Macroeconomic strategies, agriculture and rural poverty in post ...

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During the drought of the 1990s, economists calculated that low agricultural yields negatively affected GDP growth by between 0.5 and 2%, a staggering figure for a sector which is apparently playing a relatively small role in the economy. In higher rainfall years the impact of agriculture on the economy is equally significant, but in the opposite direction: in 1994, a year of above average rainfall, a 16.3% rise in gross farm income caused the economy to grow for the first time since 1989 (Financial Mail 27 May 1994). The indirect role of agricultural production on growth is a function of the strong forward and backward linkages agriculture has with the rest of the economy. Fertiliser, chemical and implement manufacturers are dependent on a growing agricultural economy. In the 1993/4 season, for instance, farmers spent over R500 million on packing material, R1.6 billion on fuel, R1.18 billion on fertilizers and R1 billion on dips and sprays (Abstract of Agricultural Statistics 1995). Many of these companies are dependent on the sale of chemicals and machinery to farmers. There are also important forward linkages between agriculture and industry. In the early 1990s, only 34% of what farmers produced was consumed directly; the remaining 66% was processed in some form by the manufacturing sector. Economists have spent considerable effort specifying the larger indirect role of agriculture in the economy by examining the forward and backward linkages between agriculture and other sectors through input-output analysis (van Zyl and Vink 1988; van Seventer, Faux, van Zyl 1992) and by simulating the impact of periodic droughts on growth and employment (Pretorius and Smal 1992; van Zyl et al, 1988). In 1995 the total agricultural output was almost R39 billion. To produce this amount of output, the sector’s dependent on inputs from non-agricultural sectors of the economy was equivalent to 43.4% of its total value of output, especially from the food sector, industrial chemicals and other chemical sectors, and the trade, catering and accommodation sector. Remuneration of employees and gross operating surplus constituted 11.7% and 36.7% of the value of total output, respectively. On the expenditure side, domestic agricultural outputs provided for 93.3% of total expenditure on this sector’s products in 1995. The largest demand for agricultural sector’s outputs comes from the intermediate input needs of the non-agricultural sectors of the economy amounting to 56.5% of total expenditure on agricultural products in 1995. Other major consumers of agricultural products were the domestic private consumption (28.7%) and exports (13%). This interdependency between agriculture sector and the rest of the economy has been the basis of the empirical evidence that increases in agricultural production have large positive impacts on growth, employment and the balance of payments. Using the 1995 input output table of South Africa, our calculation shows that for every R1 million of autonomous expenditure on agricultural production, the agricultural output increases by R1.38 million while the overall economic output increases by R6.51 million. This means that for every R1 million of expenditure on agricultural production, an equivalent of extra R4.13 million is generated in other sectors of the economy. Agriculture also has a strong multiplier effect on employment. Our evaluation of the sectoral employment multipliers for the year 1995 confirms the recent study by the Department of Agriculture (1996) and the earlier study by van Zyl and Vink (1988) that more jobs are created in agriculture with increased production than for any other sector of the economy. Specifically, the effect of a R1 million increase in expenditure on agricultural production is an overall economy-wide employment increase of 75 persons which is divided between direct employment increase in the agriculture sector of 30 persons and an extra 45 employees in the rest of the economy. Simulations of drought on employment reveals how vulnerable farm workers are to low rainfall and crop failure. Pretorius and Smal (1992) estimated that the direct impact of the 1992 drought on agricultural employment was a loss of 49,000 jobs. They also predicted that an additional 3
20,000 people would lose their jobs in non-agricultural formal employment due to the indirect impact of agriculture on other sectors of the economy. Finally, agricultural production has an important impact on the country’s balance of payments through imports and exports. In ‘normal’ rainfall years, food constitutes only around 2% of total imports; in a drought year this figure is closer to 5% of total imports. The impact of the disastrous droughts of the early 1990s on balance of payments - through losses in export earnings and the purchase of food on overseas markets - was over R1.2 billion for maize alone. The potential for agriculture to contribute to growth and employment given its large indirect role in the economy has been interpreted in different ways. The World Bank’s analysis is that land and marketing policies which discriminated against Africans but involved a huge transfer of resources to white farmers, led to a commercial agricultural sector dominated by capital intensive, large scale and inefficient farming units. While the apartheid goal of self-sufficiency in food products was achieved, it came at an enormous social, environmental and financial cost: “...society has been deprived of a greater contribution to GDP that a more efficient and dynamic agricultural sector would provide” (World Bank 1994, xi). Their alternative is a land reform programme that concentrates on investments in the former bantustans and the redistribution of land, through market mechanisms, both of which should lead to the creation of a class of ‘emerging farmers’ who will use resources more efficiently and employ more rural people. The process of ‘downsizing’ farm size, according to the World Bank, will lead to “...a more dynamic rural economy and to greater employment and income creation among low-income groups” (ibid 155). Through land distribution and better extension programmes, black smallholders are the key to the World Bank’s programme for transforming agriculture from a sector that played a central role in the immiseration of millions of rural people to one which leads to growth and job creation for the rural poor. 3 The Merg policy placed a very different emphasis on the potential of agriculture for job creation and growth. They singled out investment in agro-industry and social infrastructure as the key macroeconomic strategies for growth and job creation in rural South Africa. Before the 1994 elections, targeting investment in agro-industry was also the ‘declared policy’ of the ANC (Merg 1993). Their analysis was based on the ‘manufacturing-agricultural complex’ (MAC), a group of agricultural and manufacturing sectors that reflected agriculture’s contribution to reflect the strong links between farming and other industrial sectors. The MAC includes food products, beverages, liquor and tobacco; textiles garments, leather products; wood, wood products, furniture; pulp, paper, printing and publishing; and fertilizer and pesticides. This expanded definition reveals the extent of agriculture’s influence in the economy: the MAC accounted for 28% of the employment normally defined under manufacturing, 31% of the value generated by manufacturers and 25% of manufacturing’s contribution to gross domestic product. The importance of the MAC is based on the labour intensity of these sectors as well as the ‘dynamic interactions’ that are possible between it and other branches of the economy. For instance, while farmers supply raw materials to manufacturers and also consume agricultural inputs like fertilizers, chemicals and packing material, very few other manufactured goods are consumed in rural areas. Indeed, only 3% of what is manufactured in South Africa is consumed by farmers and the rural mass market (Faux 1990). Chemical and fertilizer manufacturers have also appear to be optimistic about the prospects of a new class of small black farmers who “will create interesting prospects for the distribution of agricultural chemicals” (Financial Mail 27 May 1994). A policy which 4 3 Gavin Williams has written a detailed and trenchant critique of the World Bank’s proposals for rural South Africa, see Williams (1996).
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