09.11.2017

Western Cape drought weighs on broader agricultural economy

When it comes to agriculture, the Western Cape province is essential - not only because of its production of fine wines, but also because of its contribution to South Africa’s agricultural labour market and the broader economy - Wandile Sihlobo, Agbiz economist (*This column first appeared on Business Day, 09 November 2017).

When it comes to agriculture, the Western Cape province is essential - not only because of its production of fine wines, but also because of its contribution to South Africa’s agricultural labour market and the broader economy. The province is a leading employer in primary agriculture, commanding a share of 20% of the country’s total labour force in the third quarter of this year. In addition, the province is the second largest contributor to the agricultural economy in terms of GDP, with a contribution of 22%.

As a result, when the province’s agriculture encounters headwinds, a lot will be at stake and the current unrelenting drought is no exception. The latest Quarterly Labour Force Survey by Statistics South Africa recently confirmed this. Of the 25 000 job cuts in South Africa’s agricultural sector in the third quarter, about 84% were in the Western Cape province.

Combined, the Eastern Cape, the Free State, Kwa-Zulu Natal, the North West and Limpopo provinces accounted for 16% of the third quarter’s reduction in employment. However, the balance was also skewed by production seasonality factors. There is reduced agricultural activity in the summer crop production areas at that time of the year.

Worth noting is that employment in South Africa’s agricultural sector has been on the decline since the beginning of the year. The combined job losses for the first half of the year are estimated at 84 000 jobs, with the Western Cape province again accounted for the lion’s share of these losses. Overall, South Africa’s total agricultural labour force was estimated at 810 000 jobs, which is the lowest since the fourth quarter of 2014.

South Africa’s agricultural labour market was relatively more vibrant in the 2015/16 season, despite the El Niño induced drought in many parts of the country at the time. This is because the Western Cape province was not as hard hit as other provinces, and was able to continue absorbing labour. Historically, the third and fourth quarter of each year typically records job gains in the Western Cape province, due to increased activity in the orchards and fields. This would, of course, include seasonal labour.

Although the summer crop-producing provinces should experience an increase in activity from the fourth quarter of this year, there is a limited chance of notable employment growth. Most summer crops are not labour intensive, particularly grains and oilseeds. Perhaps, Kwa-Zulu Natal, Limpopo, Mpumalanga and the Eastern Cape provinces which have notable production of horticulture could somewhat offset the anticipated job cuts in the Western Cape province.

In terms of the overall agricultural economy, the sector has performed robustly in the past two quarters of this year. The World Bank estimated that South Africa’s agricultural sector will grow by 15% year-on-year in 2017. This expected strong performance is largely supported by a recovery in summer crop production following several seasons of drought in some areas, as well as the low base effect.

With the exception of the Western Cape, there are positive prospects regarding the upcoming summer crop season. The South African Weather Service forecasts widespread showers between November 2017 and February 2018 in the summer crop growing areas of the country. Moreover, farmers intend to increase the total area planted to summer grains and oilseeds by 1% from the 2016/17 production season to 4.03 million hectares.

With that said, the horticultural sector’s performance in the Western Cape province might not be vibrant in 2018 owing to the effects of this year’s drought and stubbornly low dam levels. This could somewhat cloud the expected good performance of other provinces due to its hefty contribution to the country’s agricultural economy. Above all, the persistent drought in the Western Cape province is a cause for concern for all South Africans, as its impact will be felt nationally, particularly in the agricultural and food industry. 

*This column first appeared on Business Day, 09 November 2017.

Online: https://www.businesslive.co.za/bd/opinion/columnists/2017-11-09-wandile-sihlobo-western-cape-weighs-on-broader-agricultural-economy/

ENQUIRIES:
Wandile Sihlobo (wandile@agbiz.co.za)
Agbiz Economist

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