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Original Articles

The influence of policy on the roles of agriculture in South Africa

Pages 155-177 | Published online: 01 Oct 2010

Abstract

This article provides a framework for the analysis of the relationship between different macroeconomic, sector and commodity policies and the multiplier effects of agriculture. It starts with a listing of the macroeconomic, sector and commodity policies that have been included in the analysis. These should be considered in conjunction with the likely roles of agriculture along each of the dimensions of the social, poverty and cultural roles of agriculture. These policies and roles should be conceptualised as the vertical and horizontal axes respectively of a ‘policy role’ matrix. The ‘cells’ of this matrix – the policy role interactions – are discussed with respect to the immediate macroeconomic, agricultural, economic, institutional and social impact of the policy change on the agricultural sector at farm, regional, national and multinational levels, and thereafter on the role of agriculture in terms of each of the dimensions identified above.

1 INTRODUCTION

The policies that have the largest potential impact on the role of agriculture in South Africa are summarised in .

Policies relevant to agriculture in South Africa

Sections 2 to 5 are based on Vink (Citation2003) and discuss policy effects on the structure of agriculture. In Section 6, the structural effects on the roles of agriculture receive attention. Section 7 concludes.

2 THE EFFECT OF MACROECONOMIC POLICY

Monetary, fiscal, trade and labour market policies are the main components of macroeconomic policy. These policies influence government spending, revenue (taxation), interest rates, the inflation rate, the exchange rate, the rate of growth in the economy and the rate of employment. While interest rates and the exchange rate in South Africa have fluctuated considerably since 1994, the period has been characterised by high real rates of interest and a declining real effective rate of exchange. During this period the rate of inflation decreased, while the growth rate of the economy and the rate of unemployment increased.

When assessing the impact of these macroeconomic variables on the structure of agriculture, four interrelationships should be analysed:

1.

State policies regarding direct and indirect support to agriculture, including trade protection and direct spending on the sector

2.

The relationship between the cost of capital and the cost of labour

3.

The exchange rate, exchange controls and the returns to exports

4.

The real consumer price of food and spending on non‐durable goods

2.1 State support to agriculture

The state has historically offered indirect support to agriculture aimed at ‘protecting’ farmers from the vagaries of the global market, as well as offering direct subsidisation. The former is influenced mainly through trade policy and the latter through fiscal policy.

2.1.1 The effects of trade policy

The key feature of post‐1994 trade policy in South African agriculture has been the replacement of direct controls over imports and exports, exercised by tariffs in terms of the Marketing Act of 1968, and the lowering of those tariffs below the bound rates agreed to in the Marrakech Agreement of 1993. In addition, countries in the southern African region have been granted preferential access through the abolition of quantitative controls over agricultural trade within the Southern African Customs Union (SACU), and a range of bilateral treaties. South Africa has also signed a free trade agreement with the European Union (EU). These changes came about in accordance with national trade policy, whose main purpose was to lower the average level of tariffs; to maintain a typical tariff escalation profile; and to simplify the tariff structure.

The most important implications of these policies for the agricultural sector are discussed below.

2.1.1.1 Field crops

The prices of field crops generally adjusted downwards to world market levels, and thereafter fluctuated with the world market price. Commercial farmers have shifted rapidly to minimum and low‐tillage production systems, and in certain cases even to no‐tillage practices. The result has been a rapid decline in the use of inputs such as fertilisers, insecticides and herbicides, of tractors, combine harvesters and other implements, and of fuel in field crop production. This has been accompanied by an on‐farm shift in field crop production to better‐quality soils, and a sectoral shift in production out of more marginal areas such as the western parts of the North West and Free State provinces (mainly maize) and the northwestern and southeastern parts of the Western Cape province (wheat). A further effect has been the adoption of crop rotation regimes, for example the introduction of crops such as medics and lupins into wheat systems in the Western Cape and the gradual introduction of precision farming technologies. These locational and cropping pattern effects have allowed farmers to maintain total output of the major field crops while ploughing less land.

Commercial farmers have adopted a wide variety of risk management strategies other than lower input use to cope with the greater instability they face. These strategies have been focused on income diversification (e.g. more part‐time farming and investment in on‐farm agrotourism facilities) and on asset diversification – large‐scale farmers have tended to diversify into different subsectors of agriculture, or into different regions within the same subsector (e.g. a maize farmer will diversify into horticulture, or a table grape farmer will buy additional land in a different production area). The result is a simultaneous consolidation of large commercial (industrial) farms, with an increase in the number of smaller commercial farms and an overall increase in the average farm size.

The extent to which domestic producers of maize and wheat have reacted to changes in world prices has been attenuated by the application of a formula tariff that fluctuates with the world price. The recent rapid increase in the world price, along with the devaluation of the domestic currency, has created circumstances in which the import tariffs should have been lowered immediately to cushion the effect on the farm gate prices. However, there has been widespread agreement that this mechanism was not used to good effect, as the adjustments in the tariff were delayed by red tape.

The notable exception in the effects of trade reform on field crop production is the sugar industry, which still enjoys high levels of tariff protection. This is partly because of:

1.

The large investment required in the processing of sugar

2.

The world market in sugar being distorted even more heavily by the protectionism of the countries of the Organisation for Economic Cooperation and Development (OECD) than other agricultural products

3.

The large number of small‐scale sugar producers

4.

The greater lobbying power of the industry

Sugar producers even enjoy protection from producers in other SACU and SADC countries. While the domestic pricing structure has been liberalised to some extent in the past eight years, the sector did not have to adjust to the same extent as have maize and wheat producers.

2.1.1.2 Livestock

South Africa has increased its imports of animal feeds based on oilseeds, as the evidence shows that commercial farmers in the country are not competitive in the production of these commodities. One of the possible locational effects of these imports has been a shift in the dairy industry to the coastal regions where production systems are based on natural pasturage.

South Africa has traditionally been a net importer of red meat, with most imports sourced from Botswana and Namibia. The lowering of trade protection resulted in increased competition from non‐traditional suppliers such as Australia (mutton and lamb) and the subsidised EU producers (mostly low‐quality beef cuts). Here the weakening exchange rate seems, however, to have resulted in a decline in these supplies in the past few years.

