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Agriculture deals with the production of crops and livestock. The development of this sector has led to the rise of human civilisation. In 2004, the United States of America's (usa) agriculture contribution to GDP was 4.8% and declined to one percent in 2008.
Agriculture deals with the production of crops and livestock. The development of this sector has led to the rise of human civilisation. In 2004, the United States of America's (usa) agriculture contribution to GDP was 4.8% and declined to one percent in 2008.
Agriculture deals with the production of crops and livestock. The development of this sector has led to the rise of human civilisation. In 2004, the United States of America's (usa) agriculture contribution to GDP was 4.8% and declined to one percent in 2008.
Gauteng Department of Finance 2010 Review and Outlook of Agriculture Industry in South Africa and Gauteng
June 2010 Quarterly Bulletin
Gauteng Treasury Newsletter
Economic Analysis Directorate 2
1. 1. Introduction
Agriculture deals with the production of crops and livestock. The development of this sector has led to the rise of human civilisation, with the husbandry of domesticated animals and plants (i.e. crops) creating a reliable source of food that enabled the development of more densely populated and stratified societies. Agriculture encompasses a wide variety of specialties and techniques, including ways to expand the land suitable for the raising of plants, by digging water-channels and other forms of irrigation. Cultivation of crops on arable land and the pastoral herding of livestock on rangeland remain at the foundation of agriculture. South Africa is divided into nine provinces; each has an area of specialisation in agriculture.
In In South Africa, agriculture is classified with forestry and fishing in most cases and agriculture contributes more than 80% within the industry. It is not easy to review the agriculture industry on its own due to the inaccessibility of data. Much discussion has focussed on the declining contributions of agriculture to economic growth, as a consequence of circular decline in agricultures contribution to Gross Domestic Product (GDP) dating back from 1987. Studies show that the decline in agricultural production is a global phenomenon, as countries develop from an economy based on primary industries like agriculture and mining to one dominated by the secondary or tertiary sector, the contribution of the primary sector industries to GDP decreases. In 2004, the United States of Americas (USA) agriculture contribution to GDP was 4.8% and declined to one percent in 2008, despite its huge production of agricultural commodities and large exports of agricultural produce, the finance sector grew rapidly enough to massively outpace it. The Agriculture sector plays an important role within the South African economy by providing food and intermediate commodities to other industries like manufacturing. Although its contribution to GDP has declined from 10% in the 1960s to less than 3% in 2009, agriculture remains crucial to the economy.
The main objective of this study is to review and forecast the performance of the agricultural industry in South Africa and Gauteng. The study will look at the history of agriculture before and after the 1994 democratic elections, policies, trade liberalisation, the importance and contribution of agriculture within economic growth and employment. In addition, trends of trade balance and food inflation will be examined; food security and the mandates of the provincial and national agriculture departments will be discussed featuring
Quarterly Bulletin
Gauteng Treasury Newsletter
Economic Analysis Directorate 3
the Gauteng Agricultural Development Strategy (GADS) that was adopted from the National Strategy (NAS). The paper ends by comparing the agricultural exports performance of South Africa and Botswana, also looks at the role of financial institutions and other factors affecting agriculture.
2. Tracking the History of Agriculture in South Africa
2.1 Period Before 1994
The history of agriculture in South Africa goes back far before the Second World War which ended in 1945. After the war, agricultural activities were mainly undertaken for private consumption. Before 1994, about 73% of land was in so called White areas and many Blacks had been forcibly pulled out and removed to tribal areas. Looking back from the 1960s agriculture generally developed at a greater rate of growth and significant expansion took place in all sectors. According to the Department of Agriculture, Forestry and Fisheries (DAFF), the government regulated both the production and the marketing phases of commercial agriculture through the early 1990s. Government appointed marketing boards to purchase important consumer crops such as milk, corn and most cereals at fixed prices and sometimes subsidised consumer prices. Crops destined for further commercial processing such as tobacco, wool, oilseeds and dried fruit for export also had to be sold through a marketing board. However, producers generally received market value for these crops after the board sold the pooled national output. The only crops that were freely traded was fruits and vegetables sold at local markets. In the mid 1990s, the government began to reduce the role of the marketing boards. Agriculture suffered serious effects from the chronic high inflation and debt that eroded other sectors of the economy in the early 1990s 1 . Input costs (fertilizers, machinery, etc.) rose by 10% to 20% between 1987 and 1992; farm debt had reached R17 billion in 1992, more than four times the amount owed in 1980. Farmers also had witnessed deterioration in terms of trade in farm products; for example, the amount of corn that had to be sold to buy a farm tractor increased from about 191 tons in 1984 to 347 tons in 1990. Moreover, South Africa faced reduced harvests as a result of severe drought in the early 1990s, forcing the government to spend vital foreign exchange on food imports.
