The week ahead brings a flurry of critical data on the South African agricultural sector. The most notable release is the Quarterly Labour Force Survey (QLFS) data for the fourth quarter (Q4) of 2020, which is due for release on 23 February. On 24 February, the results of the 2020 Economist Global Food Security Index will be published. On 25 February, the Crop Estimates Committee will release its first production estimates of South Africa’s 2020/21 summer crops.
In addition to the data releases, the national budget tabling on 24 February could also have crucial implications for the sector from a policy perspective. Here is a brief preview of each of these critical events on the calendar this week.
Quarterly Labour Force Survey
The QLFS data will be of particular interest following the 16,1% increase in the agricultural industry’s minimum wage to R21,69/hour, with effect on 1 March. Agriculture has had a good season in 2019/20, which improved farm incomes, but the positive performance was not widespread. The subsectors that were affected by the lockdown regulations performed poorly. Such subsectors include the wine industry, tobacco, cotton, and floriculture, among others.
The negative impact on the wine industry was already evident from the third quarter of 2020, where farm jobs in the Western and Northern Cape fell by 37% and 8% on a year-on-year basis, respectively. In the Western Cape, agricultural employment fell to the lowest levels since the last quarter of 2014, at 136 729. The fourth-quarter results will indicate whether this was a temporary blip or if the industry remained under pressure throughout the year.
Discussions Agbiz has had with the wine industry suggest that the recent increase in the minimum wage could cause a further squeeze on incomes in a subsector that already experienced cashflow challenges resulting from the recent ban on the domestic sale of wine. Nevertheless the fourth quarter of 2020 will be historical. The actual effects of the current minimum wage increase on jobs will be apparent later this year.
Update on the Land Bank
In terms of the national budget, the vital point that agricultural role-players will most likely be watching is National Treasury’s message about the Land Bank, which has been experiencing liquidity challenges for some time now. In the medium-term budget policy statement presented in October 2020, finance minister, Tito Mboweni, noted that the Land Bank would “require an additional R7 billion over the medium term to support its restructuring”.
Agbiz will be watching closely to see if there will be any follow through on this, especially in the context of the country’s fiscal constraints. The Land Bank is an essential institution in agricultural finance, interlinked with primary agriculture and various agribusinesses. Hence any possible failures would potentially have broader implications on South Africa’s agricultural sector and food security.
Global food security index
The global food security index, which will also be released on the same day as the national budget, will provide South Africa with a historical view of the food security conditions in 2020. We expect South Africa’s food security conditions to have deteriorated somewhat from 2019 as more people were out of work due to the pandemic.
In 2019 South Africa ranked as the 48th most food-secure country out of 113 countries measured in the Economist Global Food Security Index, a few inches worse from last year’s ranking of 45. This ranking was relatively good and leading in the African continent, although slightly behind most BRICS countries (Brazil, Russia, India, and China).
For example South Africa has ranked 13 spots behind China, nine places behind Brazil, six spots behind Russia, and 24 spots ahead of India. The current food security conditions are primarily supported by the productivity gains in agriculture, which ensured that South Africa could supply food at a reasonably lower cost.
Nevertheless there are pockets of food insecurity within South Africa when one considers a household-level perspective. Food insecurity speaks to the country’s general inequality, where some households are food secure and more than six million South Africans of low-income households are not – primarily due to affordability.
Food insecurity is significantly more prevalent in Limpopo, KwaZulu-Natal, and the Eastern Cape. This may have been exacerbated in 2020 by the rising unemployment and closure of various businesses because of the pandemic. The National Income Dynamics Study – Coronavirus Rapid Mobile Survey (NIDS-CRAM) published last week also pointed to a deterioration in hunger in South Africa in late 2020.
First 2021 summer crop forecast
The Crop Estimates Committee data, which is also out this week, will provide a view of the potential size of the 2020/21 summer grains production. The season started on a positive footing with favourable rainfall and higher commodity prices, which incentivised an increase in all grain area plantings by 6% to 4,2 million ha. There is an expansion in most crops, except sunflower seeds, of which the plantings declined by 5% year-on-year (y/y) to 473 300ha, which would be the smallest area in nine years.
The focus here will mostly be on maize and soya beans. South Africa’s maize production could amount to 16,66 million tons, which would be the second-largest maize harvest on record (15,41 million tons in 2019/20). Meanwhile the soya bean harvest could amount to 1,47 million tons, up by 18% y/y, and would be the second-largest harvest on record.
In sum, the quarterly labour force data, national budget, global food security, and crop estimates data will be significant events to watch this week. What emerges from these critical events could have implications on the sector, particularly the national budget’s outcome regarding the Land Bank challenge. Meanwhile the Crop Estimates Committee’s production estimates data may be key for domestic crop prices, and ultimately food inflation. – Wandile Sihlobo, chief economist, Agbiz
Wandile Sihlobo, chief economist at Agbiz, shares highlights in his update on agricultural commodity markets. Click here for the full report on the agricultural markets for the major commodities. Find previous reports here.