ROBERT MATSILA
Johannesburg - The launch of South Africa’s Agriculture and Agro-processing Master Plan (AAMP) earlier this year was a momentous event in the history of agriculture in the country. The AAMP is an agricultural social compact developed by government, agribusiness, labour and other stakeholders; and aims to bring notable changes to the sector by 2030, writes Robert Matsila …
The plan also comes to consolidate gains that have been made, and reposition and ready the sector for the future while attentive to the transformational needs of the sector. Covid-19, the war in Ukraine, resultant supply-chain bottlenecks and consequent high food inflation have undoubtedly elevated the significance of sovereign food security and firmly put agriculture in the spotlight.
Moreover, the plan could not have come at a better time, given signs of waning globalisation and re-emergence of nationalism – what is called deglobalisation. This social compact, therefore, will have to ensure that South Africa is not left behind in the race for sovereign food security.
Study of the past is useful to shed light on the present and to solicit insights into the future. Today, however, facts have become perishable, and the new world of today is a fast-breaking story. The inability to be precise and certain about the future, however, is not an excuse not to plan. In dealing with the future, it is important to be imaginative and insightful than to be one hundred percent right.
Alvin Toffler, an American futurist, argues forcefully in “Future Shock” that theories do not have to be right to be enormously useful. Further, Toffler argued that even an error has its uses – for the maps of the world drawn by the medieval cartographers were so hopelessly inaccurate and yet it was those maps that led to the discoveries of the New World. The AAMP, therefore, represents imaginations and insightfulness of the social partners; is an agreed consensus and compromise between their contending interests; and will always reflect balances of power of the social partners.
For almost three decades, South Africa’s population grew by 20 million to 60 million in 2021. The agricultural sector fed all these multitudes and some globally, as the country was and continues to be a net food exporter. Over that same period, gross agricultural value add grew at compound annual growth rate (CAGR) of 7.1%. This was made possible through rising farm values, which grew at a cagr of 7.6%.
Rising farm values, in turn, led to improving security values, making for improved availability of securitised capital. Consequently, farming debt grew by eleven times to R204 billion by the end of 2021. Even at this heightened level of debt, farmers – particularly commercial farmers – maintained significant “skin in the game” that averaged between 30% to 40%. Testament to productive deployment of debt, gross capital formation grew from R3,8bn per year in 1994/95 to R20,7bn in 2021. Support to the sector also came from expanded export markets that continues to show insatiable demand for SA produce.
In line with the pareto principle, much of the above successes accrued to commercial farmers who constitute about 20% of the total farming population but account for 80% of the total agricultural outputs. Persisting skewed distribution of farm incomes should be viewed as a threat to future sustainability of the sector and calls on government to be more active with measures aimed at equitable income distribution.
Missed opportunity
Depreciation tax incentives is another factor that put commercial farmers on a technology treadmill and kept them there for an extended period. AAMP is missing an opportunity to use this tax incentive to advance localised manufacture/assembly of mechanical farming equipment. Through dependency on imports, the tax incentive creates and maintains jobs in foreign territories while also putting pressure on South Africa’s foreign reserves. It must, however, be stated that at all times, policy uncertainties, such as land reform, have not deterred farmers from making long term investments and reaping risk-adjusted returns.
Looking ahead
The past agricultural environment has been uneven, but the direction of change has been unmistakable upward. This past occurred within a particular system anchored by broader national plans such as Growth, Employment, and Redistribution (GEAR), Accelerated and Shared Growth Initiative for South Africa (AsgiSA) and the National Development Plan (NDP). The strength of a system is its continuity, bar any act of political/economic force majeure that can lead to a system break/failure. Marcus Aurelius puts it thus:
“What follows is ever closely linked to what precedes; it is not a procession of isolated events, merely obeying the laws of sequence, but a national continuity. Moreover, just as things already in existence are all harmoniously coordinated, things in the act of coming into existence exhibit the same marvel of concatenation, rather than simply the bare fact of succession.”
It is for this reason that arguments are made that the past can provide a good approximation of the future.
Armed with the AAMP, it is then possible to pierce the veil that separates the future from the present. In doing so, and premised on system continuity within the guardrails of the same political and economic systems, it can be argued that investment patterns of the past in the agricultural sector will accelerate. It can be expected that commercial farmers will continue playing outsize roles in the sector and the economy.
Agricultural trade surpluses have been hitting record highs lately, which surpluses will have to be saved, invested, or consumed. Evidence points to proclivity for productive investments. Consolidation will also play its part in maintaining the current duality of the agricultural sector. Besides, land reform programmes seek to transfer 30% of agricultural land to black farmers while AAMP has a 20% target for output contribution by black farmers.
The difference between land reform and AAMP contribution targets can be taken as a tacit acknowledgement of differential farm productivities between the two groups of farmers. There are anecdotal evidence of productive farms turning to brown fields post land reform transfers. With concerted efforts, more production can be attained by implementing measures that improve productivities of lands in the hands of emerging farmers. Miners have also expressed interests at making excess land available for agriculture as alternatives to traditional community outreach programmes.
The AAMP also seeks to promote agricultural corridors in provinces according to areas of agricultural comparative advantages. This has a potential to revive rural economies that have been threatened under poor service delivery, which results in shrinking communities because of emigration. This could see closure of local shops, post office, village schools, amongst others. The loss of amenities generates an ever-quickening shifts towards rural depopulation; and leads to a loss of something much less tangible – a traditional way of life. Rural depopulation also leads to fewer areas left that are worth visiting by leisure-seeking populace.
Gauteng, KZN and Western Cape are three rapidly urbanizing provinces, hollowing out other provinces. As agriculture is a rural or peri-urban activity, urbanization has implications for transportation, logistics and final pricing levels. Transnet has not made additional dedicated infrastructure investment specifically dedicated at servicing the sector. The implications are huge: higher pricing levels, which affect the cost of living.
Overall, the AAMP’s objectives are achievable, under the following conditions:
- Availability of investment capital: any plan requires funding to bring it to life, otherwise it would remain a blueprint. More fiscal support should be provided to Development Financial Institutions (DFIs) for financial intermediation of high risks emerging farmers. Commercial farmers with significant ‘skin in the game’/equities will continue having good access to expansion/replacement capital.
- Allocation of research funding: South Africa should recommit to the Comprehensive Africa Agriculture Development Programme (CAADP) particularly regarding research funding: This will foster innovation, research and development for global competitiveness, even in the face of deglobalization.
- Opening up new markets: Government in collaboration with industry have been successful in opening new Asian markets. African Continental Free Trade Area has the potential to further diversify exports markets.
- Training and development: effectiveness of the extension services will require a long term relook at ways to revitalized agricultural colleges.
In conclusion, agriculture will continue to respond to growing demand for food, jobs and will continue modernising. Farmers also face another double challenge – to produce food whilst simultaneously protecting nature, safeguarding biodiversity and contributing to decarbonisation of production and logistic networks. Using natural resources prudently is essential for our food production and for our quality of life – today, tomorrow and for future generations.
The challenge of inclusivity along all major value chains, including high value export-oriented horticulture, will remain and this is an area government must double down, be active, intentional, and not settle for just being a catalyst. Failure to tackle these may lead to continuation of income disparities between commercial and emerging/small-scale farmers - another threat to social cohesion. The AAMP has set a path, has broad support and it is now up to stakeholders and role-players to get to work.
Robert Matsila is the Sector Specialist: Agribusiness at the Public Investment Corporation (PIC).