Covid-19 Watch

Agriculture a shining star of the economy in the second quarter of 2020

Statistics South Africa announced the Gross Domestic Product (GDP) figures for the second quarter of (April to June) 2020, which coincides with the first three months of COVID-19 lockdown in South Africa. South African economy declined by 51% quarter on quarter in the second quarter of 2020. This is the fourth consecutive decline in quarterly GDP since the second quarter of 2019, with a decline of 1.8% GDP growth for the first quarter of 2020, following by 0.8% and 1.4% in the third and the fourth quarter of 2019, respectively. The heavy fall in the second quarter of 2020 is attributed to the impact of corona virus (COVID-19) lockdown that restricted operations and trade in various economic activities, except agriculture, health and other essential services. Since the first quarter of 2020, Agricultural sector has been positive contributor to the country’s GDP growth with an increase of 28.6%, and continued to be the only strongest performer by 15.1% in the second quarter of 2020 despite the unpleasant conditions of COVID-19 pandemic.  All other sector showed a decline in the GDP growth in this quarter.

What are the drivers of GDP growth in agriculture?
Favourable weather is one of the contributing factors to a good showing of agriculture as it boosted good harvest in grains and some horticultural products. Coupled with a good weather was the conducive COVID-19 regulation that declared agriculture as an essential service warranting it to continue operating under the lockdown. As a result, agriculture was largely operational even during the strict Level 5 lockdown, with an exception of the wine, tobacco, wool and floriculture industries, that were constrained during the hard shutdown. Despite some interruptions in certain agricultural industries, the sector put on an impressive performance in the second quarter of 2020. For example, in the second quarter of 2020, summer grains such as maize recorded a second largest crop harvest at 15.5 million tons. Citrus production and exporting also had a good season stimulating the overall agricultural exports. Between April and June 2020, agriculture and food exports were on average 21% above the corresponding period in 2020 which help the sector optimise its foreign earnings. 

The double digit growth in agriculture for two consecutive quarters of 2020 shows the true potential the sector has in puling the country’s economy out of the deep recession it found itself in. The agriculture and agro-processing sectors could be dominant forces, particularly if clear support measures are implemented to strengthen the country’s biosecurity, equitable access to factors of production and expansion of market access and affordable credit for farmers and agribusinesses.

Key takeaways
Agriculture is a counter-cycling sector with the sector shifting into winter crops and fruit preparations, however, the upcoming quarters could still witness positive growth given the expected large harvest in wheat and recovery of animal products, following three years of drought and animal disease outbreaks. The observed favourable weather conditions and volatile exchange rate could have positive impact on agricultural exports thus sustaining positive growth in agricultural economy. Furthermore, the positive contribution in the GDP growth rate could also be achieved by maintaining the close public-private collaboration in instituting reforms and support measures critical for farmers and agribusiness prosperity in the midst in COVID-19 interruptions and subdued global markets.

by Ms Fezeka Matebeni and Dr Sifiso Ntombela

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