Opportunities abound for SA's job-intensive agricultural sector

South Africa, like most of the continent south of the Sahara, is punching below its weight in the agribusiness game.

Africa is a net importer of food, even though it holds about 60% of the world’s uncultivated arable land. As the continent’s most advanced economy, South Africa fares better than its continental peers, consistently achieving trade surpluses in the agriculture segment thanks to exports of over $10bn a year.

But considering the vast tracts of land that remain idle or only partially used, and opportunities to boost its competitiveness and lift exports, the country has not come close to fulfilling its potential.

The government recognises this, and sees the sector as both a high-priority sector and an important tool in its job-creation arsenal.

The National Development Plan says the industry could create about 1-million new jobs by 2030 through investing in irrigation, converting unutilised land, and providing support to smallholder farmers to help them grow their businesses. It’s an ambitious target, and one that South Africa is falling behind on — especially if one considers that the number of people employed in the primary agriculture market has remained relatively flat at slightly over 800,000 for years.

“As best as we can tell, if the underutilised land in the former homelands, underperforming land-reform farms, and other parts of the country are not brought into full production with a key focus on labour-intensive subsectors, notable job creation in South Africa’s agriculture might not materialise,”

Wandile Sihlobo, chief economist of the Agricultural Business Chamber of South Africa, wrote in a report in May.

South Africa’s land reform plans are unsurprisingly stoking uncertainty in the sector, but they also present an opportunity for the state to unlock idle land, particularly in KwaZulu-Natal, the Eastern Cape and Limpopo. According to a 2015 study by McKinsey Global Institute, which cited data from the Bureau for Food and Agricultural Policy, South Africa could boost its land area under cultivation by more than 10%.

In addition to increasing farm productivity, an additional 1.6 million to 1.8 million hectares of land could be used for farming, over and above the 13 million to 14 million hectares in use today, the study said. That alone could lift output by about 14%.

But this would introduce a new set of challenges, including further strain on the country’s precious water resources. This means better environmental practices, especially irrigation techniques and technologies, will become increasingly important.

Aside from making the most of its natural resources, South Africa will also need to tap new and existing export markets if it is to realise the goals of the National Development Plan. And it need not look too far from home.

The recent formation of the African Continental Free Trade Area provides a meaningful opportunity for South Africa’s commercial farmers. The removal of import tariffs and non-tariff barriers could double intra-African trade, according to the United Nations Economic Commission for Africa.

To facilitate trade and boost its competitiveness, South Africa will also need to accelerate investments in its transport and logistics infrastructure, including its rail networks and its ports, where bottlenecks occur and cold-storage units are in short supply.

Since the agricultural sector’s growth prospects depend largely on exports, this is a key concern that should be tackled. The challenge is that this will require significant capital injections — a difficult task considering the state of the country’s public finances.

But according to data from the International Trade Centre (ITC), the potential pay-off is enormous. The ITC estimates that South Africa is currently only realising 48% of its export potential in the fresh grapes market, for instance. It cites Germany, the Netherlands, the United Kingdom, China and the USA as the biggest potential markets for South Africa’s grape farmers.

South Africa is also underperforming relative to its potential in the global wine, oranges and maize markets, among many others, the ITC’s data shows.

These and other agricultural subsectors in South Africa, and Africa in general, would do well to take a leaf out of New Zealand’s book, according to research by US-based management consulting firm AT Kearney.

Years ago, the New Zealand Dairy Board created a platform for best-practice sharing among its members in an effort to raise productivity and product quality, and the board actively created export markets for excess products, AT Kearney wrote in a report.

Those interventions were incorporated in a highly successful new dairy-exporting cooperative called Fonterra, which has allowed New Zealand to excel in the global dairy market. Fonterra, a listed company, has a market value of about R60bn.

Meanwhile, where appropriate, South Africa should also enforce tariffs to protect local food producers against unfair trade practices. The domestic poultry industry, for instance, has been lobbying for some time for higher tariffs against certain types of imports. According to recent reports, some poultry products have been imported for as little as R2 a kilogram. Generally, the state’s trade agreements with other nations should strike a balance between the interests of consumers and the country’s job-creating farmers.

At the same time, South Africa’s farmers have an opportunity to leapfrog their developed-market peers by embracing new technologies that improve efficiencies and yields.

Encouragingly, the “smart farming” concept is gaining momentum in the country, with global and domestic technology companies having launched pilot projects in recent years. The use of drones to monitor the health of crops, and the Internet of Things (IoT) to monitor and regulate soil moisture and avoid unnecessary irrigation, can ultimately lead to better profits and sustainability.

“A key ingredient of successful agricultural development is the ability to form meaningful public-private partnerships to enable mentoring and skills transfer to emerging and smallholder farmers in addition to much needed market access,” says Bennie van Rooy, Grobank CEO. “The sector is an ideal breeding ground for these partnerships and commercial farmers, government, smallholder farmers and agricultural focused banks have to take the lead with these partnerships to grow the number of commercial farmers.”