South Africa’s agriculture sector had a solid start to the year with first-quarter gross value-added growing by 27,8% quarter-on-quarter (q/q) on a seasonally adjusted and annualised basis (see Exhibit 1). Agbiz noted that the succeeding quarters would likely continue to show strong growth, a view we still maintain.
However, the second-quarter expansion could be somewhat milder than the first quarter, possibly at a range of between 20 and 25% q/q on a seasonally adjusted and annualised basis. The key drivers will remain mostly the same as the previous quarter, which includes an uptick in animal products, field crops and horticulture.
Within field crops, sugar was the main driver, while in horticulture, deciduous fruit were the primary drivers of the bounce in the first quarter.
In the second quarter, however, summer grains and oilseeds will likely be the key drivers of growth as harvest processes and deliveries started gaining momentum during this quarter going into the third quarter – the season was delayed due to dryness at the beginning. Meanwhile, in the horticulture industry, citrus most likely dominated in the second quarter.
Agbiz doubts that animal products remained as robust in the second quarter as slaughtering activity softened when the country went into strict lockdown at the end of March. If anything, the activity for animal products will probably recover in the third quarter, which is when restaurants began opening more widely.
That being said, Agbiz is still quite optimistic about the performance of this sector in 2020, maintaining our forecast for the year to average at about 10% year-on-year (y/y) (compared to -6,9% y/y in 2019).
Other institutions such as the Bureau for Food and Agricultural Policy (BFAP) are more optimistic, placing their agriculture growth forecast for the year at 13% y/y.
BFAP’s underpinning view for this growth estimate is similar to what Agbiz expressed in the previous notes. Their growth estimate is based on a bumper maize crop of 15,5 million tons (the second-largest in history), surging export prices of major fruit (further supported by the weak exchange rate) and strong overall sales of agricultural produce during the first four months of the COVID-19 pandemic.
This is, of course, with the exceptions of the wine and tobacco industries, where domestic trade has been restricted through various stages of the lockdown, and only permitted in August 2020.
Agricultural machinery industry
The allied industries have benefited from this improved environment in the agricultural sector. The agricultural machinery industry has been one such industry. As was set out at the start of July 2020, the agricultural machinery industry data for the second quarter has continued to show a mixed picture with tractor sales up 8% y/y, while combine harvester sales are down by a mere 3%.
The improved harvest, which somewhat boosted producers’ finances and also their interest to buy up existing stock at current price levels ahead of the expected price increases as a result of the weaker domestic currency, has been the key driver of the second-quarter sales.
The only aspect that we remain downbeat on during the second quarter of the year is agricultural jobs, primarily due to the regulations that were introduced to curb the spread of the new coronavirus.
COVID-19 regulations probably limited the amount of seasonal labour that would have been employed during a bumper harvest season such as this one. The full extent of this phenomenon will only be clear when the Quarterly Labour Force Survey is released in the coming weeks.
Overall, Stats SA will release the second-quarter GDP data on 8 September 2020. Therefore, we will only know then whether the exposition above truly holds. However, with the high-frequency data from farm-level such as production figures and prices, Agbiz is inclined to believe that the sector will register yet another good reading in the second quarter.
Unfortunately, this will do very little to change the overall GDP picture of South Africa as primary agriculture is a small share of the economy. Recent surveys of macro analysts’ forecasts of Q2 GDP show that the economy could contract by around 40% q/q on a seasonally adjusted and annualised basis, largely reflecting the effects of lockdown restrictions put in place to slow the spread of the pandemic across various sectors.
However, the continued resilience of the agriculture sector is important for the rural economy, boosting foreign earnings and stabilising food security, at least at a national level. – Wandile Sihlobo, 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.
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