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Gauteng Treasury Newsletter 1 Information obtained from, http://en.wikipedia.org/wiki/Agriculture_in_South_Africa
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Gauteng Treasury Newsletter 2.2 Period After 1994
In 1993, the Agriculture Research Council was formed with the emphasis on agricultural research, while the extension component remained part of the Department of Agriculture. In the new political dispensation after 1994, the country was divided into nine provinces, each with its own provincial Department of Agriculture.
The most significant achievement in terms of policy change was the deregulation of the marketing sector to bring it in line with the social and economic democratisation of the country and with international trends. During the transformation process, greater emphasis was placed on small-scale developing agriculture. Significant progress has been made in access to credit and market opportunities. The other progress that government made was the introduction of minimum wages in agriculture in 2002 and implemented in 2003, which accelerated the real growth of farm wages. According to Hlekiso and Mahlo (2006), real agricultural wage rates increased by 65% between 2001 and 2005, the biggest annual increase at the time of the implementation of the minimum wage.
Various problems remain as part of the agricultural scene, such as scarcity of water resources, desertification, soil erosion, soaring input costs, the crime factor and population growth. Land reform has been a thorny issue in the history of the country and in addressing these various problems, the African National Congress (ANC) led government opted for a three-pronged land reform policy. This policy consisted of; land restitution, tenure and redistribution. Land restitution is a legal process whereby people who can prove that they were dispossessed of their land after 1913 can regain their land or receive due financial compensation for it. Land tenure aims to address insecure tenure in the former homelands 2 and land redistribution aims to redress the racial imbalances in rural land ownership.
The land redistribution policy has been identified as key within the land policy; it covers support services and finance for farmers in the form of low interest loans. After the implementation of the policy the government introduced Agriculture Broad-based Black Economic Empowerment Act (AgriBEE, 2003). Black participation within the agriculture industry started to increase due to openness of the industry. The AgriBEE programme encompasses the whole South African economy; the focus is on priority sectors which include agriculture and agro-processing.
Gauteng Treasury Newsletter 3. Reforms within Agriculture
3.1 Trade Liberalisation Trade liberalisation 3 gained momentum in the 1990s after the country was trapped by different trade restrictions. During 1990, the country adopted a two-pronged approach policy, a multilateral trade liberalisation in the context of the Uruguay Round of trade negotiations and a unilateral trade liberalisation. The Uruguay Round Agreement on Agriculture, administered by the World Trade Organisation (WTO), brought agricultural trade more fully under the General Agreement on Tariff and Trade (GATT). It provides for converting quantitative restrictions to tariffs and for a phased reduction of tariffs. The agreement also imposes rules and disciplines on agricultural export subsidies, domestic subsidies and sanitary and phytosanitary measures. The results were that by the end of 1990, virtually all restrictions of trade had been eliminated and there was less trade (Kusi, 2002). South African agriculture has evolved from a highly regulated and protected industry to one free from all constraints, unsubsidised by government and capable of competing with the best in the world. Increased trade can have a number of generalised impacts in the economy; for example, trade enables a country to employ a large variety of intermediate goods and capital equipment which could enhance productivity of other resources. Furthermore, increased trade can lead to increased variety of products on offer and also improve efficiency with which resources are employed.
3.2 Trade Reforms
Prior to 1993, agriculture used to have 15 control boards, aimed at price determination and control marketing; six of them were abolished in 1993 and 1994. The Banana Board was abolished in March 1993; the Chicory, Dried Beans, and Rooibos Tea Board in September 1993; the Potato Board in December 1993 and the Mohair Board in January 1994. A large-scale conversion of import controls to Ad Valorem duty 4 was launched in 1994 and the process was completed in 1996. The Meat Board deregulated auctions and allowed new entry of abattoir firms in 1992. In 1994, the surplus removal operations were stopped, which paved the way for
3 Trade liberalisation is the relaxation or elimination of tariffs and removal of duties or quotas on exports, alteration of non tariff barriers such as import quotas and quantitative restrictions, changes in licensing and direct allocation
4 Ad Valorem is the duty or tax based on the value of product or service
of foreign exchange and specific regulations for products; and removal or relaxation of exports subsidies.
Economic Analysis Directorate 6
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Gauteng Treasury Newsletter the development of private meat markets. In addition, the centralised auction system was privatised which allowed farmers to bring their cattle to the auction of their choice as well as on a private contract basis with dealers.
