Nasty surprise for one of South Africa’s biggest employers

South Africa’s agricultural sector got a nasty shock from Stats SA’s latest gross domestic product estimate for the final quarter of 2023, with experts left scratching their heads over the numbers.

In its latest report on GDP for the fourth quarter of 2023, Stats SA recorded a marginal increase in GDP at 0.1% for the period, and growth of 0.6% for the full year.

For the agricultural sector, however, the stats body recorded a significant decline of 12.2% – something which surprised experts at the Bureau for Food and Agricultural Policy (BFAP), who anticipated a much smaller decline.

“While BFAP has long since projected a decline, we believe this contraction was more in the region of 3% to 5%,” it said.

South Africa’s agriculture sector is one of the biggest employers in the country, with around 920,000 workers employed. The sector came under strain in 2023 due to various headwinds – including load shedding and the avian flu outbreak.

Agriculture’s fourth-quarter economic performance compared to the same quarter in 2022 shows a 35% contraction, which followed the previous decline of 30%, the BFAP noted.

“There are several factors behind this, the most important of which are the usual impact of seasonality, declining field crop producer prices, and the impact of avian influenza on farm incomes. When the impact of seasonal shifts is taken out of the equation, the reported numbers suggest that agriculture declined year-on-year for three out of the four quarters in 2023.”

By all accounts, South Africa’s agricultural sector suffered a very difficult year, the BFAP said, but a double-digit decline is still not adding up.

The group delved into historical figures dating back to 1946 and found only eight occasions where the country’s farming sector saw declines of over 10%.

“The last substantial decline (of -19.9%) occurring in 1995 largely due to a severe El-Nino-induced drought which affected large parts of the agricultural economy three years after the severe subcontinental drought of 1992,” the group noted.

Other large declines occurred in 1949 (-11.3%), 1964 (-11.4%), 1968 (-12%), 1973 (-12.6%) and 1983 (-22.7%).

“Four of these larger than 10% declines followed strong growth the year before, which suggests that the base effect can also contribute to large declines.”

Sniffing out the decline

In the latest quarter, the BFAP said there is nothing in the data to suggest that the decline was as deep as suggested.

A decline in the real agricultural GDP encompasses a combination of declining income and/or increased expenditure, it said. Using production data from the Department of Agriculture, Land Reform & Rural Development, the BFAP estimates that income in the sector decreased by around 3.0% in 2023 in real terms.

This implies that the huge decline in GDP was driven by higher input prices and increased expenditure.

However, input prices have come down by about 3.6% in 2023, the group noted, which means farmers would have had to have increased spending by over 17% to account for the drop recorded by Stats SA.

“This seems unlikely, particularly given that two substantial cost items driving this increase in intermediate expenditure seem to be animal feed and fertiliser. These two comprise a combined 49% of the basket of cost items used in the GDP calculation for agriculture,” the group said.

The fertilizer index came down by 14.4%, the BFAP said, while feed prices increased by 6.8% – neither of which account for the numbers needed to register the sharp GDP drop recorded. Farmers would have had to have bought 42% more fertilizer and 13.2% more feed to do so.

“Given the current economic setting, producers have been looking at possible ways to cut expenditure and so the sharp reported rise in intermediate expenditure does not seem plausible,” the BFAP said.

The group noted that data sources related to inputs lag and are still to be released and considered in the data, thus, it expects that the final figures could change when these are added into the mix.

“BFAP’s best estimate of the real agricultural GDP for 2023, using a manual adjustment of different input expenditure items in line with our own projections and information received from within the industry, is in the range of -2% to -5%, depending on which deflators are used to get from nominal to real values.”

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