Post-covid agricultural growth is more crucial than ever

It is no secret that agricultural and industrial growth are deeply intertwined. Amid the global pandemic this relationship has come the fore, Lunathi Hlakanyane reports. Agriculture emerged victorious in light of disruptions at the hands of the novel coronavirus, the economist says.

It is widely accepted that growth in agriculture is the first step in economic development and transformation. The spill-over effects of agricultural growth are far-reaching, with significant positive linkages to processing, packaging, logistics and retail.

Industrial development is a function of agricultural growth, Ceteris paribus. Put differently, the cornerstone of broadscale economic prosperity is sustained growth in agricultural productivity. Perhaps no one articulates this point more succinctly than classic development economist, Sir William Arthur Lewis when he asserts: “Industrial and agrarian revolutions always go together…and economies in which agriculture is stagnant do not show industrial development.”

This statement is premised on the proven link between increased agricultural productivity and observed efficiencies in the marginal product of labour and capital across several essential sectors of the economy, like manufacturing and agro-processing.

This has a reciprocate effect in that growth in agro-processing, for example, stimulates agricultural growth by creating new output markets and increasing farmers’ incomes and thus the pool of funds from which investment in land and inputs to improve productivity is made.

A glimmer of hope

Though the sector’s contribution to total national gross domestic product is relatively small, its value in terms of offsetting changes in related sectors makes it indispensable to sustainable economic development.

The growth of South Africa’s agricultural output in the first quarter of 2020, therefore, served as a glimmer of hope for strategic sectors of the economy that were, and continue to be, wrung dry by Covid-19.

South Africa’s GDP in the first quarter of 2020 contracted by 2% on a seasonally adjusted and annualized basis at the back of a 1.4% and 0.8% contraction recorded in Q3 and Q4 of 2019, respectively. Although output had begun to rapidly decline as early as the first quarter of 2019 in several key strategic sectors of the economy, such as mining and manufacturing, the recent contraction was, in addition to uninterrupted economic stagnation, a consequence of one the strictest social lockdowns in the world to curb the spread of Covid-19.

Much to the sector’s delight, agriculture emerged triumphant from the clutches of the pandemic, registering a seasonally adjusted growth of 27% in the first quarter of 2020. A combination of a surge in agri-commodity exports, favourable weather conditions, and heightened demand were all key drivers of increased agricultural output in the first quarter of the year.

Specifically, the sector’s growth was driven by record yields in maize, sunflower, soybeans, and citrus. The Crop Estimate Committee output forecast predicts this trend will continue with record yields expected in maize (15.5 million tons Y/Y), sunflower seed (765 960 tonnes Y/Y) and soybeans (1.3 million tonnes Y/Y) in the 2019/2020 season.

Agriculture’s growth in the cusp of the pandemic is, of course, significant (dare I say opportune) for several reasons, namely:

1. The sector’s backward and forward linkages
2. Low-medium skill employment
3. Sustained food security and international trade competitiveness
4. Agripreneaurship

Linkages

A close analysis of the sector’s backward linkage using statistical multipliers to estimate the direct and indirect impact of agricultural production reveals that primary agriculture has a backward linkage of 2,14. This means that a R1 million increase in the demand of agricultural output will increase the combined production output of other sectors in the economy by R2,14 million.

Similarly, the forward linkage of the sector is 1,81. Likewise, this means that a R1 million increase in the cost of value added in the agricultural sector yields a combined increase of output in other sectors of the economy by R1,81 million as a direct result of the price increase.

Employment

Agriculture acts as a shock absorber in times of economic turbulence by reeling in low-medium skill labour from the primary and secondary sectors. Currently, the share of the labour force employed in the agricultural sector as a percentage of total employment in SA is 5.1%, according to the World Bank.

Although the percentage of agricultural employment as a share of aggregate employment has been declining over the past few years as a result of increased mechanization and consolidation of farming holdings into mega farms, it is important to note that employment per hectare has remained relatively stable across all major agri-commodities.

Agricultural employment per hectare

Source: Bureau of Food and Agricultural Policy (BFAP)

As constituents of a highly labour intensive sector, fruit and vegetable enterprises employ an average of 1.6 and 1.9 people per hectare, respectively. Meanwhile, 0.001 and 0.02 people per hectare are employed in field crop and livestock production.

A rise in agricultural output demand drives up total surface area planted per hectare, which, in turn, bids up the demand for labour. In this sense, steady agricultural growth has a potential to alleviate the country’s scourge of unemployment.

Sustained food security and international trade competitiveness

The increase of agricultural output at the pinnacle of the pandemic is testament to the resilience of South African farmers and their unyielding commitment to food security. Furthermore, agriculture’s growth during this period cements South Africa’s competitiveness in international trade as a net agri-commodity exporter, which strengthens farmers’ incomes through foreign earnings.

Agripreneurship

In a country like ours, with meagre economic opportunities and youth unemployment hovering near 60%, agricultural growth has the potential to attract young, vibrant agripreneurs into the sector. The growing market for fresh organic produce, for example, is a niche ripe for exploitation. Organic farming is comparatively less capital intensive than conventional farming and requires even less capital per hectare to initiate.

Agricultural growth, therefore, presents aspiring agripreneurs with the opportunity to ride the current tide of heightened demand for fresh, organic produce as an income/livelihood diversification strategy.

The growth of SA’s agricultural output as the world grapples with the worst health crisis in living memory offers us a glimpse of what a post-covid economy might look like. As the ripple effect of agricultural growth extends to other essential sectors, agriculture may likely be the defibrillator that resuscitates our economy post-covid-19.