The liberalisation of the marketing system for maize began in May 1995. Before then, the Maize Board had the sole marketing right over maize products and maintained prices significantly above world levels. Exporters were subsidised with the funds obtained from the difference between domestic consumer and producer prices. The new marketing scheme is based on free market determination of domestic prices, while the surplus removal scheme continued to be operated by the Maize Board as the buyer of last resort. Under the new system, quantitative import controls were removed and the imports of maize products were freed.
Deregulation has ensured a leaner and stronger agricultural industry, with farmers and agribusiness able to position themselves as players in a globally competitive environment. Phasing out controls and closing marketing boards led to a short-term shortage of essential services formerly provided by the boards and cooperatives, such as storage, grading, deliveries, value adding, information dissemination and research. As a result, specialised marketing support institutions, such as the South African Futures Exchange (Safex) and the Agricultural Futures Market of the Johannesburg Stock Exchange (JSE), were established to provide much-needed price risk management mechanisms.
3.3 Governments Mandate for Agriculture
The DAFF is lead by Minister Tina Joemat-Pettersson and has the vision to unite and bring prosperity to the agriculture industry. The department also aims to lead and support sustainable agriculture and rural development through;
Ensuring access to sufficient safe and nutritious food Eliminating skewed participation and inequity in the sector and maximizing growth Maximising growth, empowerment and income in the agriculture sector Enhancing the sustainable management of natural agricultural resources and ecological systems Ensuring efficient and effective governance, ensuring knowledge and information management
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Gauteng Treasury Newsletter In 2001, DAFF approved the National Agriculture Strategy that was adopted by provincial agriculture departments. Gauteng Department of Agriculture and Rural Development (GDARD) drafted the first version of the Gauteng Agriculture Development Strategy (GADS) that was published and launched in 2006. After the 2007 Polokwane Conference of the ruling ANC, new priorities were identified and this has made it imperative to amend the 2006 GADS and came up with GADS 2010 in order to align with the new mandate and priorities identified for the term of 2009 to 2014. The strategy shows that even though agriculture contributes 0.5% to provincial economy, its importance lies with backward and forward links with other sectors.
On provincial level, currently GDARD is led by MEC Nandi Mayathula-Khoza. The provincial department derives its authoritative mandate from the Constitution of the Republic of South Africa, particularly sections 24 and 27 of the Bill of Rights. This bill stipulates that everyone has the right to an environment that is not harmful to their health or wellbeing and to have the environment protected for the benefit of present and future generations.
The MEC of Finance, Mr. Mandla Nkomfe 5 , has highlighted that in order to fulfill the constitution mandate of providing food security; the Gauteng Provincial Government (GPG) will intensify the implementation of community and households food production programme. This would be achieved by targeting the establishment of 36,000 household food gardens and over 900 community and school-based food production units by 2014. The Letsema / Iilima project aims to combat hunger and poverty through increasing food production, particularly livestock improvement and agro-processing countrywide. The project was launched by former Minister of Agriculture and Land Affairs, Ms. Lulu Xingwana and was adopted by provincial departments. The project has been allocated R51 million over the 2014 MTEF, to provide 128 farmers with production inputs. These inputs would include, land preparation, start-up seeds, irrigation equipments and agricultural extension support.
5 This was at the Provincial Budget Tabling in March 2010, Budget for 2010/11 Financial Year
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Gauteng Treasury Newsletter 4. 4. Importance of Agriculture in Gauteng and South Africa
Although agriculture has contributed on average less than 3% to the countrys GDP since 2000, it is still regarded as one of the most important industries within the economy. This is because food security and poverty alleviation are high on the governments list of priorities.
4.1 Contribution to GVA
Gross Value Added (GVA) measures the value of goods and services produced in an area or sector of an economy. GVA is output minus intermediate consumption. Historically, the agricultural sector accounted for approximately 15.2% of GDP in the 1950s and 10% in the 1960s. Although the relative size of the sector has been declining, the value added by agriculture shows an upward trend, according to Department of Agriculture Economic Services (2010).
