This is likely another week of positive news for South Africa’s agricultural sector. Statistics South Africa (Stats SA) has released the gross domestic product (GDP) data for the fourth quarter (Q4) of 2020, which will provide a full-year view of the agri sector’s economic performance. At an aggregate level, the first three quarters of 2020 were encouraging, with agricultural gross value-added expanding by double digits on an annualised quarter-on-quarter basis.
The generally good performance of the agricultural sector in 2020 is partly due to most of the sector being classified as essential and because it continued to operate during the strict lockdown period. But more importantly 2020 was a recovery year in agricultural output across all subsectors (field crops, horticulture, and livestock). The year followed prolonged periods of drought and biosecurity challenges in 2018 and 2019, which led to a contraction in South Africa’s agricultural gross value-added of 4,8% year-on-year (y/y) and 6,9% y/y, respectively.
Agbiz noted that South Africa’s agricultural gross value-added probably grew by roughly 10 to 13% y/y in 2020, according to Agbiz and the Bureau for Food and Agricultural Policy’s estimates. Stats SA’s data this week will most likely confirm this view. Unfortunately the outperformance of the agricultural sector will do very little to change the overall GDP status of South Africa, as primary agriculture is a small share (approximately 2%) of the economy.
Agri recovers in 2020
To recap South Africa had its second-largest grain harvest in history in 2020. In horticulture South Africa generally had a good fruit harvest in 2020, with citrus exports reaching a record 146 million cartons. There was also a broad recovery in deciduous fruit production, with apple and pear production up slightly by 5% y/y and 1% y/y, respectively, in 2020. We also observed a general recovery in the livestock industry, although this subsector was not as robust as other agricultural subsectors.
Nonetheless the recovery in these subsectors is the basis of our optimistic view of the agricultural sector. Of course some subsectors had a more challenging year in 2020. The agricultural industries such as wine, tobacco, and floriculture experienced a ban on sales at various stages of the lockdown; hence, the broader agricultural optimism is not the reality of these subsectors. But for the overall performance of the sector, the losses here will be more than offset by the recovery in field crops and horticulture.
The positive performance of South Africa’s agricultural sector was also reflected in the exports data for 2020, which amounted to US$10,2 billion in 2020. This represents a 3% increase from the previous year. This is the second-largest level after the record exports of US$10,7 billion in 2018.
Outlook for 2021
The favourable weather conditions that underpinned higher agricultural output in 2020 have continued into 2021. For example the data recently released by the Crop Estimates Committee shows that South Africa’s 2020/21 summer grain and oilseeds production could increase by 5% y/y to 18,5 million tons. While this is still the first production estimate for this season, with eight more to follow, it would be the largest on record if it materialises.
Moreover, estimates from the South African Wine Industry Information and Systems and Vinpro suggest that South Africa’s wine grape crop could be somewhat larger than in 2020.
In the fruit industry there is also optimism for continued growth in output in 2021. The United States Department of Agriculture analysts in Pretoria note that “the production of South African citrus, mainly soft citrus, new orange varieties, lemons, and limes is forecast to continue its strong growth in the 2020/21 marketing year, based on the increase in area planted, improved yields, high level of new plantings coming into full production, and the minimal impact of Covid-19 on labour and input supply.”
Essentially this provides the basis for another year of substantial growth in South Africa’s agriculture. We believe that the agricultural gross value-added could expand by 4% y/y in 2021. The base effects contribute to a slightly muted growth rate this year, compared with 2020. – Wandile Sihlobo, Agbiz