THE BLOG

Why Farming Will Make A Big Comeback In 2017

Droughts alternate with good production seasons, and already, weather indications suggest 2017 could bring the much-needed relief to the sector.

22/12/2016 04:57 SAST
Siphiwe Sibeko/Reuters
A farmer inspects the soil ahead of planting at a maize field in Wesselsbron, a small maize farming town in the Free State province of South Africa, January 13, 2016.

This year has been one of the most challenging for South Africa's agricultural sector, characterised by drought. Activity has been reduced throughout the sector, with revenue shrinking at primary agriculture operations and other agribusinesses.

The impact on crop and livestock production has been devastating, and these industries are expected to continue to bear the brunt of this weather phenomenon for years to come.

The sector has remained in recession as a result, contracting by 0.3% in the third quarter compared with the second.

But we need to remember that droughts alternate with good production seasons, and already, weather indications suggest 2017 could bring the much-needed relief to the sector.

Weather forecasters are suggesting conditions could normalise throughout the country, which would improve soil moisture levels.

There is also rising optimism among farmers: the 2016 data on intentions to plant suggest summer crops could increase 15% year on year to 3.7-million hectares. The summer crops are maize, sunflower seed, soybeans, peanuts, sorghum and dry beans.

The Agbiz/IDC agribusiness confidence index also shows rising optimism in the sector. In both the third and fourth quarters of this year, the index was above the 50-point threshold, suggesting agricultural role-players hold a relatively optimistic view of business conditions in the country.

With maize production having fallen to 7.5-million tons in the 2015-16 production year, a number of organisations are already predicting a significant recovery in 2016-17 maize production. The Bureau for Food and Agricultural Policy puts it at 12.8-million tons; the International Grains Council estimates 12.9-million tons; and the US Department of Agriculture's forecast is 13-million tons.

The Agbiz/IDC agribusiness confidence index also shows rising optimism in the sector. In both the third and fourth quarters of this year, the index was above the 50-point threshold, suggesting agricultural role-players hold a relatively optimistic view of business conditions in the country.

This index is of particular importance because, among many things, it projects how South Africa's agricultural gross domestic product (GDP) could perform in the succeeding quarters. The recent readings suggest the sector could soon move out of the recession in which it has been mired since 2015.

Labour market

One of the agricultural sector's green shoots in 2016 was the vibrant labour market, which showed resilience despite the drought conditions. According to recent data from Statistics South Africa, the sector created 7% more jobs in the third quarter of this year than the previous one — that is 56,000 additional jobs, putting the sector's total labour force at 881,000 jobs.

The improvements were mainly in livestock, logging and related services, and game-farming. Other sectors, such as animal husbandry services, crop-farming and fisheries suffered job losses.

The expected improvement in agricultural production would ideally propel the vibrancy seen in the labour market in the third quarter of this year, but the uncertainty around the minimum wage discussion remains a key concern and will most likely underpin the agricultural labour market for the larger part of 2017.

Food Inflation

As a result of lower domestic production, food inflation reached 11.8% year on year in November 2016 and is expected to peak at 12.3% in December 2016, as the effects of the drought continue to filter through.

Looking ahead, with the early harvest expected in about April 2017, consumers could start to see the real benefits of the expected crop recovery roughly in the third quarter of 2017. However, this relief will mainly be on plant food products.

Meat prices will remain high in 2017, or even rise, as farmers continue to restock their herds. Slaughtering rates more than doubled in 2016, as a result of the drought. According to data from the Red Meat Abattoir Association, in 2014 the average weekly slaughtering rate in South Africa was about 6,500 head of cattle, and this went up to an average of 15,000 head per week in 2016. The increase in the slaughtering rate created a supply glut that kept prices under pressure throughout 2015 and for most of 2016.

The expected decrease in plant food prices would, ideally, lower the overall food inflation. However, meat could overshadow some benefits of this expected decrease because of its higher weighting. Meat constitutes about a third of the general consumer price index headline food basket.

Overall, farmers in the eastern parts of South Africa have finished planting and crops such as soybean and maize (predominantly yellow maize) are at the early growing stage.

The western regions of the country, predominantly white maize and sunflower seed, remain fairly dry. However, rainfall expected over the coming weeks could replenish soil moisture.

Similarly, grazing fields in the eastern and southern parts of the country are slowly showing signs of improvement and that will benefit the livestock and dairy industries.

Over the coming months, the weather will be the key determinant of whether this rising optimism is maintained in the South African agricultural sector.

Suffice to say, the year 2017 promises a period of recovery for SA's agricultural sector, but a full recovery could take two to three seasons, depending on the commodity.