The year really started not at its best as many anticipated would be. Many people looked forward to new job opportunities, new business ventures, and a booming economy. South Africa has just moved from a severe drought and outbreaks of diseases such Foot and Mouth disease, and expected a greater season this year for both production and marketing in the agricultural sector. The first down fall was when the country closed at a bad note in 2019 and it was reported that South Africa’s agriculture has experienced two consecutive quarters of 2019, that resulted in technical recession and the sector contracted by 7.6% in the fourth quarter due to a decline in the field and horticultural crops. Not only did that threatened the employment rate which is at 29% but the outbreak of corona virus (Covid-19) in early 2020 made things even worse both economically and health wise.
The country implemented a lockdown strategy as a way to curb the spread of this disease. While, the country is still facing this pandemic, the rating agency Moody’s has cut South Africa’s sovereign credit rating to sub-investment grade, meaning the country now has a junk rating from all three major international rating agencies. At the same time, in terms of South African exchange rate, rand became weaker and weaker losing its value against the foreign currencies which means that any food imported in the country will become expensive. However, prices in the market increased drastically, for instance garlic prices increased from R70/kg to R120/kg because of its health benefits, supply and demand functions. In addition, the price increase in other fruit and vegetables is due to the cost of harvesting, handling and packaging given all the mobility restrictions and hygiene measures implemented to prevent the spread of the disease.
The ban on alcohol sales and exports affected wine industry severely, in simple terms wine industry is no longer allowed to export wines, until stage 4 of risk-graded opening of the economy. About 50% of South Africa’s wine production is exported. This became a devastating issue for wine producers particularly those in Western Cape and part of Northern Cape with the two Provinces employing over 150 thousand people in wine value chains.
On other side, while the country is still facing the pandemic, The trade between South Africa and the United States (US) has reached a point where it will be very costly to trade with each other, this is after the US’s decision to effectively remove South Africa from the list of countries that can receive the preferential trade benefit. South Africa is now likely to attract higher import duties to the US market which is discouraging development for automobile, agriculture and other sectors exporting to the US market.
The major down fall was when the lockdown was implemented. Most businesses who were not considered as essential service sent their employees home of which some of them were given unpaid leave, salary cuts and even worse retrenchments. It became a dark side for those who are self-employed and even worse those that are in the informal markets as majority of government sponsored relief targets businesses that are tax-registered. It is with no doubt that many South African Citizen solely rely on month to month salaries. Therefore, consumer’s incomes are at risk, high prices of food in the market are really not doing justice to anyone which leads to consumer’s purchasing power to fall drastically even on the essential goods. However, the effects of this pandemic will seriously impact the economy meaning that more and more people will fall deep into poverty and food insecurity especially in rural parts of the country. On the other hand, with the closure of restaurants, farmers, processors and other suppliers were already feeling low demands on fresh produce and other perishable goods which means that their profits are suppressed.
Lastly, with that being said the major observation in this whole crisis is the state of food insecurity and inequality that will lead more people to poverty. Meaning during these difficult times more and more of food parcels are needed to support the most vulnerable societies especially the rural parts of the country. Consequently, the President came up with a most important rescue package of increasing social grants for six months which will definitely assist towards poverty alleviation during these trying times. With the hope that the packages announced by the president will be implemented in the corruption free manner. In the trade side, South Africa will just have to diversify its export markets to avoid market failure.
Article by: Ms Zosuliwe Kala, Agricultural Economist
Disclaimer: The views and opinions expressed in this article are those of the author. They do not purport to reflect the opinions or views of Mzansi Agriculture Talk or its members.