Table 1: Agricultural Contribution to Total Value Added, 2001-2009 Year Total value added (s.a.a 6 .) (R mil) Contributi on of agricultur e to value added (R mil) Agricultur e as a % of total value added Contribution of agriculture to Gauteng value added R mil Gauteng Agriculture as a % of S.A total value added 2001 1, 336, 962 33, 639 2.5 1, 913 5.7 2002 1, 386, 435 35, 826 2.6 2, 099 5.9 2003 1, 427, 322 36, 070 2.5 2, 039 5.7 2004 1, 492, 330 36, 380 2.4 2, 035 5.6 2005 1, 571, 082 37, 402 6.5 2, 292 6.1 2006 1, 659, 122 35, 359 2.1 1, 985 5.6 2007 1, 750, 139 36, 610 2.1 2, 048 5.6 2008 1, 814, 521 40, 590 2.2 2, 264 5.6 2009 1, 782, 060 39, 290 2.2 2, 147* 5.5* Source: Stats SA, 2009 Estimates by IHS Global Insight
Table 1 shows agricultures contribution to South Africas total value added and Gauteng agricultures share to South African value added in monetary terms. The growth in the contribution of agriculture to value added for South Africa and Gauteng has remained horizontal over the past eight years, except for 2005.
6 Seasonally Adjusted and Annualised
Economic Analysis Directorate 9
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Gauteng Treasury Newsletter The value added remained at just below 3% and 6% for both economies respectively. The contribution of agriculture to South Africa and Gautengs GVA increased to 6.5% and 6.1% in 2005 from 2.4% and 5.6% in 2004 respectively. The high contribution of agriculture in 2005 can be attributed to the fall in agricultural prices which led to a rise in the demand for goods 7 . The price of maize dropped from a high of R1,000 per ton in 2004 to less than R600 per ton in 2005. The table shows the estimated contribution of agriculture to Gauteng economy is expected to be 5.5% in 2009 from 5.6% in 2008.
Figure 1: GVA Growth by Agriculture to S.A & GP, 1997-2008 and to 2014*
Source: IHS Global Insight, 2010 * Forecasts
Figure 1 compares the agriculture GVA growth for South Africa and Gautengs economies from 1997 to 2008, estimates the figure for 2009 and gives forecasts from 2010 to 2014. The GVA by agriculture to Gautengs economy followed the same trend as that of South Africa. The figure shows the range bound of an up and down trend due to volatility of agriculture as it depends on different factors like climatic conditions and investment. The provincial GVA grew from negative territory in 1997 to a high of 13.7% in 1999 before declining to -6.5% in 2001. The worst provincial agriculture GVA growth was recorded during 2006 in both economies which can be linked to a stronger rand which pushed down the prices of agricultural products to lower levels resulting in lower income gain for farmers. Idicate what linear refers to 7 According to the law of demand and supply, consumers tend to buy more of a good when its price decreases and less when its price increases (ceteris paribus).
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Gauteng Treasury Newsletter 4.2 Contribution to Manufacturing
The Industrial Policy Plan 2010/11 2012/13 that was published by the Department of Trade and Industry identified agro-processing as one of the most important areas of production within the economy. The agro-processing sector comprises of a highly diverse group of sub- sectors and industries. The major sub-sectors include, food processing, beverages, aquaculture, horticulture & medicinal, aromatics and flavourants.
The agro-processing sector has particularly strong linkages both up and downstream. Up- stream, the sector links to agriculture across a wide variety of farming models and products. Down-stream, the sectors products are marketed across both wholesale and retail chains, as well as through a diverse array of restaurants, pubs, shebeens and fast food franchises. Moreover, the food processing sector is now the largest manufacturing sector in employment terms with some 160,000 employees. The number of employees increases to more than a million jobs once the upstream is included. For the purposes of data continuity, the agro- processing sector is defined in statistical terms by the food processing and beverage manufacturing sub-sectors only.
According to GADS agro-processing contributes 7.8% towards the total manufacturing activity in Gauteng, which relates very closely to the primary agriculture sector in Gauteng and should be regard as a direct spin-off from this sector. Without the presence of agriculture in the province, the agro-processing industry would most certainly be very negatively impacted. The GADS argues that if agro-processing was included within agriculture, the agriculture industry would contribute 2.2% to the provincial economy. The distribution of agricultural activity is spread differently within the economy with the Western Cape and KwaZulu-Natal constituting the most activities within this sector.
Figure 2 shows the estimated distribution of agricultural activity across all nine provinces of the country for 2009. The bulk of economic activity within agriculture stems from KwaZulu- Natal (28.8%) and Western Cape (23.4%). Gauteng makes up the smallest share of economic activity at 5.5% whereas the Northern Cape was second least with 5.6%.