2.1.1.3 Horticulture

The effects of trade policy changes on the horticultural sector are the result of the new Marketing of Agricultural Products Act rather than of macroeconomic trade policy, and will be discussed later.

2.1.1.4 General

The tariff structure that has resulted from the changes in trade policy in South Africa generally affords greater protection to value‐added products compared with commodities. One result is that farmers usually sell their products into oligopolistic markets and buy their inputs from oligopsonistic suppliers, which adversely affects their terms of trade. Commercial farmers have been able to counter these effects by increasing multifactor productivity. However, continued increases in productivity are dependent on new technologies, which in turn are at least partly dependent on state funding. This issue is discussed below.

2.1.2 The effects of fiscal policy

Changes in fiscal policy have also affected the structure of farming in South Africa.

2.1.2.1 Taxation

South Africa's tax regime has changed considerably over the past eight years. The two most important changes have been the elimination of special treatment for different sectors in the economy and the lowering of the overall tax burden. The main effect of the former on agriculture has been the abolition of the special capital depreciation allowance, which allowed farm machinery to be written off fully in the year of purchase. Farmers now enjoy a three‐year depreciation allowance, as do enterprises in the rest of the economy.

2.1.2.2 Municipal jurisdiction

The South African Constitution places the power to tax real property (land) in the hands of municipalities. The recent restructuring of local government has meant that all agricultural land now falls under the jurisdiction of municipalities for the first time in the country's history. While most municipalities are still investigating ways of exercising this power within the framework of national legislation, there is some anecdotal evidence that irresponsible use of these powers could adversely affect investment in agriculture. However, this is not expected to be a major influence.

2.1.2.3 Government spending

Another major effect of fiscal policy on the structure of agriculture has been through changes in government spending. Here the main trends have been the continued high proportion of consumption spending as opposed to investment in the national and provincial budgets, and the decline in direct expenditure on agriculture. The main effect of the lack of investment is evident in high domestic transport costs, coupled with the fact that the country's main consumer market is in the interior of the country (Gauteng) and is dependent on land transport. This serves to compartmentalise markets and reduces efficiency in production and distribution systems. Wheat production in the Western Cape has, for example, historically been more than double the consumption in that region. In the long run, wheat production in this province is expected to decline to a level that meets demand in the region, while millers in Gauteng import wheat to serve consumers in the interior.

An increasing proportion of consumption spending since 1994 has been aimed at redistribution of access to health, education and social welfare spending. The agricultural sector will benefit in the long run from this shift in priorities, first through increased consumption in starchy staples; then, as incomes rise, through increased protein consumption and, finally, through increased consumption of horticultural products.

The main effects of the decline in direct government spending on agriculture at national level are evident in the decline in state spending on agricultural research and technology transfer systems. It is important to note that, while this decline is a real concern, there is no evidence that private sector spending has changed. To the extent that private sector investment in agricultural technology has substituted for state spending, or even increased beyond that level, there would be little cause for concern. Nevertheless, farmers' ability to remain competitive depends on their ability to increase levels of multifactor productivity, which is dependent on this type of investment.

There are a number of anomalies in state spending on agriculture at provincial level. While spending in the poorer provinces (Eastern Cape, Limpopo and KwaZulu‐Natal) is higher than the national average, the proportion of spending on farmer support services is too low as a result of the high proportion of spending on wages and salaries. The direct result is that the unsatisfactory level of support services provided to small‐scale farmers under the previous regime has not been improved, and has in many cases deteriorated.

2.1.2.4 Land transfers

While state spending on land reform has increased since the introduction of the programme, the pace of land transfers has been slow, with less than 2 per cent of commercial farmland transferred to new owners. Newly settled farmers have also not received farmer support services. The result is that private transfers of land have outstripped state‐assisted transfers, with little evidence that new farmers have been able to build successful enterprises.

2.2 Capital versus labour intensity

The economic policy debate in South Africa is dominated by different views on the reasons for the lack of employment‐creating growth in the country. It is important to recall that the problem is one of increased overall employment, a decline in the number of unskilled workers employed, an increase in the number of skilled workers employed, and an increase in the rate of unemployment. This trend has been evident in the face of high real interest rates and a declining unit cost of labour. These employment trends have been evident in agriculture as well, which has lost a third of its (unskilled) general workers over the past decade, but has experienced an increase in the employment of skilled workers. However, the overall number of employed workers in this sector has declined.

In agriculture, it seems as if the structural changes mentioned above, especially the risk management strategies of farmers, have resulted in an increased demand for fewer, better‐skilled workers and managers. This has also been accompanied by a less capital‐intensive growth path.

The rapid decline in the number of unskilled farm workers has been a subject of much controversy. Some argue that policies such as the Extension of Security of Tenure Act and the application of the Basic Conditions of Employment Act to agriculture (including the minimum wage, as well as higher administrative costs such as compulsory formal employment contracts) have led farmers to cut down on the number of permanent workers in an effort to minimise non‐wage costs of employment. Whatever the cause these effects are felt more severely in the field crop and livestock subsectors, where the demand for part‐time workers is small, unlike in the horticultural sector where seasonal workers are hired for a range of activities, including pruning and harvesting.

2.3 Exchange rate policy

The decline in the nominal and real rate of exchange of the rand against the currencies of South Africa's main trading partners has benefited agricultural exports. In this sector, exports of value‐added goods have increased at a faster rate than exports of raw commodities. The impact has differed between the field crop, livestock and horticultural sectors:

1.

In the field crop sector, the outputs of all the major commodities fluctuate as a result of unpredictable weather patterns. The sugar industry is a net exporter of refined sugar and has to compete directly with taxpayers in the EU and United States (US) markets. While maize and wheat are imported and exported simultaneously, South Africa is a net importer of wheat and a net exporter of maize in the long run. These industries benefit to the extent that there is an exportable surplus in any season. The domestic oilseeds industry, on the other hand, is a net importer and is hence protected by the weakening currency from competition by suppliers in South America (Argentina), Australia and elsewhere. These trade patterns seem not to have affected the location of field crop production.

2.

