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Rain or shine, agri is in recovery

13 February 2017Jonathan Faurie
Philip du Preez, Head of Agriculture at Mutual & Federal

Philip du Preez, Head of Agriculture at Mutual & Federal

South Africa is in a precarious position where it is falling behind other countries in the world in terms of economic growth.

However, in this State of the Nation address, President Jacob Zuma made the comment that South Africa has turned the corner and that an economic recovery is on the cards. While the country has been struggling to grow the economy by 1%, Zuma promised that the economy would grow by at least 1.5% by the end of the year.

We are all aware of the dangers of setting lofty goals; but if we all pull our collective weight, this growth target can be achieved.

At a time when commodity demand is suppressed, Agriculture will play a major contributing role in Zuma’s target. FAnews spoke with Philip du Preez, Head of Agriculture at Mutual & Federal, to find out what the 2017 outlook for this important sector will be.

Rain or shine?

It needs to be stated upfront that any expectations regarding the agricultural contribution needs to be managed. South Africa has just come off the back of the worst drought that the country has experienced in over 50 years, and the effects of this cannot be erased overnight. Time is needed for the industry to heal.

One of the most welcoming sights from an agricultural perspective was the heavens opening up towards the end of 2016 bringing with it much prayed for rain. This gave crop and livestock farmers some measure of hope that a measure of normality will be ushered in with 2017.

“Our forecast is that the upcoming season will be more of a normal season. If rains continue falling, we might return to being a net exporter of maize.  The agri insurance business is definitely looking better this coming season than it did the previous season. This bodes well for our industry,” says Du Preez.

Does this mean that agriculture will be a major contributor to gross domestic product (GDP) growth? “Primary agriculture makes up 3% of GDP, but when you look at the whole value chain, it rises to 27%. With the returns of the rains, we expect agriculture’s contribution to GDP in 2017 to improve as more land is put under cultivation, leading to higher yields and output.”

A time to heal

This is all very promising, and it will be amazing if these goals are realised. But we need to also take a step back and quantify the damage that the drought caused to the industry, and how long the industry needs to return back to normal.

“We believe with the return of the summer rains, South Africa is over the worst of the drought. It was largely the rainfall that brought relief; however, we cannot be complacent as certain areas are still in the grip of drought, with dam levels at critical point,” says Du Preez.

Lessons learned

The South African farming industry was not alone in dealing with the drought. Many other African countries suffered a similar situation as did countries such as Argentina and Brazil.

The key question we need to ask is: what lessons did we learn from these markets?

“In most of the international markets, governments support their farmers either by way of subsidies, or by participating in multi-peril crop insurance (MPCI) programs.It is necessary for our government to become involved in similar programs like this to ensure food security in South Africa by way of a public-private partnership.  Climate change is a reality and international markets are adapting more quickly to these changes than the local market. Going forward, it will become important to align the product range to the rest of the world,” says Du Preez.

It must also be noted that the agricultural industry was not the only industry affected by the drought. The insurance industry also took a significant knock. “The insurance industry responded in a number of ways. Firstly, risk selection as far as MPCI cover was concerned became tougher where insurers tried to select better risks with a proven track record. Secondly, rates on MPCI increased; and thirdly, pricing on hail business became more competitive. In certain areas MPCI cover was not available at all,” says Du Preez.   

Editor’s Thoughts:
Agriculture always has, and always will play a major role in GDP growth. However, if we are to diversify our economy, government needs to work with the agricultural sector to lend support wherever possible. This assistance, in addition to that provided by the financial services industry, can make the sector the African powerhouse it once was. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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