Agriculture and economic growth Nick Vink Department of Agricultural Economics University of Stellenbosch

Share of GDP

Can agriculture act as an ‘engine of growth’?  GDP contribution revisited  Physical output  Value of output  Exports  Employment  Procurement  Investment

The real contribution of agriculture to GDP  Agriculture contributes 3.1% to GDP  “  “Manufacture of food products, beverages and tobacco products” contributes 18% to manufacturing sector output, which contributes 19% to GDP  “  Assume that Food processing share of output = share of GDP, then “Manufacture of food products, beverages and tobacco products” is 3.4%   Agriculture’s total procurement of goods and services is R40bn or the equivalent of 3.2% of GDP. This is an overestimate of the GDP contribution

The real contribution of agriculture to GDP %Trend Agriculture3.1 Declining share Food processing 3.4 Increasing share of a declining sector Goods and services 3.2 Increasing sector but unclear whether share increasing Total9.7???

The real contribution of agriculture to GDP  The share of primary agriculture in Gross Geographical Product is much higher in many rural areas  However, the share of food processing is lower  These are the areas with the greatest number of poor people  The multipliers between agriculture and the non-agricultural rural economy are very high world-wide  Thus: opportunities for value-adding to agricultural production exist.

Physical output

Value of output Upward trend starts early 1990s – export related

Exports

Trade balance

Employment

Employment

Procurement and investment

Can agriculture act as an ‘engine of growth’? Agriculture’s contribution to GDP is small and declining... No While ag GDP is small, the agro-industrial complex is 10% of GDP... Yes In most poor rural areas the ag contribution is larger, and there are strong multipliers to the non-farm economy Yes Physical output has increased since the early 1990s... Yes The value of output has increased since the early 1990s... Yes

Can agriculture act as an ‘engine of growth’? Agricultural exports increased as a share of total exports in the 1990s... Yes But have declined in the 2000s... No Agriculture is using more and more of the foreign exchange it generates to pay for imports... No Employment is in long term decline... No Is there an upturn in employment of skilled workers?... Yes

Can agriculture act as an ‘engine of growth’? Is there an increase in total employment? If so, then concentrated in the Western Cape ?? The wage bill has increased, leading to stronger multiplier effects in the rest of the economy... Yes Current expenditure has increased substantially, leading to stronger multiplier effects in the rest of the economy... Yes There is little evidence of new investment in agriculture, leading to negative multipliers in the long run... No

What is required for agriculture to act as an ‘engine of growth’?  New farmers with new ideas and new initiatives  Investor confidence  Farmer support services in poor rural areas  Irrigation  The land reform programme is not delivering sufficiently on any of these