As South Africa is a net importer of red meat, the same observation applies in this case – domestic producers are protected by the declining exchange rate, especially against non‐traditional suppliers, such as Australia (sheep), the US (poultry) and the EU (heavily subsidised beef). Because most red meat imports are sourced from Botswana and Namibia – countries whose currencies have not appreciated against the rand – this trade has not been disrupted by movements in the exchange rate. South Africa has also been able to increase its exports of specialty cuts of red meat, and of hides and skins.

3.

The main source of the increase in South Africa's agricultural exports has been from the horticultural sector, especially fruit (only 3 per cent of vegetable production is exported). Because most fruit exports are sourced from the Western Cape, that province has also benefited most from the change in the exchange rate.

2.4 Food prices and food consumption

The real price of food in the rural areas has declined over the past decade, despite the rapid increase in food price inflation over the past six months. Per capita incomes in the country have, however, increased. The most important effect of these trends has been that the sector has been deregulated and liberalised within a growing domestic market, which has served to ease the transition.

3 MARKETING POLICY

It is evident that the effects of deregulation differed between the field crop, horticultural and livestock subsectors of agriculture, partly because of their different modes of production and partly because the nature of control under the old Act differed per commodity. A discussion of the effects of these changes on the structure of agriculture necessarily overlaps with the effects of changes in macroeconomic policy, especially trade policy. Nevertheless, the effects should be considered.

3.1 Field crops

The discussion thus far has highlighted the impact of trade policy reform on the performance of the field crop sector. Yet the process of deregulation of the agricultural marketing system encompassed more than just a change in the trade regime. The most important changes included the abolition of pan‐territorial and pan‐seasonal pricing mechanisms, the concomitant changes to physical access to the market and to the food‐processing sector, and a range of institutional impacts, as discussed below.

Most of the major field crops were sold under a ‘single‐channel fixed price’ marketing regime, characterised by pan‐territorial and pan‐seasonal pricing. The main consequence of pan‐territorial prices was that farmers closer to the market were effectively cross‐subsidising those further away that faced higher transport costs. With deregulation, prices started to become regionally differentiated to reflect transport costs and regional variations in demand and supply. Another consequence was that processors moved closer to the market, as they also paid the same price irrespective of the point of delivery. The main result of pan‐seasonal pricing was that no grain was stored on‐farm, and that the entire crop was sold immediately after harvest. This tended to cause havoc on the money markets, especially when the maize crop was harvested, as farmers were paid in full on delivery to the cooperatives. The result was an oversupply of storage capacity, which was arguably also incorrectly located.

Another feature of the regulated market was that the price differentials between different grades and cultivars of grains did not reflect differential demand. This was particularly evident in the wheat industry where wheat produced in the Western Cape, for example, was unsuited to the production of bread, while there were few incentives to produce for specific baking qualities, or for the production of pasta, and so on.

With deregulation, the major grain industries (maize and wheat) became more differentiated as the location of production shifted in response to differential prices across space and over time. A growing proportion of the maize crop is now milled by small‐scale millers, both on‐ and off‐farm – industry estimates suggest this can be as high as 30 per cent of the crop. This has affected the rural areas in three ways:

1.

There are increased opportunities for small and medium‐scale businesses in processing and distributing maize and maize products. This increased activity in the rural areas has acted as a stimulus to rural economies.

2.

There has been a marked increase in agrotourism throughout the country. While agrotourism has long been a feature of the wine industry, farm stores and farm stays have increased in most parts of the country.

3.

Small‐scale farmers have, in theory at least, better access to the market than before, as the cooperatives that acted as agents under the single‐channel schemes would only take delivery in bulk. However, the slow pace of land reform means that few new entrants to agriculture have been able to take advantage of these benefits.

The abolition of pan‐territorial and pan‐seasonal pricing has also had interesting consequences for the rural finance sector. Under the control schemes, the Control Boards appointed agents, mostly farmer cooperatives, to carry out the physical functions of receipt of the crop, payment, storage and onward consignment to the processors. These input supply cooperatives therefore became effective regional monopolies, which enabled them to become preferred suppliers of seasonal credit to farmers. They generally used the Land Bank as their preferred source of funds. With deregulation, however, the commercial banks have been able to expand their share of this market.

A final consequence of the abolition of pan‐territorial and pan‐seasonal pricing has been the advent of a wide range of strategies (increased part‐time farming, contract farming, strategic selling throughout the season, price hedging, etc.) and institutions (the agricultural futures market, or SAFEX, grain trading firms, brokerage firms, etc.) that have enabled farmers to participate in the market with greater certainty and lower transaction costs. These institutional changes have generally served to lower the transaction costs of market participation.

3.2 Livestock

Control over the livestock industry was exercised in terms of a wide range of marketing control schemes. Red meat and eggs were controlled under ‘surplus removal (price support)’ schemes whereby a floor price was set, with the relevant Board being responsible for manipulating supply to maintain prices above this floor. In the case of red meat, the main consuming areas were designated as ‘controlled’ areas, and meat could only be sold there under a permit. Animals could also only be slaughtered in approved abattoirs, most of which were in the controlled areas. This created an artificial shortage in the consumer market and an artificial surplus in the producing areas, with the result that the holders of permits gained windfall rents. Wool and milk were controlled under ‘single‐channel pool’ schemes.

The major sources of animal feeds were also controlled, with maize falling under a single‐channel fixed price scheme, and oilseeds and lucerne under single‐channel pool schemes. The poultry industry was never subjected to statutory control.

The effects of deregulation on the livestock subsector have received relatively little attention, partly because of the heterogeneity of the sector and partly because of the lack of reliable data, especially on consumption of red meat. Some effects include:

1.

An increase in the proportion of red meat sold directly in the informal sector in poor urban and peri‐urban communities. Live sheep and cattle are bought on the farm, or even delivered to these townships. They are slaughtered at the roadside, where the meat is sold raw or cooked in various forms. While it is known that this type of trade makes up a substantial proportion of total red meat sales, its exact magnitude has not been estimated. Similarly, there is an active market in pig and poultry by‐products such as offal, chicken heads and feet.

2.

Deregulation resulted in a rapid increase in the number of smaller abattoirs in the rural areas, mostly on‐farm facilities that are combined with retail outlets or that supply directly to retailers in the formal market. As a result, the large metropolitan abattoirs are all running at less than a third of their capacity, leading to severe financial problems for the holding company, Abakor.

