quarterly bulletin june 2010.pdf

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Economic Analysis Directorate 1

Economic Analysis DirectorateGauteng Department of Finance

2010

Review and Outlookof AgricultureIndustry in South

Africa and Gauteng

June 2010

Quarterly Bulletin


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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 oflivestock onrangeland remain at the foundation of

agriculture. South Africa is divided into nine provinces; each has an area of specialisation in

agriculture.

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. Inaddition, 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
http://en.wikipedia.org/wiki/Domesticationhttp://en.wikipedia.org/wiki/Animalhttp://en.wikipedia.org/wiki/Cropshttp://en.wikipedia.org/wiki/Social_stratificationhttp://en.wikipedia.org/wiki/Cultivationhttp://en.wikipedia.org/wiki/Arable_landhttp://en.wikipedia.org/wiki/Pastoralismhttp://en.wikipedia.org/wiki/Herdinghttp://en.wikipedia.org/wiki/Livestockhttp://en.wikipedia.org/wiki/Rangelandhttp://en.wikipedia.org/wiki/Rangelandhttp://en.wikipedia.org/wiki/Livestockhttp://en.wikipedia.org/wiki/Herdinghttp://en.wikipedia.org/wiki/Pastoralismhttp://en.wikipedia.org/wiki/Arable_landhttp://en.wikipedia.org/wiki/Cultivationhttp://en.wikipedia.org/wiki/Social_stratificationhttp://en.wikipedia.org/wiki/Cropshttp://en.wikipedia.org/wiki/Animalhttp://en.wikipedia.org/wiki/Domestication


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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 1990s1. 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

Quarterly Bulletin

1Information obtained from, http://en.wikipedia.org/wiki/Agriculture_in_South_Africa


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2.2Period 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 homelands2 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.

2Bophuthatswana, Ciskei, Gazankulu, KaNgwane, KwaNdebele, KwaZulu, Lebowa, Qwaqwa, Transkei & Venda


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3. Reforms within Agriculture

3.1 Trade Liberalisation

Trade liberalisation3gained 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 duty4was 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, alterationof non tariff barriers such as import quotas and quantitative restrictions, changes in licensing and direct allocation

4Ad Valorem is the duty or tax based on the value of product or service
http://en.wikipedia.org/wiki/Uruguay_Round_Agreement_on_Agriculturehttp://en.wikipedia.org/wiki/Uruguay_Round_Agreement_on_Agriculture


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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.

3.3Governments 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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001, 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 Nkomfe5, 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 R51million 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.

5This was at the Provincial Budget Tabling in March 2010, Budget for 2010/11 Financial Year


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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 ofgoods andservices 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 Totalvalue

added(s.a.a6.)(R mil)

Contribution of

agriculture to valueadded(R mil)

Agriculture as a %

of totalvalueadded

Contribution ofagriculture to

Gauteng valueadded R mil

GautengAgriculture

as a % ofS.A totalvalue 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
http://en.wikipedia.org/wiki/Good_(economics_and_accounting)http://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Economyhttp://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Gross_value_addedhttp://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Intermediate_consumptionhttp://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Intermediate_consumptionhttp://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Gross_value_addedhttp://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Good_(economics_and_accounting)


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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 goods7. 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 rices of a ricultural roducts to lower levels resultin in lower income ain for farmers.

7According 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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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-Natalconstituting the most activities within this sector.


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Figure 2: Provincial Agricultural Activity, 2009

Source: Stats SA, 2010

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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Figure 3 shows estimates for municipal8 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

YearVegetableproducts

Preparedfoodstuffs& tobacco

Liveanimals&products

Animal orvegetablefats &oils

1995 Imports 52.7% 26.8% 10.2% 10.3%

Exports 50.5% 34.5% 12% 3%

TradeBalance % -2.2% 7.7% 1.8% -7.3%

2008 Imports 39.8% 33.1% 15.3% 11.8%

Exports 58.2% 30.2% 5.6% 6%

TradeBalance % 18.4% -2.9% -9.7% -5.8%

Source: Quantec Research, 2010

Table 2 compares the shares of provincial imports and exports by four categories ofagricultural 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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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: Sectoral Employment Share, Gauteng 2000 & 2009


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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5.1 Employment within the Agricultural Sector

