THE BLOG

Land Reform Clarity Will Help Advance The Agriculture Sector

The optimism and desired growth in the agricultural sector could be short lived if South Africa delays in endorsing a unified and responsible policy stance.

21/03/2017 03:55 SAST
Siphiwe Sibeko / Reuters

Informed debate and decision making is required to address the issue of land reform and protection of property, since the land issue could have serious implications, not just on the agriculture sector but on our entire socio-economic spectrum. One critical sector would be the financial industry, which over the years has consistently shown growing confidence in the agricultural sector. In 2015 the total South African farm debt was at R142 billion in real terms, which is a record level in a database starting from 1980. Given that 2016 was characterised by the drought, the figure is expected to have increased further. Therefore, the land issue needs to be managed responsibly as it could pose a serious risk to the financial sector.

In addition, agriculture is viewed by many political leaders as the epicentre of growth in South Africa. However, for that to be achieved, the sector needs a stable and conducive environment that can inspire confidence in order to attract much-needed investment. The land issue should not be dismissed outright as it is a necessary socio-economic debate to have. However, it could be in our best interest for level heads to prevail and for long-term sustainable decisions to be actioned.

Just last week, the Agricultural Business Chamber released its first quarter results for the Agbiz/IDC Agribusiness Confidence Index, and they painted a troubling picture regarding investments in the sector. The Index showed that the confidence of agribusiness decision makers regarding capital investments declined by 13 index points quarter-on-quarter, and they attributed their opinion to uncertainty regarding land reform and property rights.

In general, agribusinesses are not averse to "land reform" per se, but are rather concerned about the ongoing rhetoric and contradictory statements emerging from the political sphere on this matter. As a result, some suggest that they would rather pull back on investments in the near future until there is some certainty. In such a scenario, it would be difficult to attain the desired levels of growth and contribution to the economy from the agricultural sector in the near future.

At the moment, however, there is still a glimmer of hope. Although confidence regarding capital investments declined, the overall Agbiz/IDC Agribusiness Confidence Index painted a positive picture for the first quarter of this year. Overall agribusinesses confidence improved by 2 Index points in the first quarter of this year to 57. An index reading above 50 points indicates expansion in agribusiness activity and the inverse is true.

Therefore, an Index point rating of 57 suggests that agribusinesses are overall holding an optimistic view regarding business conditions in the country. Also worth noting is that the Index has remained above the 50 Index points for the past three consecutive quarters, which signals a consistent improvement in agribusiness activity.

Some agribusinesses foresee improvement in their profitability status relative to the previous quarter, particularly the ones operating in winter grain producing regions, livestock, the financial sector, as well as the wine industry.

Amongst the ten sub-indices making up the Agbiz/IDC Agribusiness Confidence Index, the turnover, net operating income, employment, economic growth, agricultural conditions, debtor provision for bad debt and financing costs sub-indices were the key drivers of the improvement in confidence in the first quarter of 2017. The general improvement in these particular sub-indices is in line with positive prospects for the 2016/17 production season. Meanwhile, the decline in other sub-indices mirrors the aftermath of the 2015/16 El Niño induced drought, as well as uncertainty regarding land reform processes in the country.

To highlight a few of the aforementioned sub-indices, confidence regarding the turnover sub-index improved by six index points in the first quarter to 72. This suggests that some agribusinesses foresee improvement in their profitability status relative to the previous quarter, particularly the ones operating in winter grain producing regions, livestock, the financial sector, as well as the wine industry. Meanwhile, the summer grain producing regions, as well as deciduous fruits might still be under pressure due to a decline in stock levels and handling income.

The perceptions regarding employment in the agricultural sector improved in the first quarter of this year from the previous one. The sub-index reached 56 points, up from 53. This echoes the vibrancy that was seen in the recent labour statistics survey by Statistics South Africa. The survey showed a 4 percent improvement in agricultural jobs in the fourth quarter of 2016 to 991,000 jobs.

The general agricultural conditions sub-index improved by 4 index points in the first quarter of this year to 69. This is largely supported by the favourable outlook for the 2016/17 production season. The National Crop Estimate Committee's first production estimates for summer crops reached 16.21 million tonnes, up by 72 percent from the previous season. This could be the largest crop since the 2013/14 production season.

Overall, the optimism and desired growth in the agricultural sector could be short lived if South Africa delays in endorsing a unified and responsible policy stance regarding land reform and property rights. It is therefore vital that land reform policy is carefully thought out and clearly and consistently articulated to sustain the renewed optimism in the sector.

*This blogpost is an extract from my Business Day Column on 16 March 2017