1. Economic Impact of Drought & Implications for the Future of SA Agriculture
Johan van Rooyen & Johann Boonzaaier Centre for Agribusiness and BFAP,
Stellenbosch University
and
Ferdi Meyer
Bureau for Food and Agricultural Policy (BFAP)
October 2016

2. When talking about the impact of the drought … on the Economy and on the Agriculture, Food and Beverage sector…
People matter
The Environment matter
Livelihoods matter – jobs, food, income
Profits matter – competitiveness and investments
Politics matter
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3. Contents: 1.Strategic relevance of drought management
2. Historical overview
3. Pointers and indicators
4. Farm level impacts: Commercial &
Small scale
5. Medium term prospects
6. Proposed interventions – short,
medium term

4. 1. Drought management – a cornerstone in our national financial and production management system*
Drought management one of the pillars of the SA agricultural action plan presented to international bankers/business to avert the “down grading” of SA to “junk status” ( strong medium term focus)
The other pillars are:
A future vision for agriculture – the NDP ( chapter 6);
(inc Land reform; the future value and status of
agricultural property, assets, etc.)
Food security – food price spikes “ management”
* Participated in BFAP task team; and Phakisa processes

5. 2. Historic overview of “sub continental” drought impact
Winter Rainfall
Most severe since 1992/3

6. The impact on agricultural competitiveness
Droughts are reflected; droughts do have long term effects

7. Competitiveness: Grains - rainfall
Staple food impacts quire dramatic

8. Competitiveness: Meat - rainfall
Meat more “stable”; game affected

9. Competitiveness: Fruit - irrigated
Fruit – variable patterns – summer vs winter rainfall; water management more controlled

10. Competitiveness: Taxable products

11. 3. Some short/medium term pointers to watch:
Analyse historical patterns – once a decade drought?
Monitor and track monthly rainfall patterns and index
Note regional, sub continental and global patterns
Determine threshold periods for crops and livestock
Monitor dam levels – irrigation
Food price monitor: inflation, white maize, livestock, staple food basket
Consumption vs local production patterns
Trade patterns
Employment
Cash flows

12. Example of Monitoring Drought
Oct 2015
Nov 2015
Dec 2015

13. Impact of drought: 3 Thresholds
Mrch
Oct
Jan
Feb
Area planted summer crops
Pastures – first summer growth
Impact on irrigation agriculture still limited
Note this for each commodity; area and region
Critical for summer crop yields
Pastures-late summer growth
Heat affecting fruits ..
Smaller dams and boreholes affected
Critical for all dams and boreholes etc
Long-term damage on pastures
All three industries – crop, livestock, fruit affected

14. The Region and the drought
Its not just us… Where will the staple food grain ( non GM white maize) come from??
Talk about Mexico,.. What about US? Who produces a surplus white maize – food ??

15. Regional implications

16. Dams levels Source: DWS, 2016
Winter rainfall areas – again in trouble -20% below
Source: DWS, 2016

17. White maize prices
staple food crop moves from export parity levels to much higher import parity

18. Drought impact on trade
Agri Net Trade:
R12 billion - R15 billion

19. Ineffective/costly logistics
Source: Van der Burgh, AGIS 2014

20. Livestock numbers
Source: UFS survey for RPO

21. Livestock numbers – disrupting production system
Source: UFS survey for RPO, BFAP calculations

22. Drought impact on food inflation

23. Drought impact on staple basket Inflation
R364 per household per month
↑29%
Average Projected Increase 2016
Imports of GMO White Maize – 10% reduction in White Maize Price
January 2015
R282 per household per month
R350 per household per month
↑24%
Average Projected Increase 2016 with mitigating factors
Low-income households =
R82 more per month

24. Agricultural employment: 2011-2015
Since NDP in 2011, new jobs in primary agriculture…but more can be done!
New sample: Undercounting of agric in the past
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25. 4. Farm-level Drought Implication: Commercial producers
Drought – 2015/16 production season
The medium term lagged impact; a long term drought escalates problems
Negative cash flow positions until 2017/2018
% not affected

26. Small scale farmers Drought Implication:
Figure: Agricultural active households in South Africa – 2.5 million households
Source: LFS, GHS and Census 2010

27. Small scale farmers: Drought Implication
Table: Household grain production and consumption affected by the drought
Smallholders depend on cash sources to secure food supplies; social grant important!
Source: Agri Sensus, IES, 2011

28. Summary:

29. 5. Medium term prospects -where to from here??