Table 3: Agricultural Employment by Occupation, Gauteng, 2000 & 2009

Employment % Share

%PointChange

NetGain/Loss

2000 2009 2000 2009

Legislators, senior officials & mangers 663 3,726 1.4% 9.2% 7.7% 3,062

Professional - 571 1.4% 1.4%

Technician & associate professionals - 930 2.3% 2.3%

Clerks 2,443 1,184 5.3% 2.9% -2.4% -1,259

Service workers, shop & market sales 2,372 93 5.1% 0.2% -4.9% -2,280

Skilled agriculture & fishery workers 19,872 11,099 43.0% 27.3% -15.6% -8,773

Craft & related trades workers 1,012 1,007 2.2% 2.5% 0.3% -5

Plant, machine operators & assemblers 7,350 2,800 15.9% 6.9% -9.0% -4,551

Elementary occupation 12,523 19,025 27.1% 46.8% 19.8% 6,502

Domestic workers - 176 0.4% 0.4%

46,237 40,610 100% 100% -5627


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.


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Figure 5: Agriculture Employment Growth, GP & S.A, 2001-2009

Source:Quantec, 2010

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 andvalues 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.
http://en.wikipedia.org/wiki/Knowledgehttp://en.wikipedia.org/wiki/Skillshttp://en.wikipedia.org/wiki/Value_(personal_and_cultural)http://en.wikipedia.org/wiki/Value_(personal_and_cultural)http://en.wikipedia.org/wiki/Skillshttp://en.wikipedia.org/wiki/Knowledge


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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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Figure 7: Average Agriculture Labour Remuneration, S.A & GP, 1996-2009

Source: Global Insight, 2010

Figure 7 shows the average agricultural labour remuneration9 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.


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Table 4: Minimum Wage Structure for Agriculture, 2003 - 201101-Mar-

200301-Mar-

200901-Mar-

2010 01-Mar-2011

To To To To28-Feb-

200428-Feb-

201028-Feb-

2011 29-Feb-2012

HourlyR4.10 R6.31 R6.74 Previous

yearswage +CPI*+1%

WeeklyR184.61 R284.23 R303.84

MonthlyR800 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 generallevel of prices of goods and services in aneconomy 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.

9Agriculture labour remuneration divided by number of formally employed within agriculture

10This was a survey conducted among 135 commercial farmers analysing labour remuneration and farmers'perceptions about the impact of labour legislation extended to agriculture
http://en.wikipedia.org/wiki/Price_levelhttp://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wikipedia.org/wiki/Economyhttp://en.wikipedia.org/wiki/Price_level


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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 Sta tes

Department of Agriculture defines food insecure people as those consuming less than the

nutritional target of 2,100 calories per day per person.
http://en.wikipedia.org/wiki/Hungerhttp://en.wikipedia.org/wiki/Starvationhttp://en.wikipedia.org/wiki/Starvationhttp://en.wikipedia.org/wiki/Hunger


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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 at31Dec2009

Land Bank Commercialbanks

Agriculturalco-

operatives

Departmentof

Agriculture

Privatepersons

Otherfinancial

institutions

Otherdebt

Total

R million

1974389.8 384 197.8 148.6 292 310.8 62.5 1,785.50

19841,923.00 2,968.80 2,233.70 443.3 720 999.5 207 9,495.30

19944,274.20 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 29,825.902009

3,231.00 35,731.20 7,209.40 242.1 2,978.50 903.1 1,646.30 51,941.60

As at31Dec2009

Land Bank Commercialbanks

Agriculturalco-

operatives

Departmentof

Agriculture

Privatepersons

Otherfinancial

institutions

Otherdebt

Total

%

197421.8 21.5 11.1 8.3 16.4 17.4 3.5 100

198420.3 31.3 23.5 4.7 7.6 10.5 2.2 100

199423.5 31.3 21.5 8.1 8.6 2.3 4.7 100

200032.2 37.5 15.1 2.9 6.7 2 3.7 100

20096.2 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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However, the debt of the Land Bank declined from a high of 32% in 2000 to 6.2% in2009.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 emergingfarmers 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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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 & meatproducts 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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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 inflationrecorded 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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Quarterly Bulletin

The Quarterly Bulletin captures the

economic news highlights of the preceding

quarter. For further information, please

contact GDF: Treasury Division, 14th Floor

Standard Bank Building, 78 Fox Street. Tel:

011 227 9000 Fax: 011 227 9055 or email

[email protected]

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