Agricultural Policy Monitoring and Evaluation 2019

Chapter 23. South Africa

Support to agriculture

South Africa reduced its support to agriculture during the reforms of the mid-1990s and support to farms has remained below 5% of gross farm receipts since 2010. In 2016-18, support to agriculture was around 3% of gross farm receipts. Total support estimate to agriculture (TSE) was around 0.3% of GDP in 2016-18 and direct support to farms (PSE) represented around 65% of the total support, the remaining 35% financing general services to the sector.

Market price support and payments based on input use are the most important components of support to producers. However, the level of price distortions is low and domestic prices for most commodities are aligned with world price levels, except for sugar and to a lesser extent milk and wheat, mainly due to import tariffs. Direct payments, mainly in the form of investment subsidies, are mostly directed towards the small-scale farming sector. As for the General Services Support Estimate (GSSE), the main elements are payments financing the agricultural knowledge and innovation system and expenditure on infrastructure. Most of the support in these two categories is targeted towards creating an enabling environment for the small-scale farming sector that has emerged following the land reform. Expenditures financing inspection and control are also an important element of the services provided to the sector.

Main policy changes

Overall, policies supporting farmers have remained unchanged. Most of the policy measures and direct payments continue to be targeted to the smallholder sub-sector. The Government provides post settlement assistance, including production loans to new and upcoming farmers (mostly operating on redistributed or restituted land).

During 2016 and 2017, there were several policy changes targeted to enhance the redistribution of land within the land reform (legislation allowing compulsory purchase of land in public interest; Strengthening the Relative Rights of People Working the Land). In March 2018, the Parliament voted for a bill that allows for the expropriation without compensation of commercial farms (mostly owned by white farmers). In order to be applied in practice, however, this legislation requires a change in the Constitution.

Assessment and recommendations

• The current relatively low level of Market Price Support for South African agriculture is the result of significant policy reforms implemented in the mid-1990s. These reforms reduced total support to agriculture (mainly price support) and its distortive effects on production and trade and have enhanced efficiency of the commercial farming sector and its integration with world markets.

• Since the reforms in the 1990s, increases in budgetary spending are financing the land reform process and supporting its beneficiaries (subsistence, smallholders and commercial farmers). The main challenge continues to be implementing and effectively targeting support programmes that are tailored to the needs of emerging farmers.

• To strengthen the capacity and efficiency of programmes assisting incoming entrepreneurs into commercial farming, the involvement of experienced commercial farmers in the development of support programmes is key. Private-public partnerships are an efficient tool for engaging the available resources and addressing the current weaknesses in supporting programmes and services from public authorities. In this respect, the latest Parliament decision to allow for expropriation of commercial farms, where most of the skill for commercial farming lies, puts a hurdle to the declared goal of building a market oriented competitive farming sector and is a potential threat to the food security of the country.

• The pace of land reform should be closely linked to the development of the enabling environment for the beneficiaries of land reform (including education and training, adequate infrastructure, and marketing channels). Without those developments, land redistribution by itself cannot deliver the expected outcomes, such as improving the welfare of the black rural population, increasing food security in rural areas and developing a viable commercial sector.

• The Carbon tax is the main component of the government policy on climate change. The first carbon tax implementation phase is set for 2017-20 and agriculture is not included, but it is likely to be affected indirectly through increased input costs. However, for Phase 2 (from 2020) the Government should consider to apply a Carbon tax to the farming sector too. This should create incentives for farmers to further look for ways to reduce use of some inputs and switch to alternative inputs or practices.

Figure 23.1. South Africa: Development of support to agriculture

Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.

