Quarterly Bulletin June 2010 - Gauteng Provincial Treasury


Quarterly Bulletin June 2010 - Gauteng Provincial Treasury

Quarterly BulletinJune 2010Gauteng Treasury NewsletterReview and Outlookof AgricultureIndustry in SouthAfrica and GautengEconomic Analysis DirectorateGauteng Department of Finance2010Economic Analysis Directorate 1

Quarterly BulletinGauteng Treasury Newsletterthe Gauteng Agricultural Development Strategy (GADS) that was adopted from the NationalStrategy (NAS). The paper ends by comparing the agricultural exports performance of SouthAfrica and Botswana, also looks at the role of financial institutions and other factorsaffecting agriculture.2. Tracking the History of Agriculture in South Africa2.1 Period Before 1994The history of agriculture in South Africa goes back far before the Second World War whichended in 1945. After the war, agricultural activities were mainly undertaken for privateconsumption. Before 1994, about 73% of land was in so called “White areas” and manyBlacks had been forcibly pulled out and removed to tribal areas. Looking back from the1960s agriculture generally developed at a greater rate of growth and significant expansiontook place in all sectors.According to the Department of Agriculture, Forestry and Fisheries (DAFF), the governmentregulated both the production and the marketing phases of commercial agriculture throughthe early 1990s. Government appointed marketing boards to purchase important consumercrops such as milk, corn and most cereals at fixed prices and sometimes subsidisedconsumer prices. Crops destined for further commercial processing such as tobacco, wool,oilseeds and dried fruit for export also had to be sold through a marketing board. However,producers generally received market value for these crops after the board sold the poolednational output. The only crops that were freely traded was fruits and vegetables sold atlocal markets. In the mid 1990s, the government began to reduce the role of the marketingboards.Agriculture suffered serious effects from the chronic high inflation and debt that erodedother sectors of the economy in the early 1990s 1 . Input costs (fertilizers, machinery, etc.)rose by 10% to 20% between 1987 and 1992; farm debt had reached R17 billion in 1992,more than four times the amount owed in 1980. Farmers also had witnessed deterioration interms of trade in farm products; for example, the amount of corn that had to be sold to buya farm tractor increased from about 191 tons in 1984 to 347 tons in 1990. Moreover, SouthAfrica faced reduced harvests as a result of severe drought in the early 1990s, forcing thegovernment to spend vital foreign exchange on food imports.1 Information obtained from, http://en.wikipedia.org/wiki/Agriculture_in_South_AfricaEconomic Analysis Directorate 3

Quarterly Bulletin2.2 Period Gauteng After 1994 Treasury NewsletterIn 1993, the Agriculture Research Council was formed with the emphasis on agriculturalresearch, while the extension component remained part of the Department of Agriculture. In thenew political dispensation after 1994, the country was divided into nine provinces, each with itsown provincial Department of Agriculture.The most significant achievement in terms of policy change was the deregulation of themarketing sector to bring it in line with the social and economic democratisation of the countryand with international trends. During the transformation process, greater emphasis was placedon small-scale developing agriculture. Significant progress has been made in access to credit andmarket opportunities. The other progress that government made was the introduction ofminimum wages in agriculture in 2002 and implemented in 2003, which accelerated the realgrowth of farm wages. According to Hlekiso and Mahlo (2006), real agricultural wage ratesincreased by 65% between 2001 and 2005, the biggest annual increase at the time of theimplementation of the minimum wage.Various problems remain as part of the agricultural scene, such as scarcity of water resources,desertification, soil erosion, soaring input costs, the crime factor and population growth. Landreform has been a thorny issue in the history of the country and in addressing these variousproblems, the African National Congress (ANC) led government opted for a three-pronged landreform policy. This policy consisted of; land restitution, tenure and redistribution. Landrestitution is a legal process whereby people who can prove that they were dispossessed of theirland after 1913 can regain their land or receive due financial compensation for it. Land tenureaims to address insecure tenure in the former homelands 2 and land redistribution aims toredress the racial imbalances in rural land ownership.The land redistribution policy has been identified as key within the land policy; it covers supportservices and finance for farmers in the form of low interest loans. After the implementation ofthe policy the government introduced Agriculture Broad-based Black Economic EmpowermentAct (AgriBEE, 2003). Black participation within the agriculture industry started to increase due toopenness of the industry. The AgriBEE programme encompasses the whole South Africaneconomy; the focus is on priority sectors which include agriculture and agro-processing.2 Bophuthatswana, Ciskei, Gazankulu, KaNgwane, KwaNdebele, KwaZulu, Lebowa, Qwaqwa, Transkei & VendaEconomic Analysis Directorate 4

