25 August 2006

South Africa: Dismal Harvest Down On the Farm As Agriculture's Share of Economy Wilts

Johannesburg — THE release this week of the country's growth figures by Statistics SA shows a dismal performance by the farming, fisheries and forestry sector.

Having contracted 33% over the past two quarters, the sector is technically in recession.

In any other sector, alarm bells would be sounding, but agricultural economists are quick to point out that volatility is in the nature of the sector, with seasonal factors, climatic fluctuations and market volatility affecting input costs, such as fuel, greatly affecting production.

The sector's contribution to gross domestic product (GDP) now stands at 2,4%. Though the government's statistics agency has not explained the composition of its figure, the contribution to GDP from forestry is about 1,8% and from fisheries about 0,3%.

Contributions to GDP from fisheries and forestry have been in steady decline over the past few years. The total catch of deep-sea hake has dropped from 165000 tons four years ago to 150000 tons and the outlook for saw-log supplies has changed from near self- sufficiency to a projected shortage.

This means agriculture is the single biggest contributor to GDP in this lumped-together sector and must therefore shoulder most of the blame for the decline.

Although agriculture's contribution to GDP is relatively small, compared with, say, that of tourism at 7%, a poor performance in the farm sector raises concern because economists reckon SA needs a degree of food self-sufficiency.

"To import food would expose SA to the political upheavals elsewhere in the world -- a risk we cannot afford to take," says economist Nico Kelder of the Efficient Group.

There are also broader social and political issues that are deeply affected by the robustness of the sector. As in fisheries and forestry, farming is demographically associated with rural poverty and government is concentrating its efforts in poverty alleviation on these sectors. This happens mainly in agriculture, with land reform and the development of black farmers central to government's strategy.

Statistics SA says the decline reflects the performance of field crops, which make up about a third of total agricultural production.

The Reserve Bank points out in its latest quarterly bulletin that growth in other subsectors was also modest, due in part to good rains which raised the carrying capacity of grazing land, prompting farmers to expand their herds, thereby reducing the rate of slaughter.

It is, however, last season's overproduction of maize that pushed the price down below cost for most farmers, which led producer organisation Grain SA to urge farmers to scale back planting for this season.

"The point was to correct the price of maize, which has now been achieved at R1200 a ton, to allow farmers to plant again next season," says Nico Hawkins, agricultural economist at Grain SA.

"Last year's harvest of about 1,2-million tons yielded a price of R600 a ton. This year, the expected yield is about half that of the previous season, but the price has doubled. It is a classic economic formula of price versus supply," says Hawkins.

He acknowledges the risk of further volatility if farmers plant too much, though he suggests the lessons have been learnt from last year's "fiasco". It is notoriously difficult to judge seasonal trends but the market does tend to correct itself by value, as the experience over the past two quarters has shown.

Kelder says risk related to volatility is part of the business and does not mean the sector is in trouble.

He agrees that there may be special risks to emerging farmers who, unlike established commercial farmers, do not have long- established credit lines, but says that such risk would not justify changes in agrarian reform policies.

Hawkins and other sector commentators dismiss the notion that the decline in growth has anything to do with land reform.

"Short-term production decisions are not affected by policies of that nature. Farmers make their decisions based on the price of the commodity and the availability of seasonal finance."

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