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Maart 2015
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A look at the contribution
of the agricultural sector to
the South African economy
I
f asked to estimate the share of the agricultural sector in the
economy, most people respond that it is above 10%. This is a
reasonable estimate given the fact that the sector uses more
than 80% of available land and around 60% of available water. In
reality the sector represented less than 10% of the economy in 1960
and currently this figure is below 2,5%.
South Africa is no exception, since the US agricultural sector cur-
rently represents around 1% of GDP. There they have more lawyers
than producers and more drycleaners than farming operations! One
just has to ask if we are heading towards a world without agricul-
ture? Does the sector still make a contribution to the economy?
Luckily this has been the topic of numerous studies since the mid-
1950s. One of the most popular ways to analyse the sector’s con-
tribution is to evaluate it according to five main themes: The role of
the sector as provider of food, earner of foreign exchange, employ-
ment source or provider, source of capital and buyer of goods or
provider of inputs to the manufacturing sector, the so called mar-
ket linkages.
This article will elaborate on the contributions of food, trade, link-
ages and employment of the sector to the greater economy.
The food supply
The role of the sector as food provider is particularly relevant at the
moment given the rise to prominence of concerns over food secu-
rity. In general, food security is defined as having reliable access to a
sufficient quantity of affordable, nutritious food. Note that this does
not imply food self-sufficiency as often implied in political debates.
According to Statistics South Africa the typical South African
household spends more than 70% of its food budget on four main
food groups: Meat (25%), bread and cereals (26%), milk, cheese
and eggs (9%), and vegetables (10%).
An analysis of the combined net trade by quantity, in other words
the combined net export tons less the net import tons of the main
items in each of the four groups, provides a good indication of the
country’s food self-sufficiency status.
The combined result of more than 30 food items is presented in
Graph 1
. It shows the actual values, the five year moving average
to smooth out climatic variations, and the trend line. It is clear that
the trend is downward over time and that South Africa is currently
not self-sufficient in terms of the main food items consumed since
the mid-1990s.
From a self-sufficiency and import substitution perspective one can
argue that this is a terrible situation and that it would lead to rising
food prices. The reality, however, is that inflation is currently much
lower than in the 1980s.
Agricultural trade
One would think that the increase in primary food imports would
have a negative impact on the agricultural trade balance, but the
opposite is true since the country is still a net exporter of agricul-
tural products by value. The sector therefore does not contribute
to the negative trade balance.
The deterioration of the country’s food self-sufficiency status and
maintenance of a positive trade balance can be explained through
structural shifts in the allocation of hectares under grain production,
composition of agricultural trade and changes in food consump-
tion patterns. This is the result of the deregulation of agricultural
marketing and liberalisation of agricultural trade that was completed
by the late 1990s.
This resulted in lower grain prices that prompted producers to re-
move marginal land from crop production, thereby decreasing the
area planted under maize and wheat by more than a million hectares
respectively.
The country currently imports almost 50% of wheat consumed. On
the positive side, this process gave fruit and grape producers access
to the international marketplace where they compete quite success-
fully. During the 1990s and 2000s, exports in these items grew at
an average of 6,5% per year, thereby increasing their share in total
agricultural exports from 29% to 68%.
Another major shift is changing meat consumption patterns in re-
sponse to price. Per capita beef consumption declined from its
highest level of 24 kg per person per year during the 1980s to the
current level of around 16 kg per person per year. The consumption
of poultry on the other hand grew from 6 kg per person per year to
the current level of 36 kg per person per year, of which 25% was
imported in 2012/2013.
Collectively these trends underscore the importance of continued
investment in transport infrastructure in order to ensure that food
items can be produced and moved cost-effectively. This is particu-
larly important from a food security perspective since these items
represent a large portion of the budget of a low income household.
Such investments are also important for ensuring and expanding
the competitiveness of our high value food exports.
Linkages
The fact that the sector represents less than 2,5% of the economy
does not provide the true picture of the sector’s impact on the
greater economy since the sector does not operate in a vacuum – it
buys inputs from the manufacturing sector, provides raw materials
for manufacturing and purchases a host of services. How big is the
impact of the sector then?
One of the ways of looking at it is to sum the GDP share of primary
agriculture and all closely related sectors, i.e. agribusinesses. Ex-
amples of agribusinesses would include farming operations, input
manufacturers, input suppliers and co-ops, food processors, distrib-
uters and traders, and others. Our research shows that the agricul-
tural and related sectors represented around 7% of GDP in 2010.
RELEVANT
JAN GREYLING,
Department of Agricultural Economics, Stellenbosch University