Source: OECD (2019), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Support to producers (%PSE) declined in the second half of the 1990s and has remained low since then. In the most recent period support has been around 3% of gross farm receipts, well below the OECD average. The share of potentially most distorting transfers remains high, as most support is provided in the form of MPS and input subsidies (Figure 23.1). But this high share should be interpreted against the very low level of total support provided to farms. The level of support in the most recent year has increased due to higher MPS, mainly due to an increase in the price gap but also in the quantity produced. The larger price gap reflects domestic prices declining less than world prices. The increase in the border price was due exclusively to higher prices in USD (no exchange rate effect) (Figure 23.2). Prices received by farmers were, on average, slightly above world prices; however, prices for most products are aligned with world prices, while the price gap is larger for sugar, being 33% above world prices. MPS is the main component of Single Commodity Transfers (SCT): with sugar having the highest share of SCT in commodity gross farm receipts (Figure 23.3). Overall, SCT represent 64% of the total PSE. The expenditures for general services (GSSE) relative to agriculture value added, mainly on knowledge and infrastructure, are in line with the OECD average. Total support to agriculture as a share of GDP has declined over time. Currently, around 65% of the total support is provided to individual farmers (PSE).

Figure 23.2. South Africa: Drivers of the change in PSE, 2017 to 2018

Source: OECD (2019), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Figure 23.3. South Africa: Transfer to specific commodities (SCT), 2016-18

Source: OECD (2019), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Table 23.1. South Africa: Estimates of support to agriculture

Contextual information

South Africa is the most industrialised and diversified economy in Africa, and the second largest economy (after Nigeria) on the African continent. With the largest GDP per capita of the continent, it ranks as an upper middle-income country. However, income inequality is significant and poverty persists. South Africa has experienced a relatively moderate level of inflation —around 5-6% in recent years, with inflation targeting in the range of 3 to 6 %. But a persistently high rate of unemployment remains a challenge. The GDP growth rate has been declining since 2011 (Figure 23.4).

The importance of agriculture in the economy is relatively low, accounting for around 2.5% of GDP, and 6% of employment (Table 23.2). Due to a large component of modern farming and processing industries the backward and forward linkages in the agro-food complex is much larger than the primary sector. South Africa has abundant agricultural land, but only 13% is arable, and the remaining agricultural area is mostly semi-arid pastures with extensive livestock production. There is a highly dualistic farm structure, with a well-developed and market oriented sector of large-scale commercial farms and a large number of smallholder and subsistence farms.

Table 23.2. South Africa: Contextual indicators

	South Africa		International comparison
	1995*	2017*	1995*	2017*
Economic context			Share in total of all countries
GDP (billion USD in PPPs)	277	766	0.9%	0.7%
Population (million)	40	57	1.0%	1.2%
Land area (thousand km2)	1 213	1 213	1.5%	1.5%
Agricultural area (AA) (thousand ha)	97 520	96 841	3.2%	3.2%
			All countries1
Population density (inhabitants/km2)	35	47	48	60
GDP per capita (USD in PPPs)	6 895	13 545	7 642	21 231
Trade as % of GDP	18	24	9.9	14.7
Agriculture in the economy			All countries1
Agriculture in GDP (%)	3.9	2.6	3.3	3.5
Agriculture share in employment (%)	18.7	5.6	-	-
Agro-food exports (% of total exports)	8.3	11.2	8.1	7.5
Agro-food imports (% of total imports)	7.4	7.9	7.4	6.6
Characteristics of the agricultural sector			All countries1
Crop in total agricultural production (%)	53.2	50.3	-	-
Livestock in total agricultural production (%)	46.8	49.7	-	-
Share of arable land in AA (%)	14	13	33	34

Note: *or closest available year. 1. Average of all countries covered in this report. EU treated as one.

Source: OECD statistical databases; UN Comtrade; World Bank, WDI and national data.

South Africa is a consistent net exporter of agro-food products and the values of both exports and imports are rising (Figure 23.5). The share of agro-food exports in total exports was around 11%, while the share of agro-food imports was around 8% in recent years (Table 23.2). Almost three-quarters of agro-food exports are for final consumption, both of primary and processed products. Agro-food imports are equally distributed among those for final consumption (52% of total imports) and for further processing in industry (55%) (Figure 23.5).

Figure 23.4. South Africa: Main economic indicators, 1995 to 2018

Sources: OECD statistical databases; World Bank, WDI and ILO estimates and projections.

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Figure 23.5. South Africa: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

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Total factor productivity (TFP) growth is driving agricultural output growth in South Africa (Figure 23.6). While TFP growth has slowed relative to the preceding decade, it averaged 2% per year during 2006-15, and remains above the world average (Table 23.3).