Quarterly Bulletin3. ReformsGautengwithin AgricultureTreasury Newsletter3.1 Trade LiberalisationTrade liberalisation 3 gained momentum in the 1990’s after the country was trapped by differenttrade restrictions. During 1990, the country adopted a two-pronged approach policy, amultilateral trade liberalisation in the context of the Uruguay Round of trade negotiations and aunilateral trade liberalisation. The Uruguay Round Agreement on Agriculture, administered bythe World Trade Organisation (WTO), brought agricultural trade more fully under the GeneralAgreement on Tariff and Trade (GATT). It provides for converting quantitative restrictions totariffs and for a phased reduction of tariffs. The agreement also imposes rules and disciplines onagricultural export subsidies, domestic subsidies and sanitary and phytosanitary measures. Theresults were that by the end of 1990, virtually all restrictions of trade had been eliminated andthere was less trade (Kusi, 2002). South African agriculture has evolved from a highly regulatedand protected industry to one free from all constraints, unsubsidised by government andcapable of competing with the best in the world.Increased trade can have a number of generalised impacts in the economy; for example, tradeenables a country to employ a large variety of intermediate goods and capital equipment whichcould enhance productivity of other resources. Furthermore, increased trade can lead toincreased variety of products on offer and also improve efficiency with which resources areemployed.3.2 Trade ReformsPrior to 1993, agriculture used to have 15 control boards, aimed at price determination andcontrol marketing; six of them were abolished in 1993 and 1994. The Banana Board wasabolished in March 1993; the Chicory, Dried Beans, and Rooibos Tea Board in September 1993;the Potato Board in December 1993 and the Mohair Board in January 1994. A large-scaleconversion of import controls to Ad Valorem duty 4 was launched in 1994 and the process wascompleted in 1996. The Meat Board deregulated auctions and allowed new entry of abattoirfirms in 1992. In 1994, the surplus removal operations were stopped, which paved the way for3Trade liberalisation is the relaxation or elimination of tariffs and removal of duties or quotas on exports, alterationof non tariff barriers such as import quotas and quantitative restrictions, changes in licensing and direct allocation4 Ad Valorem is the duty or tax based on the value of product or serviceEconomic Analysis Directorate 5exchange and specific regulations for products; and removal or relaxation of exports subsidies.of foreign

Quarterly Bulletinthe development of private meat markets. In addition, the centralised auction system wasGauteng Treasury Newsletterprivatised which allowed farmers to bring their cattle to the auction of their choice as well ason a private contract basis with dealers.The liberalisation of the marketing system for maize began in May 1995. Before then, theMaize Board had the sole marketing right over maize products and maintained pricessignificantly above world levels. Exporters were subsidised with the funds obtained from thedifference between domestic consumer and producer prices. The new marketing scheme isbased on free market determination of domestic prices, while the surplus removal schemecontinued to be operated by the Maize Board as the buyer of last resort. Under the newsystem, quantitative import controls were removed and the imports of maize products werefreed.Deregulation has ensured a leaner and stronger agricultural industry, with farmers andagribusiness able to position themselves as players in a globally competitive environment.Phasing out controls and closing marketing boards led to a short-term shortage of essentialservices formerly provided by the boards and cooperatives, such as storage, grading,deliveries, value adding, information dissemination and research. As a result, specialisedmarketing support institutions, such as the South African Futures Exchange (Safex) and theAgricultural Futures Market of the Johannesburg Stock Exchange (JSE), were established toprovide much-needed price risk management mechanisms.3.3 Government’s Mandate for AgricultureThe DAFF is lead by Minister Tina Joemat-Pettersson and has the vision to unite and bringprosperity to the agriculture industry. The department also aims to lead and supportsustainable agriculture and rural development through;‣ Ensuring access to sufficient safe and nutritious food‣ Eliminating skewed participation and inequity in the sector and maximizing growth‣ Maximising growth, empowerment and income in the agriculture sector‣ Enhancing the sustainable management of natural agricultural resources andecological systems‣ Ensuring efficient and effective governance, ensuring knowledge and informationmanagementEconomic Analysis Directorate 6

