Review of Agricultural policies in South Africa

1. Review of Agricultural policies in South Africa Václav Vojtech Directorate for Food, Agriculture, and Fisheries Pretoria, 19 April 2006

2. Overall situation • Largest African economy, highest GDP per capita • Highly unequal income distribution • Dual economy, high contrasts in infrastructure developments • High levels of unemployment and poverty • Large low skilled population and HIV/AIDS are major constraints to growth

3. Important policy reforms • Highly regulated economy … • … was partly liberalised in the 1980s and early 1990s • Economic reforms completed after 1994 • Reforms also addressed social injustices, inequity and poverty (Black empowerment, Land reform) • Decentralisation of state administration

4. Macroeconomic reforms • Price and market liberalisation • Tight monetary and fiscal policies provided stability • Increase in real interest rates and floating exchange rate • The economy is more open to world markets but is still vulnerable to outside shocks • Reforms did not succeed to bring the high level of unemployment down

5. Agricultural situation • Primary agriculture is 4% of GDP and 10% of reported official employment • Potentially arable land and water resources are limited and unevenly geographically distributed • Highly dualistic nature of farming

6. Development of agricultural production(Index 1990=100)

7. South Africa agro-food trade • 30% of production exported • … mainly wine, fruits and vegetables, sugar, and maize • Europe main destination for exports, followed by Africa and Asia • Imports distributed more evenly

8. South African agricultural exports and imports(million USD, constant 2000 prices)

9. Reform of agricultural policies • First reforms in the 1980s and early 1990s • From self-sufficiency to a more open economy • Deregulation of the marketing of agricultural production • Foreign trade deregulation • Reduction of support to agriculture • Shift in budgetary support from commercial farming to the development of small scale farming

10. Effect of Policy reforms • Difficult period of adjustment • South African agricultural industry less dependent on state support • More internationally competitive

11. Land reform policies • Redress past injustices, more equitable distribution of land, alleviate poverty in rural areas, efficient farming sector • Three main elements of Land reform (land restitution, land redistribution and land tenure reform) • Development of programmes supporting land redistribution

12. Trends in producer support • 1990s: decline in market price support, budgetary payments • 2000s: increasing budgetary support, variations in market price support • Rising expenditure on general services

13. Support to agriculture • Low relative to OECD member countries; similar to Brazil, China, Russia and Australia • MPS major component due to border measures • High variation across commodities – high support for sugar (above average support also for milk and sheep meat). • Relative cost to economy: half of OECD average

14. PSE by country, 2000-03 average(% of gross farm receipts)

15. South AfricaComposition of PSE, 1994-2003

16. South AfricaPSE by commodity, 2001-03 average(% of gross farm receipts) average %PSE5%

17. Composition of TSE in South Africa General Services Support Estimate Producer Support Estimate

18. Market access barriers to SA agricultural exports • South Africa is a large exporter of wine, fruits and sugar. • Trade in wine and fresh fruits is strongly oriented to the EU market, with varying levels of protection • The preferences don’t exclude SA from seasonal elevation of tariff barriers • The sugar sector is one of the most protected and distorted in the OECD area.

19. Welfare impacts of trade and agricultural domestic policy reforms • SA benefits from global liberalisation • … one third of total welfare gains are from agricultural liberalisation • ... most of which comes from liberalisation of OECD agricultural policies • There is evidence of redistribution both between racial groups and provinces

20. Policy challenges and recommendations • Achieving higher and sustained economic growth is crucial for improvement in rural areas • Increased farm competitiveness is essential to respond effectively to more open markets • Development of rural and social infrastructure

21. Policy challenges and recommendations (cont.) • Income diversification are key to addressing rural poverty • Policies to increase participation in the rural economy • Land reform is facing implementation challenges • Development of a viable small scale commercial agriculture