3.

A relatively large proportion (up to 80 per cent of formal sector sales) of South Africa's red meat comes from feedlots, mostly as a final finishing phase, ostensibly because of the lack of winter grazing in the summer rainfall areas. It is not clear whether this practice has increased or decreased in the post‐deregulation era. For this reason, red meat prices are particularly sensitive to changes in the cost of animal feeds. The decline in the real price of yellow maize, oilseeds and other components of animal feeds since deregulation has, therefore, resulted in relatively low red meat prices, at least until the recent increase in grain prices.

3.3 Horticulture

Most of South Africa's fresh vegetable and subtropical fruit industry escaped controls under the old agricultural marketing regime, while the domestic market for fresh deciduous and citrus fruit was deregulated in the 1970s. Hence the focus here is on exports of deciduous and citrus fruit. These products were marketed under ‘single‐channel pool’ schemes, whereby producers had to channel their produce into a pool operated by a statutory monopoly empowered by the Deciduous Fruit and Citrus Control Boards, respectively. The main implications of the deregulation of these industries include an effect on the quality and quantities exported, as well as the destination of exports.

Obviously, the main advantage of the single‐channel export schemes was the ability to manage the price of exports and, more specifically, to use the monopoly power to keep prices high. The main disadvantages were that products were pooled (i.e. individual producers had no incentive to deliver a quality higher than the average), prices were maintained at high levels by restricting output, and there was little incentive to develop new markets or save on marketing costs. The results were that South African production lagged behind that of its competitors; the country became vulnerable to changes in individual clients, given its concentration on the most lucrative short‐term markets; it lagged in innovating new cultivars; and marketing costs were high. Deregulation changed the calculus in each of these dimensions.

The first effect of deregulation in the fruit export industries was the entry of literally hundreds of marketers, and hence a sharp decline in price and quality delivered into the global market. This market was characterised by a rising demand for new products and a stagnant demand for conventional cultivars. In this regard, the apple industry was hardest hit, and experienced a decline in exports in the period immediately after deregulation in the mid‐ to late 1990s. As apples are grown in only a few specialised areas, these areas experienced a negative impact on farmer incomes and employment, while the impact on the wider economy was limited. Nevertheless, total fruit exports increased in volume and value in the post‐deregulation era.

Under the new, deregulated trading regime, producers were more exposed to the shifting demand for new fruit types and varieties. While this had a negative impact on sales in the short term, it also resulted in a new investment boom as farmers shifted replanting and new plantings to reflect this change in demand. In the citrus industry, for example, the producing area in the Western Cape has been favoured over the Mpumalanga, Limpopo and Eastern Cape provinces. It has become the largest source of citrus exports as the demand shifted to easy‐peelers, which are more suited to its climate.

A further result of deregulation is that farmers are now better able to withstand shocks in individual markets. While the bulk of deciduous fruit and citrus exports is still destined for the markets in the United Kingdom, the concentration of exports has diminished considerably, with new markets being exploited in Eastern Europe, South and East Asia, the Middle East and Africa. There is also anecdotal evidence that competition between marketers has resulted in a lowering of supply chain costs, although the market for shipping space and harbour facilities is not competitive, and South African exporters face higher costs than those of their competitors.

Producers' ability to shift a wider variety of products to a wider range of markets has also offered a measure of protection against competition from heavily subsidised producers in the northern hemisphere. New technologies have resulted in an extension of the production and marketing season for these producers, thereby closing the ‘marketing windows’ for counter‐seasonal producers in the southern hemisphere. This advantage has been partially offset by new storage and shipping technologies for South African producers. The reduction in state support for research and development remains, however, a real threat to the deciduous fruit and citrus industries.

The regions that have benefited most from these changes in market conditions, and the new opportunities that have arisen as a result of deregulation, include the new table grape production areas along the Orange River in the interior of the country and the wine‐producing areas of the Western Cape. Table grape exports from South Africa have grown fastest among the different varieties of deciduous and citrus exports, largely because of the rapid expansion in production capacity in the Northern Cape province. This expansion has been driven largely by the early harvest, and hence the favourable market conditions; by production technologies such as precision irrigation; and by infrastructural investments aimed at improving air and shipping transport.

The wine industry has also undergone radical structural changes. Exports have, for example, increased more than threefold over the past decade, and from less than 10 per cent of the total harvest to more than a third. These changes have been driven by investment to replace current production capacity and to create new capacity. In the wine industry, this implies a smaller total crop, as high‐yielding grape varieties are replaced by low‐yielding ‘noble’ cultivars. This also implies that the area under vines has grown only slowly, as most of the investment is targeted at replanting. Nevertheless, new areas in the Western Cape, including the Malmesbury district on the West Coast, and the Southern Cape have been the focus of a rapid expansion in wine grape production. At the same time the processing capacity of the industry has expanded, with new wineries being set up, mostly in the traditional high‐quality producing areas of Paarl and Stellenbosch.

4 LAND REFORM

Despite the well‐formulated land reform policy and well‐funded land reform programme (comprising land restitution, land redistribution and tenure reform), progress has been slow. Less than 2 per cent of commercial farmland has been transferred; production conditions in the communal farming areas have remained largely unchanged, or may even have worsened after eight years of land reform; and tenure forms have hardly changed in the communal areas despite attempts to provide greater tenure security. There is also no evidence that the supposed beneficiaries of land reform are better off as a result of their participation in the programme. Empirical evidence, in fact, shows that private transfers – some funded by mortgages from the Land Bank or the commercial banks – have occurred at twice the rate of state transfers. Nevertheless, there are some examples of land reform that have had local impacts, and that possibly serve as examples for future land reform:

1.

The best‐known example of small farmer success in South Africa is in the sugar industry, with its 20 000–30 000 small‐scale cane growers. While the support programme to small‐scale cane growers in KwaZulu‐Natal predates the land reform programme by a few decades, it has recently been expanded considerably in Mpumalanga province, where new sugar cane plantations have been established.

2.

During the early 1990s, a project was launched to encourage the development of a land rental market on cropland in the communal areas by encouraging the traditional authority to adopt measures that would lower the transaction costs of land rental. As expected, this experiment has had interesting efficiency and equity results.