30. The vulnerability of our Agri. Econ.
Agricultural industries important to either job creation, tax income earnings, and/ or food security are showing signs of vulnerability in drought stricken times.
Reasons are:
Exchange rate volatility - imports
Labour environment volatility – lay offs and social tensions
Trade tariff structures & non-tariff trade measures inhibiting growth – global trade
High relative cost of capital – establishment, processing
Policy uncertainty with respect to land reform & land ownership dampens investment, innovation & overall drive
Limited availability of water – climate, dams, efficient water -use
Unreliable supply of electricity
Lack in cost effective logistics, mainly rail
Lack of coherency between and within different government departments
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31. South African Food System
Future Scenarios – consider, regional, local context
Domestic Macro Economy
Global Drivers
South African Food System
Regional
Drivers & Outlook

32. What are we producing & consuming?
2024
Prospects: Vulnerable –Wheat, beef, rice, edible oils, lamb, mutton – import industries; Stable -maize, sugar – domestic supply; Growth - Fruit, vegs- export earnings

33. Competitiveness: Fruit - irrigated
Winning industries -

34. Where should we focus?
Update on NDP Employment & Investment 2030 Matrix
Focus on labour creating, export earning growth industries
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35. Expansion in irrigation; and maintenance
Introduce productivity enhancing technology; small holder development in high potential areas;
Trade enhancing mechanisms; investment support levers.
Source: GeoTerraImages 2016
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36. Maize global price outlook
Good news is, staple food and feed is also coming down, even more so than meat!
Source: OECD-FAO, 2016

37. Livestock global price outlook
Hot of the press ;-) preliminary outlook for livestock prices – to be presented at the commodity group meeting in Paris in March. Livestock prices reached record levels in 2014, due to a number of factors: 1) US cattle herd in particular reached record lows – signs are evident that they are starting to rebuild, but slower than expected… See next slide…
All prices are expected to decline – the effects of PEDv have subsided, hence pork supply has increased reducing prices.. Chicken is also expected to follow grains lower, though the beef price stays high for a few more years given the time required to expand herds.. Good news is, grain prices have also declined sharply and are expected to remain low for some time…
Source: OECD-FAO, 2016

38. White maize prices (Staple food)
36% decline in 2017
White maize remains problematical: Food spikes possible– something to deal with immediately!

39. Farm-level Drought Implication: Cash flow
Drought – 2015/16 production season
Grain farming will only surface again post 2018? Debt repayments problematic
Negative cash flow positions until 2017/2018
% not affected

40. Small scale farmers: Drought Implication
Table: Household grain production and consumption affected by the drought
Immediate support required to assist food buying behaviour.
Source: Agri Sensus, IES, 2011

41. 6. Proposed Interventions – next 2 years?
“Keep farmers on the ground” - commercial farmers
Best chance of reducing maize meal prices and food security in next season or two – back to export parity?
Restructuring debt: Security on loans & “Soft-loan” options to finance shortfall (input costs & additional feed demand)
Carefully monitor irrigation water usage and availability
Crop insurance support
Staple food price management – small scale farmers
Allow GM white maize imports from USA.
Identify vulnerable household hardest hit (IVIS spatial map)
SASSA (SA social security agency (social relief for distressed households – R940 million approved)
Increase frequency of food price & marketing margin monitoring by NAMC - efficient pass through of potential commodity price declines

42. THANKS!
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