A small increase in primary factors, mainly investments and to some extent labour, also contributed to the increase in output, offsetting a slight decline in the use of intermediate inputs (Figure 23.6). Although agriculture uses 63% of abstracted water, only a few regions have irrigated land and water resources are scarce in most of the agricultural areas (Table 23.3). The livestock sector is another important user of water in agriculture. Agriculture’s share in energy use has declined, but remains above the OECD average.

Figure 23.6. South Africa: Composition of agricultural output growth, 2006-15

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database.

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Table 23.3. South Africa: Productivity and environmental indicators

	South Africa		International comparison
	1991-2000	2006-2015	1991-2000	2006-2015
			World
TFP annual growth rate (%)	3.4%	2.0%	1.6%	1.5%
			OECD average
Environmental indicators	1995*	2017*	1995*	2017*
Nitrogen balance, kg/ha¹	-1.5	-2.4	33.2	30.0
Phosphorus balance, kg/ha¹	1.4	1.1	3.7	2.3
Agriculture share of total energy use (%)	3.8	2.8	1.9	2.0
Agriculture share of GHG emissions (%)	9.3	..	8.5	8.9
Share of irrigated land in AA (%)	..	1.7	-	-
Share of agriculture in water abstractions (%)	..	63.0	45.4	42.5
Water stress indicator	..	..	9.7	9.7

Note: * or closest available year. 1. Preliminary data.

Source: USDA Economic Research Service, Agricultural Productivity database; OECD statistical databases; FAO database and national data.

Description of policy developments

Main policy instruments

In the mid-1990s, substantial reforms reduced state intervention in agricultural markets, which led to a stronger market orientation of the sector. Under the current system, there are no domestic market support interventions and no export subsidies applied. Border measures, applied on the Southern African Customs Union (SACU) common borders, are the only price support policy. The Sugar Agreement of 2000 (between different agents in the sugar production chain) permits raw sugar to be exported only through a single-channel industry arrangement, and allocates quotas to individual producers for sugar sold on the domestic market.

Other policy instruments used are input subsidies, mainly in the form of a diesel tax rebate; programmes supporting new farmers benefiting from land reforms; and general services provided to the sector, mainly research, extension and inspection services. The National Land Care Programme (NLP) is a community-based and government-supported approach promoting sustainable management and use of natural agricultural resources.

The key government bodies implementing these policies are the Department of Agriculture, Forestry and Fisheries (DAFF) and the Department of Rural Development and Land Reform (DRDLR). In addition, the National Agricultural Marketing Council (NAMC), a national public body, provides DAFF with strategic advice on agricultural marketing issues; undertakes investigations on agricultural marketing and marketing policy; and coordinates the implementation of all statutory measures implemented by the food industry.

The Land Reform, launched in 1994, is the key policy issue related to the agricultural sector. The main objectives of the Land Reform are to redress past injustices, foster reconciliation and stability, support economic growth, improve household welfare and alleviate poverty in rural areas. Land restitution, land redistribution and land tenure reform are the main elements of the Land Reform. During the process of implementing the Land Reform a range of programmes (Comprehensive Agricultural Support Programme; Illima/Letsema projects; Micro-agricultural Financial Institutions of South Africa – MAFISA) were implemented to create an enabling environment for the previously disadvantaged farmers (subsistence, smallholders and commercial), such as capacity building, provision of appropriate information services and infrastructures.

A review of the Land redistribution for agricultural development (LRAD) projects indicated that a number of projects implemented are not economically viable. The DRDLR amended the Land Reform regulation in order to rationalise the land redistribution process and to assist the vulnerable projects. The Agricultural Land Holding Account (created in 2009) is responsible for land acquisition and, through the Recapitalisation and Development Programme, for recapitalisation and development of distressed land reform projects. The beneficiaries may dispose of the land after an agreed lease period, provided the project is economically viable.

The Integrated Food Security Strategy (IFSS), introduced in 2002, based on public and private civil society partnerships, focuses on household food security as the building block for national food security. One of the strategic approaches is to increase household food supplies by providing production support services to households’ own food production. The food security objective is further supported by Fetsa Tlala, an integrated food production initiative (introduced in 2013), which is aimed at the production of staple foods on fallow land with agricultural potential in communal areas.