3.

A number of equity share schemes for farm workers have been set up, mostly in the fruit export industries in the Western Cape. Farm workers use the land reform grant to buy shares in an operating farm business, mostly on the farm where they work. While the financial performance of these schemes still needs to be independently assessed, these schemes have attracted significant private sector investment.

4.

Concerns about the vulnerability of small producers of wool led the National Wool Growers' Association (NWGA) and the government to set up a new wool marketing channel by building and equipping shearing sheds in villages throughout the Transkei and Ciskei regions. In the first phase, the focus was on the provision of material support – a shearing shed, equipment and, for some villages, a dipping tank. In the second phase, institutional support was provided to increase access to information on breeding and training for proper shearing and grading, access to and knowledge of the use of inputs, and a market outlet. The NWGA also organises contact with the brokers to market the wool. The NWGA prescribes that candidate villages should have a minimum number of sheep but, more importantly, an active farmers' association, whereby the wool farmers form a local Wool Growers' Association.

5.

There is a range of empowerment schemes in aquaculture and mariculture (mussels, oysters, seaweed and abalone) situated along the west and south coasts of the country. These have the potential benefit of stemming the considerable poaching that has taken place in these areas, in addition to providing new opportunities for small‐scale producers.

6.

Similarly, there is a range of agricultural projects aimed at the production of specialty products, such as rooibos tea, honeybush tea, indigenous flowers, medicinal plants, essential oils, hydroponics and organic products. The purpose is to build new markets and to empower new producers.

7.

While the planned privatisation of the South African Forestry Company Limited (Safcol) has caused considerable controversy, it has been accompanied by a wide range of planned empowerment projects, either in forestry or in alternative land uses, mostly in the horticultural sector.

8.

There has always been an expectation that a successful land reform programme would result in a wider range of farm sizes, a diminution of the stark differences between commercial and ‘traditional’ agriculture, and a less marked border between the commercial and communal farming areas. At this stage, however, progress with the land reform programme has been too slow to produce noticeable effects.

5 INSTITUTIONAL REFORM

All public sector institutions in South Africa have undergone two transformations in the period since 1994 – a redirection of their strategic focus and an internal process of affirmative action aimed at improving their ability to operate in the new political, social and economic environment. In this regard, the most important changes in the agricultural sector include the restructuring of rural financial institutions and the institutions that serve the agricultural research sector, as well as the new constitutional relationship between the national and provincial Departments of Agriculture, and between the national, provincial and local spheres of government.

Under the previous regime, each of the ‘homelands’ established a range of parastatal development corporations, often with a parallel set of corporations specifically for agricultural development, marketing, finance, and so forth. The Strauss Commission (Citation1996) found that none of these institutions could be regarded as successful, and they constituted a considerable drain on public finances. Nevertheless, these institutions did provide support services such as input supplies, extension and advice, credit, ploughing services and irrigation infrastructure to small farmers. These services were largely withdrawn after 1994, although many of the institutions were transformed into provincial corporations or banks. The result is an almost total absence of small farmer support services in the country.

The past decade has seen a rapid increase in the cash loans business as the banking sector was deregulated and commercial banks failed to move into the low‐income market. While most cash loans are supplied in urban areas, many borrowers use the funds in small businesses, including the distribution and retailing of fresh produce (fruit, vegetables and meat) in the poor urban and peri‐urban areas.

There has also been an increase in the volume of business conducted through the microlending industry, in this case also in the rural areas. As is common in other parts of Africa, a relatively small proportion of these funds is borrowed for farming purposes, but there is evidence that some of it is being invested in small‐scale processing, distribution and retailing of fresh produce.

The Land Bank has also experienced a transformation in its business orientation, especially with regard to its role as a wholesaler of rural credit. The largest part of its loan portfolio was traditionally in the market for mortgage financing of farm purchases. The Bank now lends directly to beneficiaries of the land reform programme and to private buyers of land from previously disadvantaged communities. With respect to its wholesale function, the Land Bank still lends money indirectly through farmer cooperatives, but at a lower volume than previously. The greatest challenge facing the Land Bank at present is arguably the search for new intermediaries to enable it to reach small farmers effectively.

A number of industry trusts (e.g. the Wine Industry, Maize and Red Meat Trusts) were established to hold the assets of the respective Control Boards after their abolition in 1998. Many of these are responsible for providing support to emerging farmers in those industries, in addition to funding research, information and generic advertising.

As noted above, there has been a substantial shift in the agricultural research, development, and technology transfer sectors. State support to agricultural research is channelled directly through the Agricultural Research Council, and indirectly through the Faculties of Agriculture at universities and the provincial Departments of Agriculture. State funding has declined, although it is not clear to what extent private sector funding (through the above‐mentioned industry trusts, voluntary commodity levies or the corporate sector) has made up for this decline. What is evident is that research funding is easier to access for successful industries such as the wine and fruit export sectors. Hence, a province such as the Western Cape has benefited more from these changes than have poorer provinces such as the Eastern Cape and Limpopo.

Before 1994 South Africa had 14 separate, autonomous Departments of Agriculture, most of which experienced severe capacity constraints. The situation has hardly improved under the new Constitution, where agriculture is a concurrent responsibility of the provincial and national spheres of the government. For the first time, local authorities have had to take responsibility for their rural hinterlands and their new brief to take charge of local economic development. The result has, again, been a favouring of the wealthier provinces, especially in terms of farmer support services such as extension, infrastructure provision, ploughing services, and so forth.

The provincial governments have also been charged with the responsibility to provide welfare services such as social welfare payments (pensions, child support grants, etc.), health services and education. While substantial progress has been made in ensuring equal access to these services, the rural areas generally lag behind urban areas, and the poorer provinces lag behind the wealthier ones. Thus the poorer provinces are defined by rural poverty in all its dimensions, such as income poverty and limited access to services.

6 STRUCTURAL EFFECTS ON THE ROLES OF AGRICULTURE

The discussion thus far has concentrated on the structural impacts on agriculture of changes in a wide range of policies that affect the agricultural sector either directly or indirectly. This section deals with the economic and social spillover effects of this impact on the wider South African economy and society.