Quarterly BulletinIn 2001, DAFF approved the National Agriculture Strategy that was adopted by provincialGauteng Treasury Newsletteragriculture departments. Gauteng Department of Agriculture and Rural Development(GDARD) drafted the first version of the Gauteng Agriculture Development Strategy(GADS) that was published and launched in 2006. After the 2007 Polokwane Conferenceof the ruling ANC, new priorities were identified and this has made it imperative to amendthe 2006 GADS and came up with GADS 2010 in order to align with the new mandate andpriorities identified for the term of 2009 to 2014. The strategy shows that even thoughagriculture contributes 0.5% to provincial economy, its importance lies with backward andforward links with other sectors.On provincial level, currently GDARD is led by MEC Nandi Mayathula-Khoza. The provincialdepartment derives its authoritative mandate from the Constitution of the Republic ofSouth Africa, particularly sections 24 and 27 of the Bill of Rights. This bill stipulates thateveryone has the right to an environment that is not harmful to their health or wellbeingand to have the environment protected for the benefit of present and future generations.The MEC of Finance, Mr. Mandla Nkomfe 5 , has highlighted that in order to fulfill theconstitution mandate of providing food security; the Gauteng Provincial Government(GPG) will intensify the implementation of community and households food productionprogramme. This would be achieved by targeting the establishment of 36,000 householdfood gardens and over 900 community and school-based food production units by 2014.The Letsema / Iilima project aims to combat hunger and poverty through increasing foodproduction, particularly livestock improvement and agro-processing countrywide. Theproject was launched by former Minister of Agriculture and Land Affairs, Ms. LuluXingwana and was adopted by provincial departments. The project has been allocated R51million over the 2014 MTEF, to provide 128 farmers with production inputs. These inputswould include, land preparation, start-up seeds, irrigation equipments and agriculturalextension support.5 This was at the Provincial Budget Tabling in March 2010, Budget for 2010/11 Financial YearEconomic Analysis Directorate 7

Quarterly Bulletin4. 4. Importance of Agriculture in Gauteng and South AfricaGauteng Treasury NewsletterAlthough agriculture has contributed on average less than 3% to the country’s GDP since 2000, itis still regarded as one of the most important industries within the economy. This is because foodsecurity and poverty alleviation are high on the government’s list of priorities.4.1 Contribution to GVAGross Value Added (GVA) measures the value of goods and services produced in an area or sectorof an economy. GVA is output minus intermediate consumption. Historically, the agriculturalsector accounted for approximately 15.2% of GDP in the 1950’s and 10% in the 1960’s. Althoughthe relative size of the sector has been declining, the value added by agriculture shows an upwardtrend, according to Department of Agriculture Economic Services (2010).Table 1: Agricultural Contribution to Total Value Added, 2001-2009YearTotalvalueadded(s.a.a 6 .)(R’ mil)Contribution ofagriculture to valueadded(R’ mil)Agriculture as a %of totalvalueaddedContribution ofagriculture toGauteng valueadded R’ mil2001 1, 336, 962 33, 639 2.5 1, 913 5.72002 1, 386, 435 35, 826 2.6 2, 099 5.92003 1, 427, 322 36, 070 2.5 2, 039 5.72004 1, 492, 330 36, 380 2.4 2, 035 5.62005 1, 571, 082 37, 402 6.5 2, 292 6.12006 1, 659, 122 35, 359 2.1 1, 985 5.62007 1, 750, 139 36, 610 2.1 2, 048 5.62008 1, 814, 521 40, 590 2.2 2, 264 5.62009 1, 782, 060 39, 290 2.2 2, 147* 5.5*Source: Stats SA, 2009Estimates by IHS Global InsightGautengAgricultureas a % ofS.A totalvalue addedTable 1 shows agriculture’s contribution to South Africa’s total value added and Gautengagriculture’s share to South African value added in monetary terms. The growth in thecontribution of agriculture to value added for South Africa and Gauteng has remained horizontalover the past eight years, except for 2005.6 Seasonally Adjusted and AnnualisedEconomic Analysis Directorate 8

Quarterly BulletinThe value added Gauteng remained at just Treasury below 3% and Newsletter6% for both economies respectively. Thecontribution of agriculture to South Africa and Gauteng’s GVA increased to 6.5% and 6.1%in 2005 from 2.4% and 5.6% in 2004 respectively. The high contribution of agriculture in2005 can be attributed to the fall in agricultural prices which led to a rise in the demandfor goods 7 . The price of maize dropped from a high of R1,000 per ton in 2004 to less thanR600 per ton in 2005. The table shows the estimated contribution of agriculture toGauteng economy is expected to be 5.5% in 2009 from 5.6% in 2008.Figure 1: GVA Growth by Agriculture to S.A & GP, 1997-2008 and to 2014*Source: IHS Global Insight, 2010* ForecastsFigure 1 compares the agriculture GVA growth for South Africa and Gauteng’s economiesfrom 1997 to 2008, estimates the figure for 2009 and gives forecasts from 2010 to 2014.The GVA by agriculture to Gauteng’s economy followed the same trend as that of SouthAfrica. The figure shows the range bound of an up and down trend due to volatility ofagriculture as it depends on different factors like climatic conditions and investment. Theprovincial GVA grew from negative territory in 1997 to a high of 13.7% in 1999 beforedeclining to -6.5% in 2001. The worst provincial agriculture GVA growth was recordedduring 2006 in both economies which can be linked to a stronger rand which pushed downthe prices of agricultural products to lower levels resulting in lower income gain for farmers.Idicate what linear refers to7 According to the law of demand and supply, consumers tend to buy more of a good when its price decreasesand less when its price increases (ceteris paribus).Economic Analysis Directorate 9

Quarterly Bulletin4.2 Contribution Gauteng to Manufacturing Treasury NewsletterThe Industrial Policy Plan 2010/11 – 2012/13 that was published by the Department of Tradeand Industry identified agro-processing as one of the most important areas of productionwithin the economy. The agro-processing sector comprises of a highly diverse group of subsectorsand industries. The major sub-sectors include, food processing, beverages,aquaculture, horticulture & medicinal, aromatics and flavourants.The agro-processing sector has particularly strong linkages both up and downstream. Upstream,the sector links to agriculture across a wide variety of farming models and products.Down-stream, the sector’s products are marketed across both wholesale and retail chains, aswell as through a diverse array of restaurants, pubs, shebeens and fast food franchises.Moreover, the food processing sector is now the largest manufacturing sector in employmentterms with some 160,000 employees. The number of employees increases to more than amillion jobs once the upstream is included. For the purposes of data continuity, the agroprocessingsector is defined in statistical terms by the food processing and beveragemanufacturing sub-sectors only.According to GADS agro-processing contributes 7.8% towards the total manufacturing activityin Gauteng, which relates very closely to the primary agriculture sector in Gauteng and shouldbe regard as a direct spin-off from this sector. Without the presence of agriculture in theprovince, the agro-processing industry would most certainly be very negatively impacted.The GADS argues that if agro-processing was included within agriculture, the agricultureindustry would contribute 2.2% to the provincial economy. The distribution of agriculturalactivity is spread differently within the economy with the Western Cape and KwaZulu-Natalconstituting the most activities within this sector.Economic Analysis Directorate 10

Quarterly BulletinFigure 2: ProvincialGautengAgriculturalTreasuryActivity, 2009NewsletterSource: Stats SA, 2010Figure 2 shows the estimated distribution of agricultural activity across all nine provinces ofthe country for 2009. The bulk of economic activity within agriculture stems from KwaZulu-Natal (28.8%) and Western Cape (23.4%). Gauteng makes up the smallest share ofeconomic activity at 5.5% whereas the Northern Cape was second least with 5.6%.Figure 3: Municipal Agricultural Activity in Gauteng, 2009Source: IHS Global Insight, 2010Economic Analysis Directorate 11

Quarterly BulletinFigure 3 shows estimates for municipal 8 agricultural activity in Gauteng in 2009. Themost agricultural Gauteng activity was Treasury in CoJ (31.2%), followed Newsletterby CoT (21%) and Metswedingwas the least with 8.1%. The high contribution by CoJ can be linked to feedlots situatedinside its borders, providing a skewed sense of the distribution of agriculture activitiesacross the province. These feedlots include Karan Beef, Best Cut and Chalmar Beef.According to GADS the sector is targeted as a growth focal point specifically due to itspotential for job creation and economic growth.4.3 Agriculture Trade in GautengThe trade balance of an economy is determined by the difference between imports andexports. The table below compares the imports and exports of agricultural productsbetween 1995 and 2008 in order to determine the trade balance within the industry.Table 2: Gauteng Imports and Exports Agriculture Shares, 1995 & 2008YearVegetableproductsPreparedfoodstuffs& tobaccoLiveanimals&productsAnimal orvegetablefats &oils1995 Imports 52.7% 26.8% 10.2% 10.3%Exports 50.5% 34.5% 12% 3%TradeBalance % -2.2% 7.7% 1.8% -7.3%2008 Imports 39.8% 33.1% 15.3% 11.8%Exports 58.2% 30.2% 5.6% 6%TradeBalance % 18.4% -2.9% -9.7% -5.8%Source: Quantec Research, 2010Table 2 compares the shares of provincial imports and exports by four categories ofagricultural products between 1995 and 2008. In 1995 most of the agricultural productsexported were dominated by vegetables, which amounted to more than 50%, followed byprepared food stuffs & tobacco at 34.5% and animal or vegetables fats & oils being theleast at 3%. There was a big decline especially within the imports of vegetable products,which can be linked to improvement in the production of vegetables within the economy.8 Gauteng province consists of 3 metropolitan and 3 district municipalities. The metropolitans are; City ofJohannesburg (CoJ), City of Tshwane (CoT) and Ekurhuleni. The districts are made up of Sedibeng, West Randand MetswedingEconomic Analysis Directorate 12