Figure 3: Municipal Agricultural Activity in Gauteng, 2009
Source: IHS Global Insight, 2010
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Gauteng Treasury Newsletter Figure 3 shows estimates for municipal 8 agricultural activity in Gauteng in 2009. The most agricultural activity was in CoJ (31.2%), followed by CoT (21%) and Metsweding was the least with 8.1%. The high contribution by CoJ can be linked to feedlots situated inside its borders, providing a skewed sense of the distribution of agriculture activities across the province. These feedlots include Karan Beef, Best Cut and Chalmar Beef. According to GADS the sector is targeted as a growth focal point specifically due to its potential for job creation and economic growth.
4.3 Agriculture Trade in Gauteng
The trade balance of an economy is determined by the difference between imports and exports. The table below compares the imports and exports of agricultural products between 1995 and 2008 in order to determine the trade balance within the industry.
Table 2: Gauteng Imports and Exports Agriculture Shares, 1995 & 2008 Year
Table 2 compares the shares of provincial imports and exports by four categories of agricultural products between 1995 and 2008. In 1995 most of the agricultural products exported were dominated by vegetables, which amounted to more than 50%, followed by prepared food stuffs & tobacco at 34.5% and animal or vegetables fats & oils being the least at 3%. There was a big decline especially within the imports of vegetable products, which can be linked to improvement in the production of vegetables within the economy.
8 Gauteng province consists of 3 metropolitan and 3 district municipalities. The metropolitans are; City of Johannesburg (CoJ), City of Tshwane (CoT) and Ekurhuleni. The districts are made up of Sedibeng, West Rand and Metsweding
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Gauteng Treasury Newsletter 5. Employment
Employment in the economy varies in line with economic structural changes. The contribution of the primary sector in Gauteng declined from 2000 and this has lead to a decrease in its employment share. In the same period, momentum within the tertiary sector started to increase as production shifted from the primary to the tertiary sector activities.
Figure 4 shows the sectoral employment shares for Gauteng in 2000 & 2009. The figure shows that the share of employment by agriculture, forestry & fishing decreased from 1.7% in 2000 to 1.1% in 2009. Wholesale & retail trade contributed the largest share at 22% followed by community, social & personal services at 18% for both years. Finance & business services recorded the highest employment share increase from 12.9% to 19.1% under the review period, representing a 6.2 percentage points increase.
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Gauteng Treasury Newsletter 5.1 Employment within the Agricultural Sector
Table 3 shows Gauteng agriculture employment by occupation in 2000 and 2009. Skilled agriculture & fishery workers recorded a net loss of 8,773 workers, followed by plant, machine operators & assemblers at 4,551. Although there was a total decline in employment, elementary occupation and legislators, senior officials & mangers recorded net gains of 6,502 and 3,062 respectively over the review period. There was a total decrease of 5,627 in employment between 2000 and 2009 within the agricultural sector. This decrease accounted for a 12.17% decline in employment by the sector, which was mainly driven by semi-skilled employment.
Figure 5 compares the agricultural employment growth for Gauteng and South Africa from 2001 to 2009. Employment growth for Gauteng increased from 0.4% to 13.1% between 2001 and 2003 before declining to negative one percent in 2005 and thereafter increased to 1.2% in 2006. The provincial employment growth rate thereafter shows stability, before declining from 2.1% to 1.2% between 2008 and 2009 respectively. The provincial employment growth rate revealed the same trend as that of national, even though the national growth rates were lower than those of the province.
5.2 Employment by Education Level in Agriculture
Education is the process by which society deliberately transmits its accumulated knowledge, skills and values from one generation to another. Agriculture is considered as one of the most labour intensive industries. As a result, education levels do not contribute much to production as compared to industries like finance & business services, wholesale & retail trade and others which are technologically driven.
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Gauteng Treasury Newsletter
Figure 6: Employment by Education in Agriculture, Gauteng, 2000 & 2009
Source: Quantec, 2010
Figure 6 compares employment by education in agriculture for Gauteng in 2000 and 2009. The figure reveals that there has been a change in employment share by the different education categories. Employment of workers with less than primary education level decreased from 9.5% to 7.5% and those with primary completed declined from 17.5% to 13% over the review period. The percentage share of workers with less than grade 12 increased from 5.3% to 12.5% and those with secondary completed increased from 13.3% to 16.8%. There was an increase in the share of workers with completed tertiary education from 3.6% to 5.9%. The increase in the education level by agricultural workers can be linked to the rise in technological improvement used within agriculture during the review period.
5.3 Labour Remuneration
Payment for labour or services by a worker can be remunerated on an hourly, daily, weekly or monthly basis or by the piece. Remuneration within the agriculture industry has been seen as the lowest in South Africa before the minimum wages were introduced.