6.1 The impact of agriculture on poverty alleviation and household food security

The South African government has identified poverty alleviation as an important target of its development programmes and has instituted a wide range of policies to address this issue, especially in the rural areas. The poverty alleviation and food security role of agriculture in South Africa is addressed in the Poverty Module (Kirsten et al., Citation2003) and focuses mainly on the former homeland areas, where the majority of poor and rural poor reside.

A large percentage of rural households in the communal areas participate at least in transitory agriculture, and a comparatively large proportion of households remain permanently involved in agriculture, compared with informal work. Looking at the relationship between poverty and agricultural production, it seems that agriculture forms a small but important buffer against poverty for some households and functions as a cushion for the poorest, while also acting as a strategy for wealth creation for wealthier households.

In a recent report (ECI, Citation2002) on the impact of deregulation on household food security completed for the National Agricultural Marketing Council (NAMC), it was concluded that the single most important determinant of food security in South Africa is cash in hand. This implies that the more serious issues to be addressed are the sources and levels of income needed for households to be able to purchase food. This is an important conclusion, which shows that South Africa is different in this respect to other African (or developing) nations. Unless agricultural production moves out of subsistence levels to some scale of commercialisation, little impact on food insecurity and poverty is possible.

This argument links up with the results from a growth multiplier analysis (Kirsten et al., Citation2003), which suggests that an increase in farm income has the potential to stimulate economic growth in the communal areas, but that this growth may be considerably lower than the government expects from the small‐scale agricultural sector. This was further confirmed by the sequential access method (SAM) analysis of export growth in agriculture in the Western Cape (Kirsten et al., Citation2003). Export growth stimulates economic activity, especially in the chemical industry, the trade, transport and communications industries, and the wood and paper industry. Skilled agricultural workers, followed by the workers in elementary occupations, experience the greatest increase in labour incomes. Technicians and professionals benefit least. There is no notable income redistribution from high‐income to low‐income households or from one population group to another. The results also showed that rural household incomes increase relatively more than urban household incomes, which suggests a positive impact on rural poverty.

Agriculture's contribution to household food security has been analysed in nutritional studies, showing that households that are involved in agriculture have better nutritional status (Kirsten et al., Citation2003). The participating households grew and sold a variety of crops, and many kept livestock. Such households are likely to participate in production beyond the level of subsistence. Thus the improvement of agricultural productivity in less‐developed areas of South Africa has the potential to improve household and child nutritional status.

There is sufficient evidence that agriculture ensures a more stable food supply and improves nutrition at household level. This takes place directly through improved dietary diversity and increased macronutrient intake, and indirectly through income replacement behaviour, which seems to have a greater impact on improving energy intakes. The magnitude of the nutritional benefits is primarily based on whether the scale of production is beyond the subsistence level.

The poverty/food security role of agriculture depends largely on the policy and institutional framework in both sectors of the dualistic economy. In the commercial agricultural sector of South Africa, various past and current policies have influenced the structure of agriculture as well as the input intensity of the sector. Capital subsidies, guaranteed prices and import protection contributed to larger farms and thus to a decline in the number of farm families. The policies of cheap credit and tax write‐offs favoured the use of more capital equipment in agriculture, leading to huge losses in jobs in agriculture during the 1970s and 1980s. More recently, various labour policies such as minimum work conditions and minimum wage legislation all have the potential of contributing to further shedding of jobs in commercial agriculture, negating some of the potential poverty and food security benefits of agriculture.

Another example of policy changes that have affected employment levels has been the withdrawal of labour‐intensive public works programmes in rural areas. This not only reduced employment, but also put a halt to efforts to improve much‐needed rural infrastructure. Nevertheless, the government announced in July 2003 that it would embark on renewed labour‐intensive public works programmes in the rural areas of the country.

Although agricultural policy is not the only policy factor that impacts on food security and poverty, only agriculture‐related policies are discussed in . Mention is made of constitutional change and overriding national policy frameworks such as the Reconstruction and Development Programme (RDP) that formed the framework for societal transformation in South Africa after 1994.

The structural impact of agriculture on poverty and food security

6.2 The impact of agriculture on selected social dimensions

This section is based on Bekker (Citation2003).

6.2.1 Migration

In South Africa, rural people generally migrate to urban areas in search of income and employment, even when the chances of landing a permanent job and receiving a predictable income are minimal. Under these conditions, households often migrate as a second‐best option in search of superior infrastructure – land and improved housing, water and sanitation, electricity, better transport and better school and health facilities.

Since 1994 migration flows have become more complicated. The African ethnic group, although significantly urbanised, still comprises a majority of rural residents. Although people are moving on a massive scale from rural to urban areas, shifts from rural to rural areas appear to be even more massive, resulting in intense competition for land. The historical and demographic results of apartheid have led to high levels of artificial rather than spontaneous densification for the poor rural population, and to acute demand for living sites in areas with economic access to the developed economy. In effect, South Africa's rural population is becoming more concentrated in dense rural informal settlements in which cultivation and stock farming are rapidly disappearing. Institutionally, these settlements increasingly fall under a category of ‘other rural’ rather than ‘traditional rural’. Poor rural people are moving away from a collapsing land economy towards the nearest location of the developed cash economy.

There are three additional reasons for these flows:

1.

Unemployment rates are high, thus urban residents with urban networks have the best chance of finding employment.

2.

The deterioration of living conditions in the former homeland rural areas is so severe that established households are been forced to migrate, and return migration is diminishing.

3.

The state has been providing infrastructure on scale for the poor in metropolitan areas as well as in other urban and rural places, which acts as a ‘second‐best option’ for poor households in the migration stream.

These population shifts affect the commercial, traditional and ‘other’ rural sectors differently. Living standards as well as security on a commercial farm are generally higher than their equivalents in the traditional and ‘other’ rural sectors or, for that matter, in dense urban informal settlements where unemployment is particularly high. Although this sector has been shedding on‐farm labour and farm worker dependants over the past 30 years, off‐farm employment offers farm workers (and their households) equivalent advantages. This is especially so when compared with individuals and households without fixed employment and residing in dense rural informal settlements. However, not all farm worker households retain job ties with a commercial farm after a move and, in these cases, find themselves within a changed institutional framework in the ‘other’ rural sector more often than in the traditional sector.

