, inflation and failing municipal infrastructure has implications for the agricultural sector. The deteriorating road infrastructure, for example, exacts a heavy price on farming operations, as does load shedding, water insecurity and port inefficiencies for agricultural exporters.

In March this year government launched the Agri-Industrial Fund, which is intended to address funding constraints facing black farmers and help them to eliminate barriers to entry to commercial farming activities. The fund aims to support the development and expansion of the agricultural sector by assisting qualifying black producers and investees to develop, expand, acquire and integrate operations in prioritised value chains. A total of R1bn has been committed to the fund.

As the spotlight falls on finance minister Enoch Godongwana later this month when he tables the Medium Term Budget Policy Statement in parliament on 26 October, the agri sector will be keeping an eye on what budget amendments are made to the Department of Agriculture, Land Reform and Rural Development’s budget and what share of the revised budget will be targeted at meaningful growth initiatives and investments into improving water, road and electricity infrastructure.