South Africa’s agricultural sector has defied expectations by expanding by 0.3% year-on-year in 2022, according to new data from Statistics South Africa. The unexpected growth comes after experts, including Agbiz chief economist Wandile Sihlobo, had predicted a mild contraction based on a decline in key field crop harvests such as maize.
The sector had seen solid growth of 8.8% in 2021, making this surprise expansion all the more notable, remarks Sihlobo. He notes, though, that poor performance in sugarcane production in 2021/2022, as well as a foot-and-mouth disease outbreak in the livestock industry, were additional risks that contributed to this expectation of contraction.
Furthermore, the base effects after two years of solid growth, where the sector expanded by 14.9% year-on-year in 2020 and 8.8% year-on-year in 2021, was also a contributing factor to this view.
Positive signs
Despite this meagre growth, Sihlobo is optimistic that the sector will recover somewhat in 2023. Early indications suggest that Mzansi’s 2022-2023 summer crop production could amount to 19.3 million tonnes, up 3% from the previous season.
Sihlobo furthermore points out that if the horticulture and the livestock subsectors also show a recovery, however marginal, this would lead to positive growth in the sector this year.
However, persistent load shedding, higher input costs, rising protection in some export markets, rising interest rates, intensified geopolitical tensions that disrupted supply chains, and ongoing weaknesses in municipal service delivery and network industries are key factors that weighed on sentiments.
Sihlobo also notes that the Agbiz/IDC Agribusiness Confidence Index, which is viewed as a lead indicator of the sector’s performance, fell by 4 points in the fourth quarter of 2022, to 49. This deterioration below the neutral 50-point implies that agribusinesses were slightly downbeat about business conditions in South Africa.
“If this gloomy path continues, an outcome we will know for sure next week when we release Q1 2023 results, there could be negative implications for the sector’s long-term growth,” warns Sihlobo.
Despite these challenges, Sihlobo remains positive that the interventions that the department of agriculture, land reform and rural development seeks to make could slightly cushion the sector.
These government interventions add to the finance minister’s recent ones about diesel rebates for food value-chain role players and that there could be possible energy curtailment options for heavy users where technical infrastructure permits. Other possible options currently being discussed include blended finance to incentivise own generation within agriculture as part of “greening South Africa’s agriculture”.
Resilience amid a challenging year
Meanwhile, Paul Makube, a senior agricultural economist at FNB Commercial, says the revised agriculture GDP estimates showed a “massive upswing” of 11.3 percentage points from 19.2% to 30.5% quarter-to-quarter in the third quarter of last year.
This was underpinned by good harvests of grains and oilseeds as well as horticulture crops amid elevated commodity prices.
“2022 was challenging for the agriculture sector due to trade distortions in terms of the imposition of uncompetitive phytosanitary measures on citrus from the European Union, global and domestic logistics challenges, inclement weather, rising interest rates, higher input costs, as well as outbreaks of the food and mouth disease that halted exports – although temporarily,” said Makube.
The contraction in activity in the fourth quarter of 2022’s agriculture GDP was underpinned by a downturn in activities in the field crops and horticulture products, coinciding with the onset of the summer crop season, which saw the planting season and the tailing-off of the winter crop season.
Cause of optimism
For summer crops, the planted area under the country’s biggest crop, maize, decreased by 1.5% year-on-year to 2.58 million hectares. Nonetheless, all is not bad as there are some positives, such as the 4% year-on-year jump in foreign agriculture earnings to $12.8 billion, a new record high underpinned by high commodity prices.
Makube says despite the challenging year, the agriculture sector remains resilient, and he is optimistic about the sector’s future.
“The agriculture sector remains a vital component of the South African economy and is poised for growth as the global economy recovers. The sector will continue to be impacted by global trade and weather-related risks, but we remain optimistic about the future of the sector.”
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