The traditional sector relies on institutions that emerge from generations of face‐to‐facerelations and on interactions based on microlevel governance. In a local rural area, as population instability increases, interaction and governance become harsher and more impersonal, with the potential for disorder and exploitation. In short, rising migration streams undermine the efficacy of traditional institutions in this sector. Recent research indicates that such migration streams have reached extraordinarily high levels in traditional rural areas on the eastern seaboard. Simultaneously, the rural economy in this sector is not predominantly agrarian. Nationwide, only a minority of residents still cultivate fields, and the rate has been falling.

The ‘other’ sector may be viewed as comprising settlements that fall under neither the commercial nor the traditional institutional sectors. Free‐standing rural densification accounts for the largest share of dense rural settlement, and is not linked closely to any level of urban centre. Some of this dense settlement relates to local‐level locational advantage, but much of it seems to have no spatial rationale other than apartheid's historical preference for displacing black settlements to remote areas away from the urban core. However, in aggregate, this category represents the extreme outer rim of the mobilised cash economy. In terms of access to infrastructure and particularly to transport, schools, shops and other services, these areas usually offer a weak form of urban connectivity. In addition to better chances of obtaining water and electricity, moving closer to transport access gives some cost advantage over living in outlying areas where long and expensive trips are required to reach schools and services, buy food, collect pensions or perform other urban‐related tasks. These areas seem to develop when rural households reach the stage of needing their own housing site and take the opportunity to move a short distance to a locally advantaged area. People who remain in these rural densifying areas are often the old and the poor; people whose rural assets are important to them; or those who do not have the urban experience and contacts or the resources needed to move to a more advantaged area. A recent study estimates that this sector comprises at least 7–8 million residents, which is some 40 per cent of rural South African society (Cross, Citation2000).

The social contribution of agriculture can be identified along three dimensions: in terms of the proportion of residents affected; in terms of urban‐based costs that would be incurred should rural residents opt to migrate; and in terms of the efficacy of services delivered. It is apparent that the contributions made by agriculture will differ substantially in the two institutional sectors in which agriculture plays an important role – the commercial and the traditional rural sectors.

Workers and their families in the commercial agricultural sector comprise some 5 million people, while those living in the traditional rural sector comprise some 7 million residents – together they constitute more than a quarter of the total South African population. In so far as agriculture plays an important role in retaining these people within these sectors and in keeping these households from entering the migration stream to the urban areas, the social benefit is substantial. In this regard, the commercial farming sector plays a large role in providing employment opportunities and institutional capacity to facilitate state delivery of social services or to provide such services directly. This economic benefit ensures a far greater sense of household security and thereby an environment of household stability than is the case in the traditional sector. In the latter sector, institutional authority is crumbling as the agrarian land economy continues to deteriorate. This leads to substantial population instability and stepwise migration streams towards dense settlements in both urban and rural destinations. Accordingly, both state and private social services are delivered morecomprehensively and efficiently in the better‐managed and more stable commercial sector than in the crumbling traditional sector.

6.2.2 Social services

Policy and implementation regarding social welfare involve the security, sustainability and ‘decency’ of rural people's lives. They focus on securing basic assistance, services and infrastructure, but also include interventions that lay the foundation of a rising standard of living over time through access to new forms of income generation. The emphasis is on state delivery through private interventions, particularly in the commercial agricultural sector. The 1996 Constitution of South Africa provides progressive social rights that are deemed to be universal for both rural and urban residents.

The implementation of social security policy in rural South Africa is influenced by the state institution directly responsible for finances and for delivery ‘on the ground’; the nature of interdepartmental state cooperation; and the rural institutional sector within which state intervention takes place.

The first of these factors is of particular importance. The 1996 Constitution inaugurated the idea of cooperative government in which local, provincial and national governments are defined as spheres among which coordination and cooperation are encouraged. The Constitution also defines the developmental role that municipalities are required to play. As a result, local government has become the primary agent responsible for the implementation of social security policy.

However, fewer than half of all local authorities are administratively up to standard and many require immediate help in terms of financial controls and management. The weakest municipalities are generally found in the poorest areas of the poorest provinces, with the result that social security is better delivered by the state in the more wealthy urban and rural areas. Within the rural areas, service delivery is better in the commercial farming areas.

Although delivery of social security occurs largely via the state, farmers in the commercial sector play an important role in service delivery to employees and their households. Significant evidence points to the relatively superior access for farm workers in the commercial sector to facilities and social benefits in comparison with residents in the other two rural sectors. Although sometimes with a measure of state support, these facilities and benefits are generally delivered by commercial farmers themselves.

6.2.3 Livelihoods

Globally, the focus of development thinking on employment in the 1970s has given way to the realisation that while job creation in the formal sector continues to be one important strategy for poverty reduction, the reality for poor people is that survival and prosperity depend on the pursuit of diverse and multiple activities simultaneously. Different family members often take advantage of different opportunities and resources at different times. Poor households accordingly are imagined as developing multiple livelihood strategies.

Individuals in such households are not regarded as only ‘farmers’, ‘labourers’ or ‘business operators’. Livelihood activities may be composed of, for example, year‐round or seasonal formal sector employment, informal trading or sale of labour, home gardens and food processing, livestock production, cultivation or use of natural or common property resources, labour exchange among family or neighbours, borrowing, scavenging and, unfortunately, also stealing and begging. Livelihood activities may be on‐ or off‐farm, include local or international migration, involve other household members and be legal or illegal. Policies, institutions and related processes that form the environment in which livelihood strategies are pursued are considered central to the analysis. Finally, the outcomes include much more than just income levels or food security.

The situation in the South African rural areas appears to be similar. The relatively strong labour absorption capacity of the South African urban economy has entrenched the perception that the rural economy is wage‐based and not agrarian. In practice, this translates into a powerful demand for residential land, which undercuts the option of production once density begins to rise in the areas people are moving into. In tightly packed areas, the emergent social consensus starts to exclude the traditional rural right to production land and grazing rights, and exerts pressure for residential use only and a wage‐based household support structure. In effect, traditional cultivation and stock farming are on the decrease and the search within the household for various cash‐earning opportunities is on the increase. Accordingly, over the past two decades at least, the traditional institutional sector has been shrinking whereas the ‘other’ rural institutional sector is expanding.

