The Agricultural Sector and its contribution to the economy Johan Pienaar Agri SA.

The Agricultural Sector

and its contribution to

the economy

Johan PienaarAgri SA

GDP - Perspective

• Total value of final goods and services produced within the boundary of the country in a particular period

• Four important elements:– “total value”

– “final goods and services”

– “within the boundaries of the country”

– “in a particular period”

• Agriculture does not produce final goods and services

• Contributing intermediate goods (Wheat Flour Bread)

GDP - Perspective

• Integral part of the food chain

• Uses intermediate goods (fertiliser, chemicals …)

• Linkage effects with other sectors

• Comparative and competitive advantage international

trade

• Factors of production (i.e. labour, capital ….)

• Rural economic orientation

• ASGISA

Contribution to SA’s GDP(%)Sector 1946 1976 1996 2005

Agriculture, forestry and fishing

Mining and quarrying

10.5

10.5

6.1

10.1

3.6

5.9

2.4

6.4

Manufacturing

Electricity, gas and water

Construction (Contractors)

15.1

1.7

1.9

20.7

2.3

4.3

17.2

2.8

2.7

16.2

2.0

2.1

Wholesale and retail trade, catering and accommodation

Transport, storage and communication

Financial intermediation, insurance, real-estate and business services

Community, social and personal services

General government services

15.5

8.7

8.9

17.3

9.9

11.7

8.3

11.4

15.1

9.9

12.0

7.8

14.2

19.2

14.5

12.1

8.4

18.6

18.6

13.3

Source: Statistics SA

Contribution to SA’s GDP• Primary sectors become less important in terms of the direct

contribution to GDP.• Consistent with trends observed in the advanced economies of the

world, the pattern of activity in the South African Economy has changed – as part of developmental processes in the economy – with a shift from primary and secondary sectors to tertiary or service sectors.

• For example, while the contribution of agriculture to South Africa’s GDP dropped from 10,5% to 2,4% (between 1946 to 2005), that of the financial intermediation, insurance, real-estate and business services sector rose from 9% to 18,6% in the same period.

• According to the South African Reserve Bank, the contribution of the primary sector (agriculture and mining) continued to drop over the last decade, while that of the secondary sector (manufacturing, construction and electricity) almost stayed the same.

Sectoral GDP contribution (1946 and 2005)

23%

21%

56%

Primary sector Secondary sector

Tertiary sector

1946

10%

23%

67%

Primary sector Secondary sector

Tertiary sector

2005

Sectoral GDP contribution (1946 and 2005)

• The relative share of value added (measured in terms of gross domestic product GDP) by the tertiary sector rose from 56% of total value added in 1946 to 67% in 2005, and that of the secondary sectors from 21% to 23%.

• Over the same period the relative share of the primary sectors declined from 23% to 10%.

• Not peculiar to South Africa only

• Various constraints e.g. only 13,5% of SA is arable. High potential soil limited.

Annual Rainfall – South Africa

Contribution of agriculture to the gross domestic product in SA, 1999 to 2006

1.5

2

2.5

3

3.5

4

4.5

1999 2000 2001 2002 2003 2004 2005 1q2006 2q2006 3q2006

Per

cen

tag

e (%

)

Source: SA Reserve Bank

Agriculture as % of Gross Geographic Product by region (1995, 2005)

Western Cape25%

Northern Cape3%

North West6%

Gauteng9%

Free State6%

Eastern Cape7%

Mpumalanga10%

KwaZulu-Natal28%

Limpopo6%

Western Cape23%

North West8%

Gauteng6%

Eastern Cape5%

Northern Cape6%

Free State9%

Mpumalanga9%

KwaZulu-Natal27%

Limpopo7%

1995 2005Source: Statistics SA

Value added per sector, 2000 – 2005 (Percentage growth)

6.58.1

1511.9

17.5

24.9

0

5

10

15

20

25

30A

gri

cult

ure

,fo

rest

ry,

fish

ing

Pri

mar

yin

du

stri

es

Man

ufa

ctu

rin

g

Fo

od

,b

ever

ages

an

dto

bac

co

Sec

on

dar

yin

du

stri

es

Ter

tiar

yin

du

stri

es

Per

cen

tag

e

Source: SA Reserve Bank

Purchases of intermediate inputs by the Agricultural sector, 2000 and 2005

0

2000

4000

6000

8000

10000

12000F

arm

Ser

vice

s

Fu

el

Dip

s an

dS

pra

ys

Mai

nte

nan

cean

d r

epai

rs

Fer

tilis

er

Far

m f

eed

s

Rm

illio

n

2000

2005

Source: DoA

Forward linkage – downstream linkage

• Final consumption expenditure on food, beverages and tobacco. Liberally viewed = forward multiplier