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Gauteng Treasury Newsletter Figure 7: Average Agriculture Labour Remuneration, S.A & GP, 1996-2009
Source: Global Insight, 2010
Figure 7 shows the average agricultural labour remuneration 9 package paid by the agricultural sector to workers from 1996 to 2009 for Gauteng and South Africa. The figure illustrates that the average annual income to farm workers in Gauteng was in line with that of South Africa during the review period. Both the labour remuneration trends were increasing with that of Gauteng higher than national, except for 2001 when the annual remuneration was equal for both areas. The average annual remuneration for farm workers increased from R8,806 to R11,636 and R7,780 to R10,889 between 1996 and 2001 respectively for the province and the country. The trend shot sharply to R21,903 and R15,634 per annum for Gauteng and national respectively in 2002. The sharp shoot in 2002 can be attributed to 49% rise of total labour remuneration in agriculture. Thereafter, the average agricultural workers income started to increase at a slower rate before 2006. The remuneration increased from R22,219 and R16,919 in 2006 to R32,650 and R27,743 for Gauteng and the country in 2008 respectively. Gauteng and South African average labour remuneration recorded R40,637 and 33,851 per annum respectively in 2009.
According to the Department of Labour (DoL) the first promulgation of minimum wage in agriculture was in March 2003. Research has shown that, before the implementation of the minimum wage, farmers used to pay less money and remunerate workers in kind such as rations, housing, land use rights and clothing. A survey that was conducted by Newman (1995) 10 shows that; farmers who pay relatively lower cash wages tend to provide more rations per worker and allocate more land use rights.
R4.10 R6.31 R6.74 Previous years wage + CPI*+1% Weekly
R184.61 R284.23 R303.84 Monthly
R800 R1231.7 R1316.69 Source: Department of Labour, 2010 * CPI for 2011
Table 4 shows the progression of the agriculture minimum wage structure in South Africa between March 2003 and February 2012. The table illustrates that there was a 35% increase in the minimum wage between February 2004 and February 2010. From March 2011 the minimum wage will increase by 6.5%, from R1,231.70 to R1,316.60 per month and it is expected that by February 2012, it will be increased by the Consumer Price Index (CPI) of six weeks prior to the first of March in 2011.
6. Other Factors Influencing Agriculture
6.1 Food Inflation
Inflation is the rise in the general level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services. As a result, annual inflation causes erosion in the purchasing power of money. Furthermore, inflation leads to a loss of real value in the medium of exchange in the economy. Food inflation is one of the variables that are considered within the inflation basket and according to Stats SA, contributes about 16% to the basket.
9 Agriculture labour remuneration divided by number of formally employed within agriculture
10 This was a survey conducted among 135 commercial farmers analysing labour remuneration and farmers' perceptions about the impact of labour legislation extended to agriculture
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Gauteng Treasury Newsletter Figure 8: CPI and Food Inflation, 1987-2009
Source: Stats SA, Consumer Price Index, 2009
Figure 8 shows CPI (headline) and food inflation growth rate from 1987 to 2009. The growth rate in food inflation follows a similar pattern to the growth rate in headline inflation, with food inflation being somewhat higher on average. The highest food inflation rate was in 1992 at a peak of 24%, before decreasing to 6.3% in 1993. The high food inflation before 1992 can be linked to cost-plus pricing procedures that were phased out and replaced by market based pricing system. From 1994 both food and head line inflation followed a slight up and down trend before spiking to a high of 15.7% and 12.4% in 2002 respectively. Food inflation and headline inflation increased from a low of 2.2% and 4% in 2005 to a high of 16.5% and 10.3% in 2008 respectively. In 2009, food inflation and headline inflation recorded 2.2% and 6.3%. The low inflation rate in 2009 can be linked to the adoption of new inflation basket which was implemented in 2008.
6.2 Food Security
Food security refers to the availability of food and whether or not one has access to it. A household is considered food secured when its occupants do not live in hunger or fear of starvation. According to the Food and Agriculture Organisation, food security exists when all people at all times have access to sufficient, safe and nutritious food to meet dietary needs and food preferences for an active and healthy life. The United States Department of Agriculture defines food insecure people as those consuming less than the nutritional target of 2,100 calories per day per person.
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Gauteng Treasury Newsletter 7. The Role of Financial Institutions in Agriculture
The Land and Agricultural Development Bank (Land Bank) was established in 1912, in order to offer tailor made financial services to established and emerging farmers. The mission of the Land Bank is to become the financial institution that supports economic growth through the provision of retail, wholesale, project and micro-financial services to agriculture and related rural services. The table below shows assistance the bank has been providing within the agricultural sector since 1974 to 2009.
