Directorate for Food, Agriculture, and Fisheries 1 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT

Directorate for Food, Agriculture, and Fisheries 1

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT ÉCONOMIQUES

Review of Agricultural policies in South Africa

Václav Vojtech

Directorate for Food, Agriculture, and Fisheries

Pretoria, 19 April 2006

Directorate for Food, Agriculture, and Fisheries2

Overall situation

• Largest African economy, highest GDP per capita

• Highly unequal income distribution• Dual economy, high contrasts in infrastructure

developments• High levels of unemployment and poverty• Large low skilled population and HIV/AIDS are

major constraints to growth


Important policy reforms

• Highly regulated economy …• … was partly liberalised in the 1980s and early

1990s• Economic reforms completed after 1994• Reforms also addressed social injustices,

inequity and poverty (Black empowerment, Land reform)

• Decentralisation of state administration


Macroeconomic reforms

• Price and market liberalisation• Tight monetary and fiscal policies provided

stability• Increase in real interest rates and floating

exchange rate• The economy is more open to world markets

but is still vulnerable to outside shocks• Reforms did not succeed to bring the high

level of unemployment down


Agricultural situation

• Primary agriculture is 4% of GDP and 10% of reported official employment

• Potentially arable land and water resources are limited and unevenly geographically distributed

• Highly dualistic nature of farming


Development of agricultural production(Index 1990=100)

60

80

100

120

140

160

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Agriculture Field crops Horticulture Livestock


South Africa agro-food trade

• 30% of production exported • … mainly wine, fruits and vegetables, sugar,

and maize• Europe main destination for exports, followed

by Africa and Asia• Imports distributed more evenly


South African agricultural exports and imports

(million USD, constant 2000 prices)

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Agricultural exports Agricultural imports Agricultural trade balance


Reform of agricultural policies

• First reforms in the 1980s and early 1990s • From self-sufficiency to a more open economy• Deregulation of the marketing of agricultural

production• Foreign trade deregulation• Reduction of support to agriculture • Shift in budgetary support from commercial

farming to the development of small scale farming


Effect of Policy reforms

• Difficult period of adjustment • South African agricultural industry less

dependent on state support • More internationally competitive


Land reform policies

• Redress past injustices, more equitable distribution of land, alleviate poverty in rural areas, efficient farming sector

• Three main elements of Land reform (land restitution, land redistribution and land tenure reform)

• Development of programmes supporting land redistribution


Trends in producer support

• 1990s: decline in market price support, budgetary payments

• 2000s: increasing budgetary support, variations in market price support

• Rising expenditure on general services


Support to agriculture

• Low relative to OECD member countries; similar to Brazil, China, Russia and Australia

• MPS major component due to border measures

• High variation across commodities – high support for sugar (above average support also for milk and sheep meat).

• Relative cost to economy: half of OECD average


PSE by country, 2000-03 average(% of gross farm receipts)

0%

10%

20%

30%

40%

50%

60%

New Z

ealan

dBra

zil

Austra

lia

South

Afri

ca

China

Russia

United

Sta

tes

Canad

a

Mex

ico

OECD EU

Japa

n


South AfricaComposition of PSE, 1994-2003

0

400

800

1 200

1 600

2 000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

million USD

0%

4%

8%

12%

16%

20%

Market Price Support Budgetary Support % PSE (right scale)


South Africa PSE by commodity, 2001-03 average

(% of gross farm receipts)

-5 0 5 10 15 20 25

Sugar cane

Sheepmeat

Milk

Maize

Wheat

Pigmeat

Sunflower

Beef

Groundnuts

Grapes

Oranges

Apples

Poultry

Eggs

%

average %PSE5%


Composition of TSE in South Africa

0%

20%

40%

60%

80%

100%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Producer Support Estimate

General Services Support Estimate


Market access barriers to SA agricultural exports

• South Africa is a large exporter of wine, fruits and sugar.

• Trade in wine and fresh fruits is strongly oriented to the EU market, with varying levels of protection

• The preferences don’t exclude SA from seasonal elevation of tariff barriers

• The sugar sector is one of the most protected and distorted in the OECD area.


Welfare impacts of trade and agricultural domestic policy reforms

• SA benefits from global liberalisation• … one third of total welfare gains are from

agricultural liberalisation• ... most of which comes from liberalisation of

OECD agricultural policies• There is evidence of redistribution both

between racial groups and provinces


Policy challenges and recommendations

• Achieving higher and sustained economic growth is crucial for improvement in rural areas

• Increased farm competitiveness is essential to respond effectively to more open markets

• Development of rural and social infrastructure


Policy challenges and recommendations (cont.)

• Income diversification are key to addressing rural poverty

• Policies to increase participation in the rural economy

• Land reform is facing implementation challenges

• Development of a viable small scale commercial agriculture

Documents

Directorate for Food, Agriculture, and Fisheries 1 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT