Agriculture blossoms while the rest of the economy shrivels

Written by Ciaran Ryan. Posted in Journalism

There’s some good news here from a surprising quarter. From Moneyweb.

Exports of maize in the first quarter exceeded half a million tons, an increase of 86% over the same period last year. Image: Shutterstock
Exports of maize in the first quarter exceeded half a million tons, an increase of 86% over the same period last year. Image: Shutterstock

Never write off agriculture’s propensity to come to the rescue when it is most needed. While most of the SA economy shrivels, agriculture is booming – up 27.8% in the first quarter of 2020.

Contrast this with the 2% contraction in the overall economy in the first quarter this year, coming on top of declines of 1.4% and 0.8% in the two preceding quarters. Agriculture’s resilience made a 0.5% positive contribution to GDP in the first quarter of this year.

Agriculture is generally seen as a defensive sector, even in the time of Covid. “People may be willing to sacrifice less essential spending, but there will always be demand for food,” says Paul Makube, senior agricultural economist at FNB Agri-business.Read: SA farmers in focus

Mordor Intelligence forecasts growth of 4.5% a year in SA agriculture over the five years to 2025, fuelled by population growth which in turn will drive demand for maize and wheat.

Good weather conditions and steady prices have boosted crop prospects, allowing farmers to plant 7% more hectares under commercial grain and oilseed crops. The area planted to maize was up 13% to 2.61 million hectares over the last season, according to Makube.

This should translate into a stunning 15.5 million ton crop for this year, up 37.6% over 2019.

White maize futures prices

Source: Investing.com

Exports of maize in the first quarter exceeded half a million tons, an increase of 86% over the same period last year.

Agriculture typically accounts for 2.5% of GDP, but the percentage rises to around 10% if upstream and downstream sectors are counted.

The sector’s contribution should be appreciably higher this year in light of the decline in other sectors of the economy.

The number employed in the sector is 865,000, which is 3.3% higher over the same period last year, and 8% higher than in 2008.

Impact of the lockdown

The Covid-19 lockdown was not without is downside, though the impact was muted.

The shutdown of the hospitality sector meant traders were unable to sell fresh fruit to fast-foods and restaurants, and farmers had to waste short-life vegetables such as lettuce because demand from regular customers dried up. Diesel shortages due to the backlog at refineries immediately after the lockdown also impacted on some of the producer operations.

“However, the sector was overall minimally impacted as most could operate and export due to being declared an essential service,” says Makube.

Outlook for the rest of the year

Expected good rainfalls, bigger crops and a relatively weak exchange rate augur well for the rest of the year, according to research by FNB.

The soybeans crop is expected to reach 1.26 million tons which is 7.8% higher than last year, despite a 3% contraction in planted area. The sunflower estimate is 13% higher year-on-year at 765,960 tons as a result of better yields, though the planted area also decreased by 3%. The groundnuts harvest is likely to jump 169% year-on-year to 52,140 tons due to a whopping 87% increase in hectares planted.

FNB expects the already stellar performance from agriculture to continue for the rest of the year in light of the bullish harvest outlook for both the summer and winter grain and oilseed crops, as well as citrus.

Read: Government ends state of disaster despite persistent drought

“Weather conditions have since turned positive for the winter rainfall areas with good snow coverage and heavy rains in the Western Cape province,” according to FNB’s research.

“The result has not only been good moisture replenishment, but also the much-needed flows through the rivers to the region’s dams which saw dam levels lifting by 7.4 percentage points week-on-week and 11.4 percentage points year-on-year to 60.9% full during the week ended 20 July 2020 according to the data from the Department of Water and Sanitation. This is good news for the winter crops with wheat farmers optimistic about this year’s harvest.”

For the new crop season ahead, the recent forecasts indicate good chances of a La Niña weather pattern which has historically been associated with good rainfall for the southern African region.

Ciaran Ryan

The Writer's Room is a curated by Ciaran Ryan, who has written on South African affairs for Sunday Times, Mail & Guardian, Financial Mail, Finweek, Noseweek, The Daily Telegraph, Forbes, USA Today, Acts Online and Lewrockwell.com, among others. In between he manages a gold mining operation in Ghana, and previously worked in Congo. Most of his time is spent in the lovely city of Joburg.