Alarm bells for South Africa’s largest employer

The agriculture industry is keeping South Africa’s economy afloat. It was the only sector to post strong growth in the first quarter of 2024.

However, this is unlikely to last long due to inefficient logistics, persistent animal diseases, and increased severe weather events. 

This sector is vital to the South African economy as it provides a valuable source of foreign exchange through the export of goods and employs most South Africans in any industry. 

Data from the Reserve Bank’s Quarterly Bulletin shows that this industry was also why South Africa’s economy did not experience a sharper decline in the first quarter of this year. 

The bank said economic activity in South Africa decreased slightly in the first quarter of 2024 as real gross domestic product (GDP) contracted by 0.1%. 

This follows a revised expansion of 0.3% in the fourth quarter of 2023, with growth for the full year coming in at 0.7%. 

The marginal decrease in real gross value added reflected a contraction in the secondary sector and stagnant output in the tertiary sector. 

By contrast, the real output of the primary sector, including agriculture and mining, expanded further. 

This positive contribution by the primary sector was in spite of the mining sector’s drag on economic growth, with economic activity in this industry declining 2.3% in the first three months of 2024. 

The real output of the non-agricultural sector decreased by 0.4% in the first quarter of 2024 following an increase of 0.4% at the end of 2023.

South Africa’s primary sector continued to be the main driver of gross value added in the economy, with its contribution expanding further by 3.2% in the first quarter of 2024. 

The increase resulted from the agricultural sector’s higher real output, the Reserve Bank said. The sector’s output expanded by 13.5% in the first quarter of 2024 following two successive quarterly contractions. 

However, the agricultural sector continues to be held back by inefficient logistics, persistent animal diseases, rising costs, and global supply-chain disruptions. 

This has created a near-perfect storm for the agricultural sector in South Africa, threatening its strong start to the year. 

A perfect storm

A confidence index compiled by the Agricultural Business Chamber (Agbiz) showed that confidence among businesses in this sector fell to the lowest level in over a decade. 

The index fell to 38 in the three months to the end of June – the lowest level since 2009. 

Dry and hot weather across the country slashed the forecast for this year’s harvest of grains and other agricultural commodities. For example, the corn crop is expected to be 19% lower than last year’s harvest. 

A drought caused by the perennial El Niño weather event has compounded other longer-term challenges, such as poor road infrastructure and service delivery, Agbiz said. 

Lingering animal disease challenges and heightened geopolitical tensions are also concerns for the sector. 

Increasingly, water shortages are crippling the sector, which accounts for around 70% of all freshwater consumption. 

The country’s central and northern regions have had their water supply come under increasing pressure, with Gauteng bearing the brunt of infrastructure collapse. 

There have also been several outbreaks of E.coli in parts of the country, threatening the safe supply of water due to over two-thirds of South Africa’s wastewater plants being unable to operate fully. 

BDO South Africa’s director, Anita Calitz, and senior audit manager Adele Botes said the deterioration in the supply of water poses a significant threat to the country’s food supply. 

“If we remain on our current trajectory, the next 2 to 10 years could see even more severe water shortages. The risk of ‘Day Zero’ becomes more real with each passing day, as do the prospects of increased water restrictions and compromised water quality,” they warned.  

Another impact will be a rise in the price of food, which may not result in an actual shortage of food, but South Africans will be unable to purchase it. 

This will only be compounded by the effects of climate change, which is already making weather patterns more erratic and severe.

Three of the most important crops are maize, wheat and rice, which combined account for 90% of all cereal crops grown globally.

Grain-dependent products like cereals, meat and dairy account for 70% of South Africa’s food budget and 10% of total household spending.

These commodities are the most susceptible to fluctuations in temperature, with PwC estimating that nearly a quarter of all maise production and 35% of wheat production are at significant risk of heat stress by 2035.