Agbiz Agribusiness Outlook 2019: Concerned, but not without hope

From the left are Theo Boshoff, Wandile Sihlobo, and Dr John Purchase.

The annual Agbiz Agribusiness Outlook presentation left me with some concerns regarding agribusiness conditions. However, although we still have a long and tough road ahead, I am not without hope as the message shared clearly indicated some of the turning points that have been reached. Another clear message was also shared: We should strike while the iron is hot, as well as work together to ensure that we reach our turning point.

Damage done

“There were many unresolved issues around the same time last year and we were unsure about a lot of matters. We now know a great deal more about the damage that has been done, with many of the issues in the process of being resolved,” Dr John Purchase, CEO of Agbiz, stated in his presentation.

“We can no longer separate the economy and politics. They are constantly interacting and together they will shape matters going forward.”

Without being negative, Purchase shared a realistic message regarding the tough times the political economy in South Africa will face in future and its impact on agriculture.

“The damage done to the economy and the social fabric of society by the Zuma administration’s so-called state capture over the past decade is enormous. It will take a mammoth effort by all South Africans, who must respect the Constitution and the rule of law, to turn the country around. This way, growth and prosperity for all its people can be guaranteed.

By instituting the Zondo Commission of Inquiry into state capture and the Nugent Commission of Inquiry into the South African Revenue Service (SARS), as well as appointing Advocate Shamila Batohi as National Director of Public Prosecutions (NDPP), President Ramaphosa has so far made good on his promise to fight corruption and clean up government and governance,” he said.

We can think about the past and the future, but we have to face the current situation. “Despite glimmers of hope, South Africans today still face the real spectre of a failed state situation, and far more needs to be done to address nation-building, restore confidence and create an enabling policy and legislative environment to attract investment and foster economic growth and development.

The Presidential Jobs Summit and the Investment Summit were steps in the right direction. However, political uncertainty, coupled with the 2019 general election, still holds sway and clarity on critical issues, such as the ANC and EFF’s support for land expropriation without compensation, which in all probability will only become apparent after the election and may very well be determined by the election results, is still needed.

Purchase said that the 2019 general elections will be critical. “Poll predictors now say that the ANC’s vote share could go as low as 55%, with the DA remaining more or less constant and the EFF seeing growth in their vote share. We must understand that distrust within the ANC and other political parties will continue, which will have a definite effect on local politics.”

Looking at the global picture, Purchase said that many of the global matters provide context to a changing political and economic environment in South Africa. “A multipolar global power dynamic is currently pulling the strings, and we have seen the power shift to Asia. Our involvement in Brics is very significant in this regard.” An important factor is that the Brics countries are gelling better politically following this power shift. “This may be because the US has become a common enemy.”

“Matters are changing rapidly on a global level and it may get very close to home. We know that how the global trade dynamic will play out will definitely affect South African trade and industry.”

Locally, says Purchase, our challenge is to create more certainty and a more predictable environment – the opportunities that accompany the risks should then be exploited.

Weather woes

Among the many other current issues, changing weather patterns remain of great concern and will have a massive impact. “We end 2018 on a mixed note as dry and hot weather conditions in many parts across South Africa are currently a source of despondency in agriculture. The sentiment in the sector remains subdued as shown in a consistent deterioration in the Agbiz/IDC Agribusiness Confidence Index, which fell to the lowest level in nine years in the fourth quarter of 2018,” said Wandile Sihlobo, Agbiz head of Agribusiness Research. According to Sihlobo, most respondents identified weather uncertainty as the cause of their subdued confidence.

Meanwhile, the agricultural GDP rebounded during the third quarter of 2018, growing by 6,5% on a quarter-on-quarter seasonally-adjusted annualised rate. This tells us we are not out of the woods yet. The recent uptick in agricultural GDP is no cause for celebration. The recovery could well be temporary and weak going forward, as the weather outlook, which initially painted a positive outlook, proves to be a key challenge for summer crop growing areas. It could also negatively affect the performance of the agricultural sector in 2019.

