“Not only did the prevailing drought of the previous years continue its devastation over much of the country, but a declining economy and resultant constrained consumers led to dampened demand and declining output.”
Tinashe Kapuya, head of international trade and investment intelligence at Agbiz adds: “In real terms, South Africa’s overall agricultural trade balance, despite remaining positive, fell sharply by as much as 22% and 11% in the first and second quarter of 2016, respectively.”
Dr Purchase says that given additional policy uncertainty and the country’s deteriorating political economy, agricultural Gross Domestic Product (GDP) and agribusiness confidence were in significantly negative territory for the most part of the year.
In addition to domestic uncertainty were unexpected international events, such as Brexit and the election outcome in the United States, both of which will likely carry longer term implications for South Africa’s key agricultural export markets.
However, Dr Purchase says in the last quarter of 2016 there was evidence of some recovery in the Agbiz/IDC Agribusiness Confidence Index, and with good rains falling in key production areas, this has indicated a potential turnaround situation. The situation around the country’s broader political economy, however, remains a major concern.
Given deep and fundamental political divisions in government and the governing party, threats of rating agency downgrades to sub-investment grade, as well as given an especially uncertain global political and economic environment, these ‘green shoots’ could prove to be but an empty promise. Thus, the agro-food food system and consequently also the country’s food security remains at risk.
Wandile Sihlobo, head of economic and agribusiness intelligence at Agbiz, says political and policy uncertainty are likely to remain key concerns in the agricultural sector over the foreseeable future.
Sihlobo says: “Prospects emanating from the Agbiz/IDC Agribusiness Confidence Index suggest that confidence in the sector may remain in positive territory for the first six months of 2017, largely driven by expected improvement in agricultural conditions and production.
“Moreover, this Index serves as a leading indicator for the contribution of the agricultural sector to the Gross Domestic Product (GDP), therefore positive improvements suggest that the agricultural sector could finally escape the current mediocre growth path in the fourth quarter of this year to 2017.
“More importantly, the agricultural sector constitutes roughly 6% of South Africa’s total employment. Therefore, expected growth in the sector could possibly have positive spill-overs on the agricultural labour market. This would be a welcomed recovery, following significant job losses in the earlier part of 2016, as farmers and agribusiness were constrained by the effects of the 2015/16 El Niño induced drought.”
In his forecast for 2017, Dr Purcahse says the agribusiness environment will be faced with various challenges in terms of engagement with key land reform legislation.
“Additional and critical policy and legislation impacting on the agro-food industry will no doubt surface in 2017 and will be addressed by Agbiz. A positive aspect is that the so-called CEO Process, initiated by Minister Pravin Gordhan, can assist in creating an environment for strong and inclusive growth in the broader agro-food sector,” Purchase says.
Kapuya is of the opinion that 2016 will go down as one of the most fruitful in South Africa’s trade policy, with several milestones attained.
“Looking ahead to 2017, a rebound in domestic production will expectedly boost agricultural exports going forward, with increased growth prospects to be expected in the EU. As the Brexit debate takes shape in early to mid-2017, deliberations on that front are not expected to have any impact on South Africa’s exports. However, we expect the diversification of exports to continue, particularly for fresh fruit into Asia and the Middle East.
“There is no expectation that AGOA will be repealed in the USA, and a Trump Administration will likely not change the current SACU-SA relations in a fundamental way. However, uncertainty remains in the manner and extent to which the new Administration will push for reciprocity going forward. The expectation is that SA will retain its market access in the medium to long term, notwithstanding the possibility of out-of-cycle reviews.
“The African market will remain the centerpiece of South Africa’s agricultural export growth in 2017, especially against the backdrop of a recovery in domestic production. The Tripartite Free Trade Agreement (T-FTA) negotiations will resume in February 2017, with the expectation that progress towards its conclusion will pick up speed in the new year.
“However, the T-FTA will not likely be concluded in 2017. Meanwhile, the Continental FTA discussions will expectedly gain momentum as modalities are laid out towards its negotiation,” Kapuya says.
Mariana Purnell, general manager at Agbiz Grain, says role players in the grain industry collectively decided to come together and discuss action plans to revive the South African wheat industry. The Wheat Forum and its Steering Committee supported these efforts and have been working with industry role players in this regard since the beginning of 2014.
“The whole industry is in dire straits, not just farmers. The survival of the local wheat industry is important for the whole value chain, from the producer to the processor. Several changes have been made during 2016 to help farmers produce wheat more sustainably and to also address other issues of concern along the value chain,” she says.
The Agbiz Grain desk will host a Wheat Indaba in February 2017. The main focus of the Indaba is to communicate all the changes aimed at reviving the wheat industry, as well as indicate new regulatory requirements that impact the industry. One event will be held in Pretoria and one in Stellenbosch. The Agbiz Grain Wheat Indaba 2017 in Pretoria will take place on Friday, 17 February, and in Elsenburg on Tuesday, 21 February 2017.