Quarterly Bulletin5. Employment Gauteng Treasury NewsletterEmployment in the economy varies in line with economic structural changes. Thecontribution of the primary sector in Gauteng declined from 2000 and this has lead to adecrease in its employment share. In the same period, momentum within the tertiarysector started to increase as production shifted from the primary to the tertiary sectoractivities.Figure 4: Sectoral Employment Share, Gauteng 2000 & 2009Source: Quantec Research, 2010Figure 4 shows the sectoral employment shares for Gauteng in 2000 & 2009. The figureshows that the share of employment by agriculture, forestry & fishing decreased from1.7% in 2000 to 1.1% in 2009. Wholesale & retail trade contributed the largest share at22% followed by community, social & personal services at 18% for both years. Finance& business services recorded the highest employment share increase from 12.9% to19.1% under the review period, representing a 6.2 percentage points increase.Economic Analysis Directorate 13

Quarterly BulletinFigure 5: Agriculture Employment Growth, GP & S.A, 2001-2009Gauteng Treasury NewsletterSource:Quantec, 2010Figure 5 compares the agricultural employment growth for Gauteng and South Africa from2001 to 2009. Employment growth for Gauteng increased from 0.4% to 13.1% between 2001and 2003 before declining to negative one percent in 2005 and thereafter increased to 1.2%in 2006. The provincial employment growth rate thereafter shows stability, before decliningfrom 2.1% to 1.2% between 2008 and 2009 respectively. The provincial employment growthrate revealed the same trend as that of national, even though the national growth rates werelower than those of the province.5.2 Employment by Education Level in AgricultureEducation is the process by which society deliberately transmits its accumulated knowledge,skills and values from one generation to another. Agriculture is considered as one of the mostlabour intensive industries. As a result, education levels do not contribute much to productionas compared to industries like finance & business services, wholesale & retail trade and otherswhich are technologically driven.Economic Analysis Directorate 15

Quarterly BulletinFigure 6: Employment Gauteng by Education Treasury in Agriculture, NewsletterGauteng, 2000 & 2009Source: Quantec, 2010Figure 6 compares employment by education in agriculture for Gauteng in 2000 and 2009.The figure reveals that there has been a change in employment share by the differenteducation categories. Employment of workers with less than primary education leveldecreased from 9.5% to 7.5% and those with primary completed declined from 17.5% to13% over the review period. The percentage share of workers with less than grade 12increased from 5.3% to 12.5% and those with secondary completed increased from13.3% to 16.8%. There was an increase in the share of workers with completed tertiaryeducation from 3.6% to 5.9%. The increase in the education level by agricultural workerscan be linked to the rise in technological improvement used within agriculture during thereview period.5.3 Labour RemunerationPayment for labour or services by a worker can be remunerated on an hourly, daily,weekly or monthly basis or by the piece. Remuneration within the agriculture industry hasbeen seen as the lowest in South Africa before the minimum wages were introduced.Economic Analysis Directorate 16

Quarterly BulletinFigure 7: Average Agriculture Labour Remuneration, S.A & GP, 1996-2009Gauteng Treasury NewsletterSource: Global Insight, 2010Figure 7 shows the average agricultural labour remuneration 9 package paid by theagricultural sector to workers from 1996 to 2009 for Gauteng and South Africa. The figureillustrates that the average annual income to farm workers in Gauteng was in line withthat of South Africa during the review period. Both the labour remuneration trends wereincreasing with that of Gauteng higher than national, except for 2001 when the annualremuneration was equal for both areas. The average annual remuneration for farmworkers increased from R8,806 to R11,636 and R7,780 to R10,889 between 1996 and2001 respectively for the province and the country. The trend shot sharply to R21,903and R15,634 per annum for Gauteng and national respectively in 2002. The sharp shootin 2002 can be attributed to 49% rise of total labour remuneration in agriculture.Thereafter, the average agricultural workers income started to increase at a slower ratebefore 2006. The remuneration increased from R22,219 and R16,919 in 2006 to R32,650and R27,743 for Gauteng and the country in 2008 respectively. Gauteng and SouthAfrican average labour remuneration recorded R40,637 and 33,851 per annumrespectively in 2009.According to the Department of Labour (DoL) the first promulgation of minimum wage inagriculture was in March 2003. Research has shown that, before the implementation ofthe minimum wage, farmers used to pay less money and remunerate workers in kind suchas rations, housing, land use rights and clothing. A survey that was conducted byNewman (1995) 10 shows that; farmers who pay relatively lower cash wages tend toprovide more rations per worker and allocate more land use rights.Economic Analysis Directorate 17