Table 5: Agricultural Debt by Bank for Selected Years (R000) As at 31 Dec 2009 Land Bank Commercial banks Agricultural co- operatives Department of Agriculture Private persons Other financial institutions Other debt Total R million 1974 389.8 384 197.8 148.6 292 310.8 62.5 1,785.50 1984 1,923.00 2,968.80 2,233.70 443.3 720 999.5 207 9,495.30 1994 4,274.20 5,687.80 3,911.10 1,471.00 1,570.20 413.3 856.1 18,183.70 2000 9,606.00 11,172.30 4,500.00 860.4 1,986.70 602.4 1,098.10 29,825.90 2009 3,231.00 35,731.20 7,209.40 242.1 2,978.50 903.1 1,646.30 51,941.60 As at 31 Dec 2009 Land Bank Commercial banks Agricultural co- operatives Department of Agriculture Private persons Other financial institutions Other debt Total % 1974 21.8 21.5 11.1 8.3 16.4 17.4 3.5 100 1984 20.3 31.3 23.5 4.7 7.6 10.5 2.2 100 1994 23.5 31.3 21.5 8.1 8.6 2.3 4.7 100 2000 32.2 37.5 15.1 2.9 6.7 2 3.7 100 2009 6.2 68.8 13.9 0.5 5.7 1.7 3.2 100 Source: DAFF, Abstract of Agricultural Statistics, 2010
Table 5 shows total farming debt for financial assistance offered by the Land Bank, commercial banks, Department of Agriculture, cooperatives and other financial institutions for selected years. The table shows that in 1974, the Land Bank provided the biggest financial assistance to farmers by holding 21.8% of their debt, followed by commercials banks at 21.5%, then financial institutions (17.4%) and private persons (16.4%). In 1994, commercial banks had the biggest share of the debt at 31.3% followed by Land Bank at 23.5%. In 2009, commercial banks recorded high volumes of debt which amounted to approximately 70% of the total farming debt.
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Gauteng Treasury Newsletter However, the debt of the Land Bank declined from a high of 32% in 2000 to 6.2% in 2009.This can be attributed to the transfer of more than 70% of debts from the Land and Agricultural Bank to commercial institutions. The rate at which agriculture debt grew in the Land Bank, Agriculture Co-operatives and Department of Agriculture was higher than in other institutions. The reason for the high debt is that the mandate for the enlisted institutions is to provide finance to farmers and agribusiness in order to guarantee food security in the country.
8. The Role of the Industrial Development Corporation
The Industrial Development Corporation of South Africa Ltd (IDC) is a self-financing, national Development Finance Institution (DFI). It was established in 1940 to promote economic growth and industrial development in South Africa. The IDC mainly concentrate its investment in manufacturing, agriculture becomes important as some of its products are used as intermediate consumption in manufacturing.
In 2002, the IDC started the Nguni Cattle Project; its long term goal is to turn emerging farmers into commercial Nguni beef farmers. An amount of over R22 million was invested in the project by the 2008/09 financial year. Currently, the project is operational in five provinces, 96 farmers have been established and 2,500 cattle distributed. The IDC and DAFFs Land and Agrarian Reform Project (LARP) aim to increase entrepreneurs in the agribusiness industry by 10%. To achieve this objective, the IDC injected 100 million to the Temo Agri Investment.
According to the IDCs 2009 annual report, total loans, advances and investments exposure per economic sector, shows that R728 million was injected into agriculture and food. The focus was on horticulture sub-sector, the most labour-intensive component of the primary agricultural sector as well as food processing, agro- industries, beverages and aquaculture sectors.
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Gauteng Treasury Newsletter 9. Comparative Study
Table 6: Comparison, SA and Botswana Agriculture Exports, 2000 & 2008 South Africa 2000 2008 Botswana 2000 2008 Live animals and products 13.4% 10.9% Meat & meat products 85.4% 93.4% Vegetable products 36.0% 48.9% Live animals 0.4% 0.5% Animal or vegetable fats & oils 1.6% 2.1% Hide & skins 14.2% 6.1% Prepared foodstuffs and tobacco 48.9% 38.1% Source: Quantec Research, 2010 & Central Statistics Botswana
In 2000 and 2008, the South African agricultural export market recorded R16.9 billion and R45.9 billion respectively. The 2000 exports were mostly dominated by prepared food stuffs & tobacco (48.9%) followed by vegetable products (36%) and live animals & products (13.4%) with animal or vegetable fats & oils contributing 1.6%. The figures show that there was a decline of 10.8 percentage points for prepared food stuffs and 2.5 percentage points for live animals & products. In 2008, vegetable products drove the South African agriculture exports market, contributing 48.9% followed by prepared food stuffs (38.1%).