Having said that, the benefit of the recovery in the Western Cape’s weather conditions could provide a buffer in the sector in the first quarter of 2019. However, overall annual performance will largely depend on weather conditions in the summer rainfall areas.

The optimistic outlook that opened the 2018/19 production season has changed. To recap, the season started on sound footing with farmers aiming to lift summer grain and oilseed planting activity by 5% from the previous season to 4,03 million hectares.

These plans were followed by real action, as tractor sales amounted to 5 818 units in the first ten months of this year, up by 9% from the same period last year. At the time, good rainfall in the eastern parts of South Africa enabled farmers to start planting. But the rainfall was erratic and not widespread. As a result, planting activity has proved to be a challenge in most areas, particularly the central and western regions of South Africa. At the same time, the optimal planting period is narrowing for most crops.

On 30 November, the South African Weather Service offered an optimistic outlook, pointing to a possibility of above-normal rainfall between December 2018 and February 2019. Yet this remains to be seen as there is still very little evidence of improvement in rainfall on the ground. Moreover, there are fears of an El Niño later in the 2019 summer season. While there are a number of reasons cited as a cause for despondency in the sector in the Agbiz/IDC Agribusiness Confidence Index, the weather impact featured prominently. It would therefore be right to say that the weather remains a key factor that will determine the growth prospects of the South African agricultural economy in the coming year,” Sihlobo adds.

Legislation environment

“Last year we predicted that a raft of legislation emanating from the Green Paper on Land Reform would be finalised this year, namely the Regulation of Agricultural Landholdings Bill, Extension of Security of Tenure Amendment Bill and the Communal Land Tenure Bill. As it turned out, all of the legislation was placed on hold pending the outcome of the deliberations on expropriation without compensation.

“After conducting provincial hearings, receiving written inputs and allowing parties such as Agbiz to present in Parliament, the Constitutional Review Committee finally resolved that an amendment is required to ‘make explicit that which is implicit in the Constitution’. This seems to indicate that an amendment will be proposed to explicitly allow for expropriation of land without compensation as one of the means to achieve land reform,” Theo Boshoff, Agbiz head of Leal Intelligence, said today.

After debate in the National Assembly yesterday, Parliament may convene an ad hoc committee or proceed out of its own accord to draft an Amendment Bill indicating the exact wording of an amendment. The circumstances and conditions under which expropriation under no or partial compensation may take place will likely come to the fore in the form of amendments to the Expropriation Bill and not the Constitution itself.

Both the Amendment Bill and the Expropriation Bill will require consultation in 2019, and Agbiz will be fully involved in the process and will continue to make constructive inputs, including alternative solutions to achieve sustainable and meaningful land reform. Where irregularities in the process become evident, all options will be considered to ensure that the inputs of stakeholders in the agro-food value chain are meaningfully considered. Unfortunately, this means that the crucial legal steps required to secure tenure in communal areas will likely not be realised in 2019.

“Land reform aside, 2019 will see the implementation of the national minimum wage and amendments to the labour relations framework enter into operation. The legal framework for climate change mitigation and adaptation will come under the microscope in 2019. Aside from the Carbon Tax Bill serving before Parliament, there are numerous sets of draft regulations associated with the Bill that must be considered, as well as the Climate Change Bill that will serve before Nedlac. Finally, Agbiz is excited about the prospects posed by the outcomes of the Presidential Jobs Summit.

Numerous agreements were reached to unlock administrative bottlenecks and remove regulations that hamper the development and inclusive growth of the sector. These agreements must be given effect to in 2019, with an emphasis on clear implementation plans with timelines, monitoring and evaluation mechanisms,” Boshoff added.

Work smart and hard

Purchase concluded that we have to work both hard and smart going forward. “We are a minute player in the global agricultural context; if we want to survive the global food market, we have to be very smart.”

“If we look at GDP decline in dollar terms, we can conclude that South Africans are now 25% poorer than before the Zuma era. This shows the massive damage that has been done. We have to turn it around now, and it is going to take hard work.” – Marike Brits, AgriOrbit (Adapted from Agbiz press release)