In the recent Grain SA newsletter, Michelle Mokone, an agricultural economist, wrote an overview of the current agricultural environment in South Africa and the impact that recent political, economical and agricultural changes has had on the industry. Read the full article below.
South Africa today
Entering 2018 will require some slight adjustments due to changes that took place along the way, both politically, economically and in the agricultural environment.
South Africans entered the New Year with a hope that the displeasing service of President Jacob Zuma as the head of state would soon come to an end after Cyril Ramaphosa was elected as the new president of the ANC in December 2017. There was generally positive sentiment following his victory and this was seen in the strengthening of the rand, which appreciated by 2,75% from R13,10 to R12,75 to the dollar.
However, Cyril Ramaphosa’s victory has not entirely erased some long existing uncertainties. From an agricultural viewpoint, Ramaphosa’s comment over the ANC’s decision to seek land expropriation without compensation has raised concern within the industry.
Land reform is a complex issue which could explain the reason why it has been dealt with at a snail’s pace, however it is critical for the ANC to implement policies that will drive economic growth, create food security and promote growth in food production.
The agricultural sector is a driving force in the South African economy and was a major contributor to GDP in three quarters of 2017, contributing 0,9% in the 3rd quarter of 2017. It is therefore critical that the new resolutions under the new leadership of the ANC consider the going concern of the industry by structuring policies that will attract investment and grow the industry.
While the industry anticipated good rains during the 2017/18 production season, it was only met by dryness that continued into the New Year. As at 15 January 2018, in a questionnaire conducted by Grain SA, it was indicated that few additional grain hectares were planted due to high temperatures and drought conditions. As a result, farmers across the major maize production areas could not plant their intended hectares.
According to the RMD daily rain report, it’s evident that the 2017/18 production season received very low amounts of rainfall compared to the same period a year ago. The western Free State has so far shown significantly low levels of rainfall; from the 1st of September 2017 to date, the region has only received 1 318mm of rain, which is a 48% decline from the corresponding period a year ago.
The North West province also recorded a decline in the amount of rain received, representing a 17% year-on-year decline, from 2 428mm in the 2016/17 production season to 1 998mm in the 2017/18 production season. It is, however, too early to tell the effect of the drought on the summer crops that were planted, once again leaving a door of uncertainty for the new season that lies ahead.
On the economic landscape, the local currency has strengthened, reacting to political changes seen in December 2017. The strengthening of the rand was a welcome stimulus, which helped to keep local fuel prices from increasing.
In recent months, particularly January, the country recorded a decrease in fuel prices for the first time in four months; meanwhile another decrease in fuel prices is expected for February 2018. If the rand keeps on trading in support levels, the country could see more fuel price decreases.
On Thursday, the South African Reserve Bank held its first Monetary Policy Committee for the year. In this meeting, the repo rate and interest rate were kept unchanged at 6,75% and 10,25%, respectively. The SARB revised its forecast for the GDP growth for 2017, from 0,7% to 0,9%.
Forecast for the year ahead has been adjusted to 1,4%. Due to favourable forecasts, particularly the stronger rand and lower electricity price assumption, it is expected that inflation for the year could reach a low midpoint of the target range of 3-6%.
Over the past two months (December and January), there have clearly been some shifts in the political, economical and agricultural environment that will require some adjusting. It is, however, too early to tell how the year will turn out – we are all at the mercy of uncertainty. – Grain SA