Agriculture and Agriculture and economic growtheconomic growth

Nick VinkNick VinkDepartment of Agricultural EconomicsDepartment of Agricultural Economics

University of StellenboschUniversity of Stellenboschnv@sun.ac.zanv@sun.ac.za

Share of GDPShare of GDP

0

5

10

15

20

25

%

Share of GDP

The Great Depression

The 1966 drought

The 1983 drought

The weak exchange rate

The post-war recovery

Drought of 1973

The 1992 drought

Can agriculture act as an ‘engine Can agriculture act as an ‘engine of growth’?of growth’?

GDP contribution revisitedGDP contribution revisited Physical outputPhysical output Value of outputValue of output ExportsExports EmploymentEmployment ProcurementProcurement InvestmentInvestment

The real contribution of The real contribution of agriculture to GDPagriculture to GDP

Agriculture contributes 3.1% to GDPAgriculture contributes 3.1% to GDP “ “Manufacture of food products, beverages and

tobacco products” contributes 18% to manufacturing sector output, which contributes 19% to GDP

Assume that Food processing share of output = share of GDP, then ““Manufacture of food products, beverages and tobacco products” is 3.4%

Agriculture’s total procurement of goods and services is R40bn or the equivalent of 3.2% of GDP. This is an overestimate of the GDP contribution

The real contribution of The real contribution of agriculture to GDPagriculture to GDP

%% TrendTrend

AgricultureAgriculture 3.13.1 Declining shareDeclining share

Food processingFood processing 3.43.4 Increasing share of a Increasing share of a declining sectordeclining sector

Goods and Goods and servicesservices

3.23.2 Increasing sector but Increasing sector but unclear whether unclear whether share increasingshare increasing

TotalTotal 9.79.7 ??????

The real contribution of The real contribution of agriculture to GDPagriculture to GDP

The share of primary agriculture in Gross The share of primary agriculture in Gross Geographical Product is much higher in Geographical Product is much higher in many rural areasmany rural areas

However, the share of food processing is However, the share of food processing is lowerlower

These are the areas with the greatest These are the areas with the greatest number of poor peoplenumber of poor people

The multipliers between agriculture and The multipliers between agriculture and the non-agricultural rural economy are the non-agricultural rural economy are very high world-widevery high world-wide

Thus: opportunities for value-adding to Thus: opportunities for value-adding to agricultural production exist.agricultural production exist.

Physical outputPhysical output

15000000

20000000

25000000

30000000

35000000

40000000

45000000

50000000

tons

Total production Poly. (Total production)

Rapid growth in physical output in 1960s and 1970s as maize area expanded

Rapid growth after trade liberalisation and deregulation

Value of outputValue of output

30000

35000

40000

45000

50000

55000

60000

65000

70000

75000

Rm

2.5

3.5

4.5

5.5

6.5

7.5

8.5

Real gross income Share of GDP

5 per. Mov. Avg. (Share of GDP) 5 per. Mov. Avg. (Real gross income)

Upward trend starts early 1990s – export related

ExportsExports

6.00

7.00

8.00

9.00

10.00

11.00

12.0019

80

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

%

Agriculture's share of exports Poly. (Agriculture's share of exports)

During the 1990s, agricultural exports grew faster than total exports, thus boosting economic growth. Agriculture reacted faster to the opening of the economy

Era of sanctions

Trade balance

1990 2000 2004 Exports Total SA exports (Rm) Total agricultural exports (Rm) Agricultural exports as % of total exports Agricultural exports as % of total agricultural output

60 770.0 4625.1

7.6 21.1

210022.1 15 819.0

7.5 30.6

292078.7 22074.3

7.6 32.5

Imports Total SA imports (Rm) Agricultural imports (Rm) Agricultural imports/total imports (%) Agricultural imports as % of total agricultural output

44 141.5 1936.2

4.4 8.8

186345.1 9 643,7

5.2 18.6

304745.8 16340.8

5.4 24.1

Import cover (Ag exports/Ag Imports) 2.4 1.6 1.4

EmploymentEmployment

800

900

1000

1100

1200

1300

1400

1500

1600

1700

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1983

1985

1986

1987

1988

1990

1991

1992

1993

1994

1995

1996

2002

'000

Employment 2 per. Mov. Avg. (Employment)

Employment

1993 2002 Increase

(%) Farming units 57 980 45 818 79 Employment 1 161 912 986 842 85 Employees' cash remuneration (at constant 2002 prices)

5 782 480 6 215 583 108

Procurement and investment

Expenditure (2002 prices) R1000 33 984 385 45 038 908 133 Current R1000 29671164 42092135 142 Capital R1000 4313221 2946773 68 Value of assets (2002 prices) R1000 138 836 539 98 428 254 71 Farming debt (2002 prices) R1000 31 738 817 30 857 891 97

Can agriculture act as an ‘engine Can agriculture act as an ‘engine of growth’?of growth’?

Agriculture’s contribution to GDP is small Agriculture’s contribution to GDP is small and declining ...and declining ...

NoNo

While ag GDP is small, the agro-industrial While ag GDP is small, the agro-industrial complex is 10% of GDP ...complex is 10% of GDP ...

YesYes

In most poor rural areas the ag In most poor rural areas the ag contribution is larger, and there are strong contribution is larger, and there are strong multipliers to the non-farm economymultipliers to the non-farm economy

YesYes

Physical output has increased since the Physical output has increased since the early 1990s ...early 1990s ...

YesYes

The value of output has increased since The value of output has increased since the early 1990s ... the early 1990s ...

YesYes

Can agriculture act as an ‘engine Can agriculture act as an ‘engine of growth’?of growth’?

Agricultural exports increased as a share of Agricultural exports increased as a share of total exports in the 1990s ...total exports in the 1990s ...

YesYes

But have declined in the 2000s ...But have declined in the 2000s ... NoNo

Agriculture is using more and more of the Agriculture is using more and more of the foreign exchange it generates to pay for foreign exchange it generates to pay for imports ...imports ...

NoNo

Employment is in long term decline ...Employment is in long term decline ... NoNo

Is there an upturn in employment of skilled Is there an upturn in employment of skilled workers? ...workers? ...

YesYes

Can agriculture act as an ‘engine Can agriculture act as an ‘engine of growth’?of growth’?

Is there an increase in total employment?Is there an increase in total employment?

If so, then concentrated in the Western CapeIf so, then concentrated in the Western Cape????

The wage bill has increased, leading to The wage bill has increased, leading to stronger multiplier effects in the rest of the stronger multiplier effects in the rest of the economy ...economy ...

YesYes

Current expenditure has increased Current expenditure has increased substantially, leading to stronger multiplier substantially, leading to stronger multiplier effects in the rest of the economy ...effects in the rest of the economy ...

YesYes

There is little evidence of new investment in There is little evidence of new investment in agriculture, leading to negative multipliers in agriculture, leading to negative multipliers in the long run ...the long run ...

NoNo

What is required for agriculture What is required for agriculture to act as an ‘engine of growth’?to act as an ‘engine of growth’?

New farmers with new ideas and new New farmers with new ideas and new initiativesinitiatives

Investor confidenceInvestor confidence Farmer support services in poor rural Farmer support services in poor rural

areasareas IrrigationIrrigation The land reform programme is not The land reform programme is not

delivering sufficiently on any of thesedelivering sufficiently on any of these