In 2000 and 2008, Botswana exported agricultural products to the value of R309 and R652 million Pulas respectively. The exports were mostly dominated by meat & meat products (85.4%) and hide & skins (14.2%) with live animals contributing 0.4% in 2000. Meat & meat products exports increased their share by eight percentage points to 93.4% and live animal increased by 0.1 percentage points to 0.5% in 2008. The hide & skins exports declined from 14.2% to 6.1% in 2008. Botswana agriculture consists of subsistence farming and animal raising dominate the export market while in South Africa the production and processing of crops drive the agriculture market. Botswana is plagued by erratic rainfall and poor soils that contribute to lower production for vegetables and fruit. The large contribution of prepared food stuffs in South Africa can be highly associated with high production of maize, wheat, oats and sugar cane. South Africa is among the world's top five exporters of avocados, grapefruit, tangerines, plums, pears, table grapes and ostrich products.
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Gauteng Treasury Newsletter 10. Conclusion
The history of the agriculture industry in South Africa shows that the industry was mostly dominated by Whites and changed modestly after 1994. This was after the implementation of the land redistribution policy and different institutions that invested more on encouraging Blacks to participate in farming. Trade liberalisation in South Africa relaxed trade barriers and opened farming opportunities as modern farming developed. Historically agriculture accounted for approximately 15.2% of GDP in the 1950s and 10% in the 1960s before decelerating to less than 3% during 2001 and 2009. Although the relative size of the agricultural sector has been declining, the value added by agriculture showed an upward trend. This can be linked to investments by the IDC and other financial institutions and also the development strategies that government implemented after realisation of the importance of agriculture. Gauteng contributes 5.5% to total country agriculture activity with CoJ driving the sector and followed by CoT. Agricultural employment has declined by 12% between 2000 and 2009. This could be due to technological progress within the industry. According to industrial policy, the use of agricultural products in manufacturing becomes important; the food processing sector is now the largest manufacturing sector in employment terms with some 160,000 employees in 2008. The agriculture industry remains important as industrial policy identified food and agro-processing as key milestone sector for poverty alleviation and job creation going forward. This will provide employment for unskilled workers within the country and maintain food security.
The DoL implemented an agriculture minimum wage in March 2003. The DoL adjusted the minimum wage salary by 35% between February 2004 and February 2010. The minimum wage led to a rise in the labour remuneration trend. The headline and food inflation recorded more than 14% before 1993 and this was mainly due to cost-plus pricing procedures that were phased out and replaced by market based pricing system. Even though agriculture industry contributes less than 3% to the South African economy, it remains the net exporter of agricultural products and the gross value added to exporting market is higher than that of most African countries.
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Gauteng Treasury Newsletter 11. References
Bienen, H, 1990, The Politics of Trade Liberalisation in Africa, Economic Development
Cultural Department of Trade and Industry, February 2010, Industrial Policy Action Plan, South Africa, Pretoria
Department of Agriculture 2009, Effects of The Global Economic Crisis on Agriculture, A Focus on Investment, South Africa, Pretoria
Department of Agriculture, Economic Services, The Declining Contribution of Agriculture to GDP, March 2010
Department of Agriculture, Forestry and Fisheries 2010, Abstract of Agricultural Statistics, South Africa, Pretoria
Gerdien M & Roza P (April 2007), The Role of Agriculture in Economic Development, Wageningen University and Research Centre
Hlekiso, T and Mahlo, N., 2006. Wage Trends and Inequity in South Africa: A comparative analysis. Labour Market Frontiers, October 2006.
Statistic South Africa, First Quarter 2010, Gross Domestic Product, South Africa, Pretoria
Statistic South Africa, First Quarter 2010, Quarterly Labour Force Survey, South Africa, Pretoria
Statistic South Africa, May 2010, Consumer Price Index, South Africa Pretoria
Department of Trade and Industry, February 2010, Industrial Policy Action, South Africa, Pretoria
Gauteng Department of Agriculture and Rural Development, February 2010, Gauteng Agriculture Development Strategy, South Africa, Johannesburg
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Quarterly Bulletin
Gauteng Treasury Newsletter The Quarterly Bulletin captures the economic news highlights of the preceding quarter. For further information, please contact GDF: Treasury Division, 14 th Floor Standard Bank Building, 78 Fox Street. Tel: 011 227 9000 Fax: 011 227 9055 or email GDFCommunications@gauteng.gov.za