The Agricultural Sector and its contribution to the economy

1
The Agricultural Sector and its contribution to
the economy

• Johan Pienaar
• Agri SA

2
GDP - Perspective

• Total value of final goods and services produced
  within the boundary of the country in a
  particular period
• Four important elements
• total value
• final goods and services
• within the boundaries of the country
• in a particular period
• Agriculture does not produce final goods and
  services
• Contributing intermediate goods
  (Wheat ? Flour ? Bread)

3
GDP - Perspective

• Integral part of the food chain
• Uses intermediate goods (fertiliser, chemicals )
• Linkage effects with other sectors
• Comparative and competitive advantage ?
  international trade
• Factors of production (i.e. labour, capital .)
• Rural economic orientation
• ASGISA

4
Contribution to SAs GDP()
Sector 1946 1976 1996 2005
Agriculture, forestry and fishing Mining and quarrying 10.5 10.5 6.1 10.1 3.6 5.9 2.4 6.4
Manufacturing Electricity, gas and water Construction (Contractors) 15.1 1.7 1.9 20.7 2.3 4.3 17.2 2.8 2.7 16.2 2.0 2.1
Wholesale and retail trade, catering and accommodation Transport, storage and communication Financial intermediation, insurance, real-estate and business services Community, social and personal services General government services 15.5 8.7 8.9 17.3 9.9 11.7 8.3 11.4 15.1 9.9 12.0 7.8 14.2 19.2 14.5 12.1 8.4 18.6 18.6 13.3
Source Statistics SA
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Contribution to SAs GDP

• Primary sectors become less important in terms of
  the direct contribution to GDP.
• Consistent with trends observed in the advanced
  economies of the world, the pattern of activity
  in the South African Economy has changed as
  part of developmental processes in the economy
  with a shift from primary and secondary sectors
  to tertiary or service sectors.
• For example, while the contribution of
  agriculture to South Africas GDP dropped from
  10,5 to 2,4 (between 1946 to 2005), that of the
  financial intermediation, insurance, real-estate
  and business services sector rose from 9 to
  18,6 in the same period.
• According to the South African Reserve Bank, the
  contribution of the primary sector (agriculture
  and mining) continued to drop over the last
  decade, while that of the secondary sector
  (manufacturing, construction and electricity)
  almost stayed the same.

6
Sectoral GDP contribution (1946 and 2005)
1946
2005
7
Sectoral GDP contribution (1946 and 2005)

• The relative share of value added (measured in
  terms of gross domestic product GDP) by the
  tertiary sector rose from 56 of total value
  added in 1946 to 67 in 2005, and that of the
  secondary sectors from 21 to 23.
• Over the same period the relative share of the
  primary sectors declined from 23 to 10.
• Not peculiar to South Africa only
• Various constraints e.g. only 13,5 of SA is
  arable. High potential soil limited.

8
Annual Rainfall South Africa
9
Contribution of agriculture to the gross domestic
product in SA, 1999 to 2006
Percentage ()
Source SA Reserve Bank
10
Agriculture as of Gross Geographic Product by
region (1995, 2005)
1995
2005
Source Statistics SA
11
Value added per sector, 2000 2005 (Percentage
growth)
Source SA Reserve Bank
12
Purchases of intermediate inputs by the
Agricultural sector, 2000 and 2005
Source DoA
13
Forward linkage downstream linkage

• Final consumption expenditure on food, beverages
  and tobacco. Liberally viewed forward
  multiplier
• The empirical results suggest that for a 1
  growth in the agricultural sector, the
  non-agricultural sector (manufacturing) responds
  by more than 1. The empirical results supports
  the argument of President T Mbeki, that South
  Africa should follow an agricultural-led growth
  strategy for successful development (Department
  of Agricultural Economics, University of Pretoria)

14
Fixed capital stock in agriculture as of the
total
Source SA Reserve Bank
15
Fixed capital stock (at constant 2000 prices)
Source SA Reserve Bank
16
Labour in agriculture in relation to economic
active population
5
5,9
13,6
5,9
10.5
Estimate
Source Statistics SA
17
Productivity statistics for the Agricultural
Sector
Item 1995 2000 2005
Real output index 100.0 131.7 140.2
Employment number 939 179 895 156 742 750
Fixed capital input index 100.0 98.8 96.5
Multi-factor productivity index 100.0 134.7 154.2
Labour productivity index 100.0 138.1 177.3
Fixed capital productivity index 100.0 133.2 145.2
Earnings per employee (rand per annum) 6 821 10 511 16 275
Real earnings per employee (rand per annum) 6 821 7 613 9 206
Unit labour cost index 100.0 111.6 134.6
Capital labour ratio index 100.0 103.7 122.1
NPI
18
South African agro-food exports by destination
and imports by origin (2005)
Exports
Imports
19
South African Agricultural exports and imports,
1990-2005
Source DoA
20
Imports and Exports of Agricultural
Products2001/02 to 2005/06 (July to June)
Source DoA
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Challenges facing the Sector
P E S T E L
Political environment (e.g. land reform, party
political imperatives..)
Economic environment (e.g. Terms of trade,
unleveled playing field internationally, input
costs, exchange rate, fiscal involvement .)
Social environment (Labour relations, housing,
rural poverty )
Technological environment (research and extension
)
Ecological environment (Sustainable resource use,
risk and disaster management)
Legal environment (BEE charter, codes of good
practice, other legislation )
22
Terms of Trade in Agriculture, 2001/02 to
2005/06(2000 base year or 1)
23
Estimates of support to agriculture in selected
non-OECD and OECD countries (2003)
Percentage PSE
Source OECD
24
Producer Support Estimate by commodity, South
Africa, OECD (2003)
Source OECD
25
Challenges

• ASGISA
• Biofuels Industry Strategy
• Agriculture
• Agro-processing
• Strategic Plan for Agriculture

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Strategic Plan for Agriculture

• Implementation of the safety and security
  strategy
• Improved governance and implementation of
  partnerships and a mentorship programme
• Land redistribution for agricultural development
  (LRAD)
• Agricultural technology development and transfer
• Establish a broadly accessible market information
  system
• Develop and operationalise an effective risk
  management system
• Ensuring fair competitionlocally and
  internationally
• Implementation of the shared vision on labour and
  land reform
• Process of empowerment in all sectors of the
  agrifood sector.
• Targeted investment to enhance competitiveness
• Lowering the overall cost of production,
  including a further reduction in the taxes and
  duties on diesel and other inputs.

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Conclusion

• Agriculture relatively slow growing
• Possibilities Agro-processing and biofuels
• Economic environment needs change
• Must exploit even marginal opportunities