The livelihoods profile in the commercial agricultural sector is somewhat different. Although total employment has been declining, the nature of jobs favours more skilled workers – managers in particular. Consequently, male workers are favoured over females, and coloured workers over Africans. In effect, most households in this institutional sector include at least one member who has a permanent job. These trends reflect the overall pattern of formal sector employment in South Africa over the past several years, in which fewer people have employment, but those that do have enjoyed real increases in remuneration. Simultaneously, there is also a broadening grey area involving more employment through the so‐called secondary labour market. Tasks that had previously been performed by permanent, regular workers are increasingly being performed by temporary, casual and part‐time workers, or what are sometimes euphemistically called ‘independent contractors’.

Policy‐induced structural changes in agriculture have at least two divergent influences on rural household livelihood strategies. The first – a beneficial one for members of poor households – is the entrenchment of permanent employment for the better skilled, either on‐farm or as contractors or managers; the promotion in ‘traditional’ rural areas of small‐scale grower schemes (with concomitant market access); and the creation of upstream employment opportunities associated with the value chains of these agricultural sectors. The second influence – a detrimental one for established livelihood strategies of poor households – is the casualisation and externalisation of employment; the increase in competition for part‐time and seasonal work; and the shift from rural to urban areas of upstream employment opportunities associated with the value chains of these agricultural sectors. It is highly probable that more highly skilled persons profit from beneficial influences while the less skilled (and poorer) suffer from detrimental influences. Accordingly, rural communities involved in such export‐oriented agricultural initiatives are probably dividing into two classes. On one hand, a privileged minority of households succeed in developing multiple livelihood strategies based on skills and predictable income, while a poorer majority of households increasingly find their established strategies undermined and often move on in search of better locations from which they will attempt to develop a new strategy.

7 CONCLUSION

Few rural households will have succeeded in escaping the pervasive changes that have swept through rural South Africa during the last decade. In the traditional rural sector, microlevel institutions of governance continue to crumble, agrarian activities continue to diminish, and gaining access to new state security remains problematical. Households in this sector are forced to adapt their livelihood strategies radically, typically by abandoning the collapsing land economy in which they live and moving on towards the developed cash economy. Many relocate by joining the migration stream towards dense rural settlements close to their ancestral homes, while others join the urbanisation stream. In commercial agriculture, farm‐worker households continue to be discarded as enterprises seek out fewer and more skilled labour, and adapt both to new deregulated agricultural markets and to new national legislation on rural labour and tenure arrangements. Such households, too, join these two migration streams. Households that remain in this sector typically build on their established livelihood strategies by developing skills appropriate to their work and by accessing new forms of state security. Moreover, it is likely that as different agricultural sectors situate themselves within new global markets, households whose members leave on‐farm permanent employment and join the secondary ‘grey’ labour market will divide: one group to consolidate their livelihood strategies by drawing benefit from skills and a predicable income, and a second group to find themselves increasingly marginalised from commercial agricultural activities.

The social role of agriculture in South Africa accordingly needs to be examined in terms of this rapidly changing rural society. Commercial agriculture offers livelihoods and residence to farm worker households that would otherwise join these two migration streams. It also acts as a partner in the state's new role of delivering social security universally. In the third place, as various agricultural initiatives seek out global market niches, new opportunities for employment and income creation among poor households are being established. These initiatives create more jobs, both at the first point of production as well as further up the value chain. They are also able to facilitate the establishment of small‐scale grower schemes on new sites of production in areas within the traditional rural sector. Elsewhere in rural South Africa, on the other hand, the role of agriculture is negligible. Very few cultivation and stock‐farming activities are commercial. Rural households view the rural economy as wage based and not agrarian. In areas where state infrastructure is available, rights to residence take precedence over rights to cultivation and grazing. Livelihood strategies that reflect these perceptions increasingly ignore such activities in favour of accessing residential land, state resources and cash income. Perversely, new state security measures fuel the migration streams as their delivery is, and is widely perceived to be, intermittent and ineffective in much of the isolated traditional rural sector.

In the light of the waning role played by agriculture in much of rural South Africa, therefore, it may be more appropriate to analyse the social role of ‘ruralness’ rather than solely of agriculture, so as to include all three institutional sectors in the analysis.

Three concluding observations on current state policy can be made:

1.

The first points to the role of rural women. Female agricultural labour figures prominently in new commercial agricultural initiatives, while female‐headed households are equally prominent in rural migration streams. In both cases, women find themselves at substantially higher risk than their male counterparts, for example in terms of seasonal unemployment and difficulties in accessing state security. Agricultural and associated policies need to be more effective on the gender issue.

2.

The second observation points to rural–urban linkages. Traditional approaches to migration focus on push and pull factors to the detriment of culturally and socially specific issues. In particular, in their search for new livelihood strategies, households in urban and peri‐urban areas may well decide to spread their investments in rural home areas by including livestock and small‐scale cultivation as valuable assets. Little is known about these linkages in South Africa and no related policy is in place.

3.

The third observation points to regional spatial planning. Infrastructure provision for poorer households in South Africa is a state‐led initiative. Such provision may be seen both as a cause and an effect of migration streams in which households seek improved and sustainable livelihoods in new areas. As such provision influences migrants' choices of domicile, it is clear that state spatial planning ought to be regional in scope, synthesising demographic and socio‐economic data from the various urban and rural areas within a region. The importance of the regional space economy, and of its agricultural component in particular, is evident.

REFERENCES

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  • 2002. "The food security effects of the deregulation of agricultural marketing in South Africa". 2002Ebony Consulting International (ECI), Report to the National Agricultural Marketing Council. Johannesburg: ECI.
  • Kirsten, JF, May, J, Hendricks, S, Lyne, M, Machethe, CL, and Punt, C, 2003. "The poverty alleviation and food security role of agriculture". 2003, Paper presented at the Roles of Agriculture International Conference, Rome, 20–22 October.
  • 1996. "Interim and final reports of the Commission of Inquiry into the Provision of Rural Financial Services". 1996Strauss Commission, Pretoria: Government Printer.
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