1. The Agricultural Sector and its contribution to the economy Johan Pienaar Agri SA

2. GDP - Perspective Total value of final goods and services produced within the boundary of the country in a particular period Four important elements: –“total value” –“final goods and services” –“within the boundaries of the country” –“in a particular period” Agriculture does not produce final goods and services Contributing intermediate goods (Wheat  Flour  Bread)

3. GDP - Perspective Integral part of the food chain Uses intermediate goods (fertiliser, chemicals …) Linkage effects with other sectors Comparative and competitive advantage  international trade Factors of production (i.e. labour, capital ….) Rural economic orientation ASGISA

4. Contribution to SA’s GDP(%) Sector1946197619962005 Agriculture, forestry and fishing Mining and quarrying 10.5 6.1 10.1 3.6 5.9 2.4 6.4 Manufacturing Electricity, gas and water Construction (Contractors) 15.1 1.7 1.9 20.7 2.3 4.3 17.2 2.8 2.7 16.2 2.0 2.1 Wholesale and retail trade, catering and accommodation Transport, storage and communication Financial intermediation, insurance, real- estate and business services Community, social and personal services General government services 15.5 8.7 8.9 17.3 9.9 11.7 8.3 11.4 15.1 9.9 12.0 7.8 14.2 19.2 14.5 12.1 8.4 18.6 13.3 Source: Statistics SA

5. Contribution to SA’s GDP Primary sectors become less important in terms of the direct contribution to GDP. Consistent with trends observed in the advanced economies of the world, the pattern of activity in the South African Economy has changed – as part of developmental processes in the economy – with a shift from primary and secondary sectors to tertiary or service sectors. For example, while the contribution of agriculture to South Africa’s GDP dropped from 10,5% to 2,4% (between 1946 to 2005), that of the financial intermediation, insurance, real-estate and business services sector rose from 9% to 18,6% in the same period. According to the South African Reserve Bank, the contribution of the primary sector (agriculture and mining) continued to drop over the last decade, while that of the secondary sector (manufacturing, construction and electricity) almost stayed the same.

6. Sectoral GDP contribution (1946 and 2005) 1946 2005

7. Sectoral GDP contribution (1946 and 2005) The relative share of value added (measured in terms of gross domestic product GDP) by the tertiary sector rose from 56% of total value added in 1946 to 67% in 2005, and that of the secondary sectors from 21% to 23%. Over the same period the relative share of the primary sectors declined from 23% to 10%. Not peculiar to South Africa only Various constraints e.g. only 13,5% of SA is arable. High potential soil limited.

8. Annual Rainfall – South Africa

9. Contribution of agriculture to the gross domestic product in SA, 1999 to 2006 Percentage (%) Source: SA Reserve Bank

10. Agriculture as % of Gross Geographic Product by region (1995, 2005) 19952005 Source: Statistics SA

11. Value added per sector, 2000 – 2005 (Percentage growth) Source: SA Reserve Bank

12. Purchases of intermediate inputs by the Agricultural sector, 2000 and 2005 Source: DoA

13. Forward linkage – downstream linkage Final consumption expenditure on food, beverages and tobacco. Liberally viewed = forward multiplier The empirical results suggest that for a 1% growth in the agricultural sector, the non-agricultural sector (manufacturing) responds by more than 1%. The empirical results supports the argument of President T Mbeki, that South Africa should follow an “agricultural-led” growth strategy for successful development (Department of Agricultural Economics, University of Pretoria)

14. Fixed capital stock in agriculture as % of the total Source: SA Reserve Bank

15. Fixed capital stock (at constant 2000 prices) Source: SA Reserve Bank

16. Labour in agriculture in relation to economic active population 13,6% 10.5% 5,9% ±5% * Estimate Source: Statistics SA

17. Productivity statistics for the Agricultural Sector* Item199520002005 Real output index100.0131.7140.2 Employment number939 179895 156742 750 Fixed capital input index100.098.896.5 Multi-factor productivity index 100.0134.7154.2 Labour productivity index100.0138.1177.3 Fixed capital productivity index 100.0133.2145.2 Earnings per employee (rand per annum) 6 82110 51116 275 Real earnings per employee (rand per annum) 6 8217 6139 206 Unit labour cost index100.0111.6134.6 Capital labour ratio index100.0103.7122.1 * NPI

18. South African agro-food exports by destination and imports by origin (2005) ExportsImports

19. South African Agricultural exports and imports, 1990-2005 Source: DoA

20. Imports and Exports of Agricultural Products 2001/02 to 2005/06 (July to June) Source: DoA

21. Challenges facing the Sector PESTELPESTEL Legal environment (BEE charter, codes of good practice, other legislation …) Political environment (e.g. land reform, party political imperatives..) Economic environment (e.g. Terms of trade, unleveled playing field internationally, input costs, exchange rate, fiscal involvement ….) Social environment (Labour relations, housing, rural poverty …) Technological environment (research and extension …) Ecological environment (Sustainable resource use, risk and disaster management)

22. Terms of Trade in Agriculture, 2001/02 to 2005/06 (2000 = base year or = 1)

23. Estimates of support to agriculture in selected non- OECD and OECD countries (2003) Percentage PSE Source: OECD

24. Producer Support Estimate by commodity, South Africa, OECD (2003) Source: OECD

25. Challenges ASGISA –Biofuels Industry Strategy –Agriculture –Agro-processing Strategic Plan for Agriculture

26. Implementation of the safety and security strategy Improved governance and implementation of partnerships and a mentorship programme Land redistribution for agricultural development (LRAD) Agricultural technology development and transfer Establish a broadly accessible market information system Develop and operationalise an effective risk management system Ensuring fair competition—locally and internationally Implementation of the shared vision on labour and land reform Process of empowerment in all sectors of the agrifood sector. Targeted investment to enhance competitiveness Lowering the overall cost of production, including a further reduction in the taxes and duties on diesel and other inputs.

27. Conclusion Agriculture relatively slow growing Possibilities – Agro-processing and biofuels Economic environment needs change Must exploit even marginal opportunities