Quarterly BulletinGauteng Treasury NewsletterTable 4: Minimum Wage Structure for Agriculture, 2003 - 201101-Mar-200301-Mar-200901-Mar-2010 01-Mar-2011To To To To28-Feb-200428-Feb-201028-Feb-2011 29-Feb-2012R4.10 R6.31 R6.74HourlyPreviousR184.61 R284.23 R303.84years’Weeklywage +R800 R1231.7 R1316.69MonthlyCPI*+1%Source: Department of Labour, 2010* CPI for 2011Table 4 shows the progression of the agriculture minimum wage structure in South Africabetween March 2003 and February 2012. The table illustrates that there was a 35% increasein the minimum wage between February 2004 and February 2010. From March 2011 theminimum wage will increase by 6.5%, from R1,231.70 to R1,316.60 per month and it isexpected that by February 2012, it will be increased by the Consumer Price Index (CPI) of sixweeks prior to the first of March in 2011.6. Other Factors Influencing Agriculture6.1 Food InflationInflation is the rise in the general level of prices of goods and services in an economy over aperiod of time. When the price level rises, each unit of currency buys fewer goods andservices. As a result, annual inflation causes erosion in the purchasing power of money.Furthermore, inflation leads to a loss of real value in the medium of exchange in theeconomy. Food inflation is one of the variables that are considered within the inflation basketand according to Stats SA, contributes about 16% to the basket.9 Agriculture labour remuneration divided by number of formally employed within agriculture10 This was a survey conducted among 135 commercial farmers analysing labour remuneration and farmers'perceptions about the impact of labour legislation extended to agricultureEconomic Analysis Directorate 18

Quarterly BulletinFigure 8: CPI and Food Inflation, 1987-2009Gauteng Treasury NewsletterSource: Stats SA, Consumer Price Index, 2009Figure 8 shows CPI (headline) and food inflation growth rate from 1987 to 2009. Thegrowth rate in food inflation follows a similar pattern to the growth rate in headlineinflation, with food inflation being somewhat higher on average. The highest foodinflation rate was in 1992 at a peak of 24%, before decreasing to 6.3% in 1993. The highfood inflation before 1992 can be linked to cost-plus pricing procedures that were phasedout and replaced by market based pricing system. From 1994 both food and head lineinflation followed a slight up and down trend before spiking to a high of 15.7% and12.4% in 2002 respectively. Food inflation and headline inflation increased from a low of2.2% and 4% in 2005 to a high of 16.5% and 10.3% in 2008 respectively. In 2009, foodinflation and headline inflation recorded 2.2% and 6.3%. The low inflation rate in 2009can be linked to the adoption of new inflation basket which was implemented in 2008.6.2 Food SecurityFood security refers to the availability of food and whether or not one has access to it. Ahousehold is considered food secured when its occupants do not live in hunger or fear ofstarvation. According to the Food and Agriculture Organisation, food security exists“when all people at all times have access to sufficient, safe and nutritious food to meetdietary needs and food preferences for an active and healthy life”. The United StatesDepartment of Agriculture defines food insecure people as those consuming less than thenutritional target of 2,100 calories per day per person.Economic Analysis Directorate 19

