Mostly favorable climatic conditions allow production of a wide variety of agricultural products in a sector characterized by large, modern commercial producers as well as subsistence farmers. Except during periods of drought, South Africa traditionally has enjoyed food self-sufficiency and is a net farm exporter.
South Africa's agricultural sector in the past decade has undergone dramatic change, brought about by historic policy shifts amid a new democratic political system and economic restructuring. Underlying the changes in agricultural policy is a desire to address historical inequities in land ownership and use, to alleviate rural poverty, to remove market distortions and to expand agricultural exports to support overall economic growth.
According to a 1998 policy paper issued by the agriculture ministry, the government's goals are "to build an efficient and internationally competitive agricultural sector, to support the emergence of a more diverse structure of production with a large increase in the numbers of successful smallholder farming enterprises and to conserve … agricultural natural resources and put in place policies and institutions for sustainable resource use." Public spending is concentrated on rural infrastructure, basic agronomic research and extension and educational services, according to the document.
The strategy of expanding exports included a move to the concept of "food security" rather than "food self-sufficiency." Trade reforms were enacted to comply with W.T.O. requirements.
According to an analysis by Standard Bank of South Africa, annual agricultural exports since 1994 have averaged 57% of total gross production value, up from 33% before 1993. Exports of "intensive" products — fresh produce and citrus — have recorded the biggest rates of growth, an important factor because those types of exports most benefit the overall economy.
Perhaps the most radical impacts of the policy changes affected South Africa's grain and livestock sectors with the removal of the Maize, Wheat and Meat boards. These quasi-governmental groups managed the country's single-channel marketing programs and administered statutory price floors, stabilization levies, imports and other supply control and subsidy measures.
The demise of the boards took effect between the 1996 and 1998 marketing years and was part of the package of reforms instituted to meet W.T.O. requirements. The change basically thrust the grain and livestock industries into a free market regime without much of a transition period, and created tremendous uncertainties within the affected industries.
The most immediate effect was the sudden absence of information, as the boards had been responsible for collecting and disseminating commodity information and statistics. With the end of this service, the grain markets functioned "in the dark," which impeded pricing efficiency, increased risk and led to general discomfort in the marketing chain.
In response to the sudden lack of information, South Africa's maize, wheat, sorghum and oilseeds industries formed the South African Grain Information Service, or SAGIS. The organization, funded by the four commodity industries and chartered in November 1997, collects information and statistical data on prices, stocks, exports and domestic use from all segments of the grain industry and publishes them regularly.
The National Crop Estimates Committee, develops and publishes crop production figures. In the past, the committee included ministry officials as well as representatives from various segments of the grain industry, which raised complaints about the potential for economic self-interest to influence the market-sensitive figures. As of January 2000, the N.C.E.C. figures are determined only by national and provincial agriculture ministry statisticians and specialists.
The change to free markets included reliance on the South African Futures Exchange as a price discovery and risk management mechanism for domestic grains, and trading has increased notably. In 1999, nearly 255,000 grain futures and options contracts were traded, representing 255 million tonnes of grain, up 197% from 1998. White maize contracts constituted about 62% of the total.
MILLING INDUSTRY. The end of government controls over grain markets led to major changes in South Africa's agricultural production. With the old price support system abruptly dismantled, farmers could not afford to waste time determining which crops would be most profitable and making a switch if necessary to maximize returns. Observers have noted the changes for farmers were akin to the United States or European Union abandoning all support programs in a single marketing year.
The effects can be seen most dramatically in planted and harvested area statistics for wheat. According to U.S. Department of Agriculture estimates, South African farmers harvested 1.382 million hectares of wheat in 1997-98, while in 1999-00 wheat harvested area dropped to an estimated 720,000 ha, an astounding decline of 47.9% in just two seasons.
Maize area has been less affected by the market change, as maize flour remains a food staple. Although harvested area in 1998-99 was down about 14% from pre-change levels, some of the decline was attributed to fears of an El Nino-related drought as well as adjustments related to the market situation.
A 1999 article in the Weekly Mail & Guardian, a South African newspaper, called the changing production pattern one of the country's most significant agricultural developments. That article reported that while maize and wheat output declined, production of canola, sunflower seed, lupins and other crops increased sharply, and revenues from citrus and other fruit also were higher.
The article noted that while some of the change was related to weather, the data indicated "growth in more intensive farming, potentially at least more small-scale." But whether these trends persist over the long term is unclear.
Maize plantings and production this season are expected to recover, with estimated area in 1999-00 increasing by about 10% from the previous season, to a projected 3.2 million ha. Observers attribute the higher maize area to depressed prices for competing crops, as well as to beneficial rains in December.
For flour mills, the sweeping agricultural and economic reforms have increased competitive pressures, although the modern and already concentrated industry was in a good position to face the challenge. Both the wheat and maize milling sectors have been dominated by no more than 10 large companies, and the changes are encouraging additional restructuring and consolidation.
In 1997, Bokomo and Sasko, two large wheat flour milling companies, merged to form Pioneer Food Group. That company, along with Genfood and Tiger Milling Co., operate some 25 to 30 wheat flour mills in total, while another 15 to 20 individual companies operate single mills. The maize milling industry consists primarily of eight companies, including Genfood and Tiger Milling, operating 40 to 50 mills, with 19 smaller individual company mills.
Most wheat is processed for human consumption. Total use gradually increased in the 1990s, peaking at 2.9 million tonnes in 1997, but has dropped as economic growth has slowed.
Food use of maize has shown an inverse relationship to wheat, on a declining trend through the 1990s until 1997, when consumption increased. Food use has been fairly stable the past two years.
FEED AND LIVESTOCK. An average of about 50% to 55% of total maize use, primarily yellow maize, is for feed, and maize is the primary feed ingredient. After soaring maize prices in 1996, costs have declined. Yet, the industry remains pressured by a number of factors, including tariffs on imported ingredients and a rise in processed meat imports.
Meat processing is South Africa's single largest food sub-sector, accounting for 25% of total food production. As with the grain industry, gathering of necessary information for the feed and meat markets collapsed with the termination of the Meat Board. The South African Meat Industry Co. has been formed to assume the information function, but has not yet established an effective information database, and reliable statistics remain imprecise or unavailable.
TRADE. South Africa's market and agricultural reforms eliminated direct government import controls, replacing them with a tariff system compatible with W.T.O. regulations.
The Board of Tariffs and Trade establishes import tariffs for maize and wheat. The wheat tariff is based on a formula using a moving average of the Argentine Trigo Pan price as reported by the International Grains Council compared with the reference import price.
Until April 1999, the wheat import tariff was set at zero. At that time the Board, reportedly alarmed at the decline in wheat area and concerned about the negative effect of imports, imposed a tariff of U.S.$29 a tonne.
Currently, the duty on imported wheat is about U.S.$44 a tonne. Recent reports from South Africa indicate 1999-00 imports might reach as much as 650,000 tonnes of wheat to meet consumption and quality needs and maintain adequate stocks. Imports in the previous season were about 550,000 tonnes.
For maize, the Board tracks the price of U.S. No. 3 yellow maize to determine tariff levels under a formula similar to wheat. Although South Africa is a maize exporter, some is imported each season, as users on the west coast find it cheaper to import than to haul cross-country from eastern production areas.
In November, the Board raised the tariff to U.S.$25 a tonne following a slide in international prices. After prices increased from those lows in December, the National Association of Maize Millers asked for and subsequently received a reduction to U.S.$15.