Hamlet Hlomendlini, senior agricultural economist at Absa, says Mzansi’s 2020/2021 summer and winter crop production is a positive signal for the future. Hlomendlini explains that critical data shows a positive outlook on agricultural activities in the grains and other agri-enterprises. The sector is geared for a robust overall recovery in 2021.
Whenever the season starts and as it continues between ploughing and harvesting, we continuously make use of various forms of data, including the rainfall and commodity prices data, to determine how it will likely perform from an output perspective. The current data thereof is painting a rosy picture about the prospects of the 2020/21 summer and winter crop output.
This year, South Africa has had its second-largest maize harvest on record—and as usually happens in years when we experience a large harvest, commodity prices often become under pressure. In 2020, however, we’ve noticed that these prices have so far maintained an upward trend far north of the usual level.
Furthermore, a number of factors are boding well for our summer grain farmers so far, as their financial position are showing signs of improvement. Some of those factors include the weaker ZAR/USD exchange rate, rising demand for our grains (especially for maize from our export markets) and higher global maize prices.
As such, with the expectation of an above-normal rainfall in this production season coupled with the aforementioned factors, farmers are expected to lift up the maize area planting by 5% y/y to 2,75 million hectares. If this materialises, South Africa could have yet another large harvest of over 16 million tonnes in 2021.
The other key factor which we continuously monitor from the banking perspective and which is also key to determining how the season will likely perform is tractor sales. The data in this regard indicates that in 2020 tractor sales have been more robust than they were in 2019, especially between June and October.
This too illustrates farmers’ optimism about the 2020/21 summer crop production season. Furthermore, the improved financial conditions following the second-largest summer crop harvest on record in 2020, has also contributed to higher tractor sales and intentions to increase plantings in for the 2020/21 season.
What do the positive signals mean?
That said, what does all this mean from a macroeconomic perspective? First it means that agriculture will again show a positive growth in 2021, although at a much lower rate than the 10% year-on-year expansion that is expected this year.
If everything goes as expected from a production conditions perspective, the large harvest of 2020, and the even larger crop harvest expected in 2021 means that food price inflation this year and in 2021 won’t exceed 5%. This and the fact that the Monetary Policy Committee of the South African Reserve Bank recently decided to keep repo rates unchanged (at 3.5%), will certainly bode well for consumers, especially during these gloomy economic times.
Lastly, the increased activities in the sector, which are mostly fuelled by the optimism the market and the farmers have about the current production season, are boding well for employment in the sector. Just to put it into perspective, the recently released Stats SA Quarterly Labour Force Survey data showed that primary agricultural employment in the third quarter improved by 1% from the losses of the previous quarter – taking national agri-employment to over eight hundred thousand.
However it is important to note that, when compared to the corresponding period in 2019, agri-employment in the sector currently is down by 8% and there is perhaps a justification for that. That justification is the fact that although the majority of the sector was classified as an essential service and as such was allowed to remain operational during the lockdown period, it could not entirely avoid job losses as operations in the livestock and wine industries were significant impacted by the lockdown.
That said, with a positive outlook on agricultural activities in the grains and in other agri-enterprises including in the fruit production space, the sector is geared for a robust overall recovery in 2021. That means positive gains for employment in the sector and increased profit margins for farmers.