Quarterly Bulletin7. The Role Gauteng of Financial Institutions Treasury in NewsletterAgricultureThe Land and Agricultural Development Bank (Land Bank) was established in 1912, in order tooffer tailor made financial services to established and emerging farmers. The mission of the LandBank is to become the financial institution that supports economic growth through the provision ofretail, wholesale, project and micro-financial services to agriculture and related rural services. Thetable below shows assistance the bank has been providing within the agricultural sector since1974 to 2009.Table 5: Agricultural Debt by Bank for Selected Years (R’000)As at31Dec200919741984199420002009As at31Dec20091974Land BankCommercialbanksAgriculturalcooperativesDepartmentofAgricultureR millionPrivatepersonsOtherfinancialinstitutionsOtherdebtTotal389.8 384 197.8 148.6 292 310.8 62.5 1,785.501,923.00 2,968.80 2,233.70 443.3 720 999.5 207 9,495.304,274.20 5,687.80 3,911.10 1,471.00 1,570.20 413.3 856.1 18,183.709,606.00 11,172.30 4,500.00 860.4 1,986.70 602.4 1,098.10 29,825.903,231.00 35,731.20 7,209.40 242.1 2,978.50 903.1 1,646.30 51,941.60Land Bank CommercialPrivateOther TotalbankspersonsdebtAgriculturalcooperativesDepartmentofAgriculture%Otherfinancialinstitutions21.8 21.5 11.1 8.3 16.4 17.4 3.5 100198420.3 31.3 23.5 4.7 7.6 10.5 2.2 100199423.5 31.3 21.5 8.1 8.6 2.3 4.7 100200032.2 37.5 15.1 2.9 6.7 2 3.7 10020096.2 68.8 13.9 0.5 5.7 1.7 3.2 100Source: DAFF, Abstract of Agricultural Statistics, 2010Table 5 shows total farming debt for financial assistance offered by the Land Bank, commercialbanks, Department of Agriculture, cooperatives and other financial institutions for selected years.The table shows that in 1974, the Land Bank provided the biggest financial assistance to farmersby holding 21.8% of their debt, followed by commercials banks at 21.5%, then financialinstitutions (17.4%) and private persons (16.4%). In 1994, commercial banks had the biggestshare of the debt at 31.3% followed by Land Bank at 23.5%. In 2009, commercial banks recordedhigh volumes of debt which amounted to approximately 70% of the total farming debt.Economic Analysis Directorate 20

Quarterly BulletinHowever, the debt of the Land Bank declined from a high of 32% in 2000 to 6.2% inGauteng Treasury Newsletter2009.This can be attributed to the transfer of more than 70% of debts from the Land andAgricultural Bank to commercial institutions. The rate at which agriculture debt grew inthe Land Bank, Agriculture Co-operatives and Department of Agriculture was higher thanin other institutions. The reason for the high debt is that the mandate for the enlistedinstitutions is to provide finance to farmers and agribusiness in order to guarantee foodsecurity in the country.8. The Role of the Industrial Development CorporationThe Industrial Development Corporation of South Africa Ltd (IDC) is a self-financing,national Development Finance Institution (DFI). It was established in 1940 to promoteeconomic growth and industrial development in South Africa. The IDC mainlyconcentrate its investment in manufacturing, agriculture becomes important as some ofits products are used as intermediate consumption in manufacturing.In 2002, the IDC started the Nguni Cattle Project; its long term goal is to turn emergingfarmers into commercial Nguni beef farmers. An amount of over R22 million wasinvested in the project by the 2008/09 financial year. Currently, the project isoperational in five provinces, 96 farmers have been established and 2,500 cattledistributed. The IDC and DAFF’s Land and Agrarian Reform Project (LARP) aim toincrease entrepreneurs in the agribusiness industry by 10%. To achieve this objective,the IDC injected 100 million to the Temo Agri Investment.According to the IDC’s 2009 annual report, total loans, advances and investmentsexposure per economic sector, shows that R728 million was injected into agricultureand food. The focus was on horticulture sub-sector, the most labour-intensivecomponent of the primary agricultural sector as well as food processing, agroindustries,beverages and aquaculture sectors.Economic Analysis Directorate 21

Quarterly BulletinGauteng Treasury Newsletter9. Comparative StudyTable 6: Comparison, SA and Botswana Agriculture Exports, 2000 & 2008South Africa 2000 2008 Botswana 2000 2008Meat & meatLive animals and products 13.4% 10.9% products 85.4% 93.4%Vegetable products 36.0% 48.9% Live animals 0.4% 0.5%Animal or vegetable fats & oils 1.6% 2.1% Hide & skins 14.2% 6.1%Prepared foodstuffs and tobacco 48.9% 38.1%Source: Quantec Research, 2010 & Central Statistics BotswanaIn 2000 and 2008, the South African agricultural export market recorded R16.9 billion and R45.9billion respectively. The 2000 exports were mostly dominated by prepared food stuffs & tobacco(48.9%) followed by vegetable products (36%) and live animals & products (13.4%) with animalor vegetable fats & oils contributing 1.6%. The figures show that there was a decline of 10.8percentage points for prepared food stuffs and 2.5 percentage points for live animals & products.In 2008, vegetable products drove the South African agriculture exports market, contributing48.9% followed by prepared food stuffs (38.1%).In 2000 and 2008, Botswana exported agricultural products to the value of R309 and R652million Pulas respectively. The exports were mostly dominated by meat & meat products(85.4%) and hide & skins (14.2%) with live animals contributing 0.4% in 2000. Meat & meatproducts exports increased their share by eight percentage points to 93.4% and live animalincreased by 0.1 percentage points to 0.5% in 2008. The hide & skins exports declined from14.2% to 6.1% in 2008. Botswana agriculture consists of subsistence farming and animal raisingdominate the export market while in South Africa the production and processing of crops drivethe agriculture market. Botswana is plagued by erratic rainfall and poor soils that contribute tolower production for vegetables and fruit. The large contribution of prepared food stuffs in SouthAfrica can be highly associated with high production of maize, wheat, oats and sugar cane.South Africa is among the world's top five exporters of avocados, grapefruit, tangerines, plums,pears, table grapes and ostrich products.Economic Analysis Directorate 22