The Comprehensive Rural Development Programme (CRDP), launched in 2009, provides support for the development of rural areas through two main programmes, both of them related to the agricultural sector. The Rural Infrastructure Development (RID) programme promotes investment in rural infrastructure. Expenditure increased significantly due to the increase in funding for projects providing access to basic services, particularly sanitation, irrigation and roads. The Rural Enterprise and Industrial Development (REID) programme assists in the co-ordination and facilitation of rural enterprise development, industrial development and support to rural communities to produce their own food.

South Africa is a founding member of the Southern African Customs Union (SACU).1 This is a full customs union, with a common external tariff. In 1994, South Africa became a member of the Southern African Development Community (SADC).2 For the implementation of the FTA, the SADC incorporated the principle of asymmetry: a phase-down (started in 2000) of SACU tariffs in five years (by 2005); and those of other SADC countries to be completed in 12 years, i.e. by 2012. Hence, from 2012, the SADC free trade agreement (FTA) has been fully implemented.

South Africa is also a beneficiary of the USA African Growth and Opportunity Act (AGOA), which is a non-reciprocal trade preference programme that grants eligible Sub-Saharan Africa (SSA) countries duty-free quota-free (DFQF) access to the United States (U.S.) for selected export products. The AGOA act was enacted in 2000 for a period of 8 years to 2008. The initial Act was extended to 2015, and further extended to 2025. AGOA has a positive impact on some of South Africa’s agricultural sub-sectors in particular the exports of wine, macadamia nuts and oranges.

Signatory to the 2016 Paris Agreement on Climate Change, the South African Government has committed to reducing greenhouse gas (GHG) emissions by 34% by 2020 and 42% by 2025 relative to the levels in 1990 (National Climate Change Response Policy 2011), through an approval of a carbon tax bill on 16 August 2017. The Carbon tax bill is an integral part of the system for implementing government policy on climate change. The bill is designed to enable South Africa to meet its NDC commitments, and to reduce the country's GHG emissions in line with its National Climate Change Response Policy and National Development Plan.

Domestic policy developments in 2018-19

Overall, policies supporting farmers have remained unchanged. Most of the policy measures continue to be targeted to the smallholder sub-sector. The DAFF and the DRDLR provide post settlement assistance, including production loans to new and upcoming farmers (mostly operating on redistributed or resituated land). Several programmes are implemented to support those farmers in order to assist them to develop commercially viable businesses:

• The Comprehensive Agricultural Support Programme (CASP) focuses mainly on providing support in the following areas: On and off-farm infrastructure and production inputs; targeted training, skill development and capacity building; marketing and business development and support; information and knowledge management; technical and advisory services, regulatory services and financial services. Overall, the budgetary expenditure financing CASP was ZAR 1 506 million (USD 113 million) in 2017 (FY2017/183), and the sum budgeted for 2018 (FY2018/19) is ZAR 1 595 million (USD 120 million).

• The Ilima/Letsema Programme (implemented in 2008/09) aims to increase food production, particularly by the smallholder farming sector. Through provincial departments, it finances mostly conditional grants for specific production projects such as upgrading irrigation schemes and other infrastructure and on farm investments to strengthen production capacity. The budget allocation to the programme was ZAR 522 million (USD 39 million) in 2017 and for 2018 the budgeted amount increased to ZAR 552 million (USD 41 million).

Since 2016, there were several policy changes targeted to enhance the redistribution of land within the land reform (started in 1994). In May 2016, South Africa passed a bill that allows the compulsory purchase of land in the public interest. The bill enables the state to pay for land at a value determined by a government adjudicator4 and then expropriate it for the “public interest”, ending the willing-buyer, willing-seller approach to land reform. Another initiative of the government to accelerate the land reform is the policy approach called Strengthening the Relative Rights of People Working the Land. This initiative empowers farm workers through a model that positions farm workers as part owners in agricultural operations alongside the existing farm owners.