• The empirical results suggest that for a 1% growth in the agricultural sector, the non-agricultural sector (manufacturing) responds by more than 1%. The empirical results supports the argument of President T Mbeki, that South Africa should follow an “agricultural-led” growth strategy for successful development (Department of Agricultural Economics, University of Pretoria)

Fixed capital stock in agriculture as % of the total

0

2

4

6

8

10

12

14

16

1946

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2005

Per

cen

tag

e

Agriculture, forestry andfishing

Mining and quarrying

Source: SA Reserve Bank

Fixed capital stock (at constant 2000 prices)

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

1946

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2005

Rm

illio

n

Agriculture, forestry andfishing

Mining and quarrying

Source: SA Reserve Bank

Labour in agriculture in relation to economic active population

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

1985 1991 1996 2001 2005*

Nu

mb

er (

'000

)

Agriculture, forestry and fishing

Economically active population

13,6%

10.5%5,9%

5,9%

±5%

* Estimate

Source: Statistics SA

Productivity statistics for the Agricultural Sector*

Item 1995 2000 2005

Real output index 100.0 131.7 140.2

Employment number 939 179 895 156 742 750

Fixed capital input index 100.0 98.8 96.5

Multi-factor productivity index

100.0 134.7 154.2

Labour productivity index 100.0 138.1 177.3

Fixed capital productivity index

100.0 133.2 145.2

Earnings per employee (rand per annum)

6 821 10 511 16 275

Real earnings per employee (rand per annum)

6 821 7 613 9 206

Unit labour cost index 100.0 111.6 134.6

Capital labour ratio index 100.0 103.7 122.1

* NPI

South African agro-food exports by destination and imports by origin (2005)

Africa26%

Asia18%

USA and Canada

7%

Latin America

1%

Europe47%

Oceania1% Europe

22%

USA and Canada

11%

Latin America

24%

Asia26%

Africa10%

Oceania7%

Exports Imports

South African Agricultural exports and imports, 1990-2005

0

3,000

6,000

9,000

12,000

15,000

18,000

21,000

24,000

27,000

1990

1991

1992

1993

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

R m

illio

n

Agricultural exports

Agricultural imports

Agricultural tradebalance

Source: DoA

Imports and Exports of Agricultural Products2001/02 to 2005/06 (July to June)

0

5000

10000

15000

20000

25000

R'm

illio

n

2001/02 2002/03 2003/04 2004/05 2005/06

Imports Exports

Source: DoA

Challenges facing the Sector

PESTEL Legal environment

(BEE charter, codes of good practice, other legislation …)

Political environment (e.g. land reform, party political imperatives..)

Economic environment (e.g. Terms of trade, unleveled playing field internationally, input costs, exchange rate, fiscal involvement ….)

Social environment (Labour relations, housing, rural poverty …)

Technological environment (research and extension …)

Ecological environment(Sustainable resource use, risk and disaster management)

Terms of Trade in Agriculture, 2001/02 to 2005/06(2000 = base year or = 1)

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

2001/02 2002/03 2003/04 2004/05 2005/06

2000

= 1

Field crops

Horticulture

Animal Products

Estimates of support to agriculture in selected non-OECD and OECD countries (2003)

1

2

4

4

5

8

15

19

25

30

36

59

0 10 20 30 40 50 60

Russia

New Zealand

Australia

Brazil

South Africa

China

United States

Mexico

Canada

OECD

EU (15)

Japan

Percentage PSESource: OECD

Producer Support Estimate by commodity, South Africa, OECD (2003)

0 10 20 30 40 50 60 70 80

Sugar cane

Milk

Pigmeat

Sheep meat

Beef

Wheat

Maize

Sunflower

Rice

Other grains

Other commodities

Wool

Poultry meat

Eggs

Groundnuts

Grapes

Oranges

Apples

Percentage PSE

OECD

South Africa

Source: OECD

Challenges

• ASGISA

– Biofuels Industry Strategy

– Agriculture

– Agro-processing

• Strategic Plan for Agriculture

Strategic Plan for Agriculture• Implementation of the safety and security strategy

• Improved governance and implementation of partnerships and a mentorship programme

• Land redistribution for agricultural development (LRAD)

• Agricultural technology development and transfer

• Establish a broadly accessible market information system

• Develop and operationalise an effective risk management system

• Ensuring fair competition—locally and internationally

• Implementation of the shared vision on labour and land reform

• Process of empowerment in all sectors of the agrifood sector.

• Targeted investment to enhance competitiveness

• Lowering the overall cost of production, including a further reduction in the taxes and duties on diesel and other inputs.

Conclusion

• Agriculture relatively slow growing

• Possibilities – Agro-processing and

biofuels

• Economic environment needs change

• Must exploit even marginal

opportunities