Quarterly Bulletin10. ConclusionGauteng Treasury NewsletterThe history of the agriculture industry in South Africa shows that the industry was mostlydominated by Whites and changed modestly after 1994. This was after the implementationof the land redistribution policy and different institutions that invested more on encouragingBlacks to participate in farming. Trade liberalisation in South Africa relaxed trade barriersand opened farming opportunities as modern farming developed. Historically agricultureaccounted for approximately 15.2% of GDP in the 1950’s and 10% in the 1960’s beforedecelerating to less than 3% during 2001 and 2009. Although the relative size of theagricultural sector has been declining, the value added by agriculture showed an upwardtrend. This can be linked to investments by the IDC and other financial institutions and alsothe development strategies that government implemented after realisation of theimportance of agriculture. Gauteng contributes 5.5% to total country agriculture activitywith CoJ driving the sector and followed by CoT. Agricultural employment has declined by12% between 2000 and 2009. This could be due to technological progress within theindustry. According to industrial policy, the use of agricultural products in manufacturingbecomes important; the food processing sector is now the largest manufacturing sector inemployment terms with some 160,000 employees in 2008. The agriculture industryremains important as industrial policy identified food and agro-processing as key milestonesector for poverty alleviation and job creation going forward. This will provide employmentfor unskilled workers within the country and maintain food security.The DoL implemented an agriculture minimum wage in March 2003. The DoL adjusted theminimum wage salary by 35% between February 2004 and February 2010. The minimumwage led to a rise in the labour remuneration trend. The headline and food inflationrecorded more than 14% before 1993 and this was mainly due to cost-plus pricingprocedures that were phased out and replaced by market based pricing system. Eventhough agriculture industry contributes less than 3% to the South African economy, itremains the net exporter of agricultural products and the gross value added to exportingmarket is higher than that of most African countries.Economic Analysis Directorate 23

Quarterly Bulletin11. ReferencesGauteng Treasury NewsletterBienen, H, 1990, “The Politics of Trade Liberalisation in Africa”, Economic DevelopmentCultural Department of Trade and Industry, February 2010, Industrial Policy Action Plan,South Africa, PretoriaDepartment of Agriculture 2009, Effects of The Global Economic Crisis on Agriculture, AFocus on Investment, South Africa, PretoriaDepartment of Agriculture, Economic Services, The Declining Contribution of Agriculture toGDP, March 2010Department of Agriculture, Forestry and Fisheries 2010, Abstract of Agricultural Statistics,South Africa, PretoriaGerdien M & Roza P (April 2007), The Role of Agriculture in Economic Development,Wageningen University and Research CentreHlekiso, T and Mahlo, N., 2006. Wage Trends and Inequity in South Africa: A comparativeanalysis. Labour Market Frontiers, October 2006.Statistic South Africa, First Quarter 2010, Gross Domestic Product, South Africa, PretoriaStatistic South Africa, First Quarter 2010, Quarterly Labour Force Survey, South Africa,PretoriaStatistic South Africa, May 2010, Consumer Price Index, South Africa PretoriaDepartment of Trade and Industry, February 2010, Industrial Policy Action, South Africa,PretoriaGauteng Department of Agriculture and Rural Development, February 2010, GautengAgriculture Development Strategy, South Africa, JohannesburgEconomic Analysis Directorate 24

Quarterly BulletinGauteng Treasury NewsletterThe Quarterly Bulletin captures theeconomic news highlights of the precedingquarter. For further information, pleasecontact GDF: Treasury Division, 14 th FloorStandard Bank Building, 78 Fox Street. Tel:011 227 9000 Fax: 011 227 9055 or emailGDFCommunications@gauteng.gov.zaEconomic Analysis Directorate 25

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