A country’s macroeconomic performance reflects the combined activity of its main components: government, the private sector and trade. Within these components, economic actors operate in both tradable and non-tradable sectors.
By Robert Matsila, agricultural economist
The performance of the non-tradable sector is usually closely linked to the domestic economy, whereas the tradable sector is more closely tied to the global economy, depending on a country’s level of international connectedness.
Geography also matters. Coastal countries have a natural logistical advantage over landlocked countries because they can access global markets more easily. As the saying goes, coastal countries have the world to serve. Landlocked countries, by contrast, face significant logistical barriers to participating fully in global trade. As a result, they often depend mainly on domestic and neighbouring markets, limiting their export potential and growth opportunities.
Despite its coastal location, South Africa’s economic growth has remained weak over the past two decades, reflecting missed opportunities in global markets. The country is also a net importer of goods and services. Technically, a trade deficit drains rand liquidity from the economy, reducing the currency available to support commerce.
In agriculture, a tradable sector, the picture changes markedly. The sector stands out as a strong performer, growing at a compound annual growth rate of 6% over the past two decades, well above the broader economy.
Agriculture is also a consistent net exporter, a net earner of foreign exchange and a key pillar of domestic food security. In effect, South African agriculture is making full use of the advantage that comes with being a coastal country with access to the world as a market.
Where food insecurity exists, it is driven more by high unemployment than insufficient food supply.
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This growth and strong economic performance can be attributed to several factors.
1. Secure property rights
Although land reform is central to the government’s transformation agenda, property rights remain secure despite ongoing debate around Section 25 of the Constitution.
This security has enabled farmers to mobilise external finance from asset-based lenders for agricultural investment. Farmland therefore remains a prime asset and continues to hold strong appeal for South African lenders.
2. Increasing farmland values
Supported by secure property rights and sustained investment and reinvestment, farmland values have continued to appreciate. Blended finance, population growth and mining activities have also added upward pressure on farmland values.
Higher values have, in turn, enabled farmers to use their farms as collateral to raise more external debt. Farmland is currently valued at more than R450 billion, supporting over R200 billion in debt finance, equating to a gearing ratio of 44%. This suggests that there is still room for more debt.
This debt contributes to improving land productivity and the real growth of agricultural output.
3. Peace and political stability
Peace and stability are often underestimated until they are lost; once instability takes hold, it is difficult to reverse.
Despite high levels of crime, South Africa remains broadly stable and at peace. This has enabled long-range planning and long-term investment, both of which have supported the sector’s real growth.
4. Fit-for-purpose commodity associations
The sector benefits from strong, fit-for-purpose commodity associations that represent the interests of their member farmers. Government, in turn, has shown a willingness to listen and respond to farmers’ needs, with master plans serving as useful examples.
It can therefore be argued that farming takes place in an environment that allows enterprise and initiative to flourish, although this does not mean the country is without challenges.
These associations are also at the forefront of research, development and transformation, helping to bring a new generation of farmers into the sector and secure its future. Through these associations, farmers are receiving value for money.
5. Minimum wage
Not everyone will accept that the minimum wage has helped enable the sector’s growth and global competitiveness. Yet, given South Africa’s history, it provides greater certainty around farmworker compensation.
According to Statistics South Africa, salaries and wages for about 946 000 farm employees account for 12.5% of total spending. In The Omnivore’s Dilemma, Michael Pollan writes that “growing maize is just riding tractors and spraying”, underscoring that South African agriculture is unlikely to become a major employer because it is highly mechanised.
Among the four factors of production – land, labour, capital and technology – land is immobile, whereas labour is mobile but with friction. Technology, including advanced seeds, chemicals, machinery and precision farming tools, as well as capital, can move more freely across borders.
Excluding weather-related factors, agriculture’s global competitiveness is therefore closely linked to labour. In theory and practice, countries or sectors with persistent trade surpluses often achieve them partly because labour is paid less than the value of the goods it helps produce and export.
South African agriculture consistently records a trade surplus, and a minimum wage that rises annually without closely tracking export values is one of the factors that supports this outcome.
This is a sensitive and potentially emotive issue, but it remains an important part of the sector’s competitiveness story.
6. PPECB: The unsung hero of the export value chain
If horticulture helped put South African agriculture on the global map, the Perishable Products Export Control Board (PPECB) is one of the export value chain’s unsung heroes.
Although the PPECB is not widely known, it plays a critical role in implementing trade protocols, including sanitary and phytosanitary requirements, between South Africa and its trading partners.
By ensuring that only high-quality produce is cleared for export, the PPECB has helped preserve the country’s reputation as a reliable source of quality agricultural products. It also gives trading partners confidence that South Africa can meet the terms of its export protocols.
Apart from a few exceptions, the global image of South African agriculture remains strong. This has made it easier for successive agriculture ministers, departmental officials and commodity bodies to expand access to export markets.
Export markets underpin agricultural growth
South African agriculture has achieved both real growth, through higher production volumes, and nominal growth, through rising prices.
The opening of new export markets has provided an important outlet for surplus production beyond domestic demand. Without these markets, increased volumes would have placed downward pressure on farm-gate prices, creating negative spillovers across the sector.
With sustained investment and reinvestment, as seen in the citrus industry, South Africa’s export potential as a coastal country remains substantial.
Ultimately, food sits at the foundation of both human and animal needs.
Disclaimer: The views and opinions expressed in this opinion piece are those of the author, Robert Matsila, writing in his personal capacity. They do not necessarily reflect the views or editorial position of African Farming, its publisher, editors, employees, affiliates or associated partners.
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