A Review of Agricultural Policy in South Africa Post -1994

1. A Review of Agricultural Policy in South Africa Post -1994 TIPS Annual Forum 31 October 2008 Norma Tregurtha ComMark Trust

2. Overview of the presentation • Setting the Scene: • SA Agric Policy framework since 1994 • Changes in global food markets • Performance of the agricultural sector since 1994 • Agric Policies since 1994 • Output Side: Trade and Marketing • Input Side: Land Reform, Labour and Finance • Issues that will have to be addressed going forward

3. Agricultural Policy Framework Since 1994 • Agricultural White Paper (1995): a statement of the broad principles guiding policy development in the sector A highly efficient and economically viable market-directed farming sector, characterised by a wide range of farm sizes, which will be regarded as the economic and social pivot of rural South Africa and which will influence the rest of the economy and society • Agricultural Policy in South Africa - discussion document (1998) i) Building an efficient and internationally competitive agricultural sector. ii) Supporting the emergence of a more diverse structure of production with a large increase in the numbers of successful smallholder farming enterprises. iii) Conserving agricultural natural resources and implementing policies and institutions for sustainable resource use. • Strategic Plan for South African Agriculture (2001): “ United and Prosperous Sector” i) Enhancing equitable access and participation in the agricultural sector. ii) Improving global competitiveness and profitability. iii) Ensuring sustainable resource management. • Accelerated and Shared Growth Initiative for South Africa (ASGISA): Acknowledged subsistence farmers and under utilized assets in the agric sector

4. Changes in the global food market • Changes : • Global increase in the supply of food • Increase in the trade of agricultural products • Climate change and increased production risk • Changing nature of consumer demand • Rise of supermarkets • Impact of changes • Increased concentration and consolidation in the food sector both in terms of market share and number of firms. • Chain reversal – a shift in the balance of power away from producers towards consumers • Food markets have become increasingly competitive and biased in favour of larger producers and more complex in terms of product offering and skills requirements

5. South African Agriculture: Structure • Dualistic structure: commercial and subsistence • Commercial: large-scale and emerging responsible for 99% of output • Subsistence: household food production in the former homeland areas

6. Macro Performance of the Agric Sector 1993 to 2007, the avg annual agric GDP growth was 1% per annum while the rest of the economy grew at an avg 3,7%. Agric sector contributes 2.3% to the country’s GDP – down from 4.3% in the early 1990s

7. Average Return on Agricultural Investment 1990-2007 The avg ROI generated by the agric sector was 11%, and ranged from a low of 7% in 1992 to a high of 19.5% in 2002.

8. Trade Performance 1990-2006

9. Employment 1993-2006

10. Concentration • Within the commercial agricultural sector, there has been a significant increase in the concentration of farm holdings. In 1996, there were 60,000 farming units, but by 2002, this had declined to 45,000 units (or by 25%). Over roughly the same period of 1994/95 to 2002/03, the area farmed declined by 10%.

11. “Emerging Sector”

12. Subsistence Sector • Of the estimated 8 million households living in the non-metro areas of South Africa, 17% or 1.3 million households, have access to land for farming purposes • Households undertake farming to supplement food needs - contribution of subsistence agriculture to household incomes range from 6 -12 % for rural dryland settlements and between 24 - 30 % for irrigated land

13. Maize production: commercial vs subsistence

14. Agricultural Policy • Output Markets • Trade Liberalization • Marketing Deregulation • Input Markets • Land Reform • Labour Policies • Finance Policies

15. Agric Policy - Trade • Trade Liberalisation: The replacement of direct controls over imports and exports by tariffs, and the lowering of those tariffs below the bound rates agreed to in the Marrakech Agreement of 1994 • Biggest impact was on field crops – brought prices in line with international prices and have fluctuated in concert since then, increased volatility has seen farmers adopt a number of risk management strategies including income and asset diversification

16. Policy Space: Agric Trade

17. Agric Policy: Marketing Policy • Deregulation Up until the early 1990s, the marketing of approximately 70% of agricultural output was regulated by statute began with a process of deregulation culminating in the Marketing of Agricultural Products Act, No 47 of 1996. • Impact of deregulation: • field crops, • horticulture, • animal products • Fresh Produce Markets : There are 18 NFPM in SA with the four largest(Johannesburg, Tshwane, Cape Town and Durban) representing 74% of the turnover and volume throughput Annually more than 2,860,000 tons of fresh produce is traded through these markets by its role is diminishing – eg potatoes - in 1996 67% of all potatoes traded in South Africa were sold through NFPMs by 2006 this had dropped to 42%. • Food Price Review: Price controls for bread, maize meal and dairy products were abolished in 1991 and from that point onwards retail prices were set by market forces. The initial impact of deregulation and trade liberalisation in the 1990s, was a decline in producer prices for cereals and as a result food price inflation kept pace with overall inflation levels in the economy until 2001..........

18. Land Reform • Well-designed programme • Slow pace of implementation • “Sustainability issues”

19. Pace of Land Reform (1)

20. Pace of Land Reform (2)

21. Labour Policy and Skills Development • Labour Regulation: • Basic Conditions of Employment Act 1993 • ESTA 1997 • Sector Determination (Minimum Wages) 2003 • AgriSETA • Extension Services: In 2007/08 the NDA launched its “Extension Recovery Plan” with a funding allocation of R500 million for the period 2008 to 2011. Evaluation found shortage of 5 490 extension officers for the country moreover the existing service was identified as being urgently in need of re-training and a higher profile

22. Finance • Agric Finance: Difficult and costly to finance farmers • agriculture is concentrated in rural areas with poor infrastructure and low population densities • farmers not only have to contend with market risks but also with environmental factors such as weather. • Land absorbs a relatively large percentage of farmers’ capital requirements • agriculture is usually practised by small-scale, family-owned businesses, skewed distribution of production with 25-30% of farms producing the bulk of the output • Land Bank: Lost market share – taken up by commercial banks • MAFISA

23. Agricultural Policy – Future Directions • Agriculture Can and Should do More for the SA Economy: Cross-country estimates show that GDP growth originating from the agricultural sector is at least twice as effective in reducing poverty when compared with growth origination from other sectors • Resolve some key issues: How are we going to deal with the increased commodity/food price volatility Land Reform Issues Subsistence farming and tenure: food security Agricultural labour market regulations: increasing productivity of workers Agricultural Finance: Make a decision