The Agricultural Land Holdings Bill was published on 17 March 2017. The Bill makes provision for the establishment of a Land Commission (Commission) to establish a register of public and private agricultural land ownership. Every owner of a private agricultural land holding must lodge a notification of ownership with the Commission in the prescribed form within 12 months of the implementation of the Bill. The notification is to include the race, gender and nationality of the owner, and the size and use of the agricultural holding. According to the Act, foreign persons cannot buy agricultural land and may only conclude long-term leases of agricultural land (30 to 50 years) and such leases must be registered in a Deeds Registry within 90 days. In March 2018, the Parliament voted for a bill, which allows for the expropriation without compensation of commercial farms (mostly owned by white farmers). In order to be applied in practice, this legislation requires a change in the Constitution.

The Carbon tax bill is an integral part of the system for implementing government policy on climate change. South Africa implements the Carbon tax through a phase-in approach. The current Phase 1 period is set for 2017 to 2020. Primary agriculture is exempted from the carbon tax during the first phase; however, this may be reassessed for Phase 2 (from 2020). Primary agriculture is likely to be affected in Phase 1 indirectly through increased input costs, particularly electricity, fertilisers and pesticides, as well as fuel and energy. This should create incentives for farmers to look for ways to reduce use of some inputs and switch to alternative inputs or practices. To help encourage such good practices, numerous Carbon tax discounts can be obtained.

Trade policy developments in 2018-19

Import protection for agricultural and food products is based on specific and ad valorem tariffs. Tariff rate quotas (TRQs) exist for a range of agricultural products under the WTO minimum market access commitments, with tariffs at 20% of the bound rates. The zero import tariffs for maize (applied since 2007) continued in 2018-19. In September 2017, South Africa lowered its wheat import tariff.

During 2017/18 the International Trade Administration Commission (ITAC) reviewed the dollar-based reference prices and variable tariff formulas for Wheat, Maize and Sugar. Sunset reviews are underway on the anti-dumping duties for Frozen Bone-in portions of Fowls of the species Gallus Domesticus originating in or imported from the United States of America. Currently a safeguard tariff is in place on bone-in chicken pieces from the European Union. Tariffs on Chicken meat imports are also being reviewed. ITAC is also reviewing the safeguard on EU imports of potato chips and French fries.

A Southern Africa Development Community (SADC) group consisting of the members of the South Africa Customs Union (SACU) plus Mozambique negotiated an Economic Partnership Agreement (EPA) with the European Union. This agreement came into force in 2016 for SACU, and became fully operational in February 2018 when Mozambique joined. It grants preferential tariffs to imports from the European Union for substantially all trade. Equally, imports from Mozambique (the only SADC country outside the SACU) are duty free, with very few exceptions.

Regional integration and an increase in intra-Africa trade is a high priority for South Africa. Based on a decision by the Heads of State and Government, SACU, as part of the SADC, is engaging the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA) in the creation of the Tripartite Free Trade Area (TFTA). The TFTA initiative resulted into negotiations of the African Continental Free Trade Area (AfCFTA). The Agreement is a starting point for more detailed negotiations on trade in goods and services and other trade-related issues such as competition, investment and intellectual property rights. African leaders held an Extraordinary Summit from 17-21 March 2018 in Kigali, Rwanda, during which the Agreement establishing the AfCFTA was presented for signature. The majority of members, 44 out of the 55 African Union (AU) Member States, signed the AfCFTA Agreement. Additionally, five countries, including South Africa, signed the Agreement during the 31^st Ordinary Session of the African Union in Mauritania on 1 July 2018, bringing the total number of signatories to 49.

Notes

← 1.  The SACU members are: Botswana, Lesotho, Namibia, Swatini and South Africa.

← 2.  The SADC member countries are: Angola, Botswana, Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swatini, Tanzania, Zambia and Zimbabwe.

← 3.  FY – financial year April/March.

← 4.  The Property Valuation Act (act 17 of 2014) introduced the function of the Office of the Valuer-General within the structure of the Department of Rural Development and Land Reform. The intention is to introduce just and equitable valuation of land identified for restitution and provide valuations in support of offers to land purchase and expropriation.