One of the key questions that consistently arises amid the COVID-19 pandemic’s impact on the economy is about the effects on employment.
In agriculture, we think there could be some resilience compared to other sectors of the economy because of the major two reasons, which we have previously explored in our notes. First, the sector was largely operational even during the strict level-5 lockdown, except for a few subsectors such as the wine, tobacco, wool and floriculture industries, amongst others. These subsectors subsequently opened when the country’s lockdown moved to level 4 and 3, except for the tobacco industry whose sales remains prohibited, while harvest and fieldwork are permitted. Second, South Africa expects its second-largest grains harvest in 2019/20 season, a harvest process that started recently. Also, there is an expectation of a record citrus harvest, general improvement in output in other fruits following drought years, and also a recovery in wine grapes output.
This means that there will generally be increased activity in the farming sector compared to the previous year. With that said, the social distancing regulations introduced at the end of March 2020 to prevent the spread of the coronavirus could mean that farmers and agribusiness might not increase employment, especially of seasonal labour in the same way they would have in the absence of the pandemic. The impact of these dynamics, however, will only be reflected in the second quarter labour data, as well as the following quarters of the year.
We expect the first quarter employment data, which is due for release by Statistics South Africa on Tuesday, 23 June, to reflect stable job levels that are roughly unchanged from the fourth quarter of 2019 employment of 885 000. There was vibrant activity in the sector until the coronavirus hit South Africa and the regulations to control it were instituted at the end of the first quarter. This means the disruptions in the sector from this pandemic should be minimal, if any, on an employment perspective in the first quarter.
Moreover, the horticulture and field crops, which accounted for roughly a third of South Africa’s agriculture in the fourth quarter of 2019 are the ones that are set for a record harvest in some crops and general improvement in output in other crops and products. Hence, we are inclined to believe that the numbers due for release this week should show stable jobs in the agriculture sector.
With South African policymakers currently at a stage of drafting the post-COVID-19 recovery phase for agriculture and other sectors of the economy, the focus is also on the drive for economic growth and job creation. In addition to the factors we highlighted in our note last week about agricultural development, growth and job creation in agriculture hinges on the level of investment in the sector, agricultural productivity, expansion of export markets, promotion of labour-intensive agriculture subsectors, investment in irrigation and an increase in the area farmed where possible.
The potential for the expansion in productive farmland lies in the underutilised land in the former homelands and underperforming land reform farms. By labour-intensive subsectors, we are specifically referring to the horticulture and field crop subsectors. The other subsector – livestock – can also be prioritised, specifically in areas where environmental factors do not permit horticulture and field crops. This could all happen at a time where there is a growing demand for horticultural, and protein-rich diets in the global market which is underpinned by the changing consumer patterns towards high protein and healthier diets.
The provinces containing former homelands that still have tracts of underutilised, arable land that can be prioritised for agricultural expansion are KwaZulu-Natal, the Eastern Cape and Limpopo. These provinces collectively have between 1.6 million to 1.8 million hectares of underutilised land. As we have previously highlighted, the focus for provinces that already have extensive farming could be on increasing productivity on restituted and redistributed farms and ensuring that there are export markets for products being produced. South Africa has already advanced on this end, as nearly half of the domestic agricultural products, in value terms, are exported. This export drive as part of the post-COVID-19 recovery phase should include a focus on ensuring that ports infrastructure is up to date and efficient -- an issue that has proven to be a challenge in the recent past, particularly in 2019, with further glitches during the pandemic. This is an area that the government infrastructure investment drive could also focus on.
In a nutshell, we expect the agricultural sector to show some level of resilience from a jobs perspective this year as the expected large output will mean labour will be required in the fields. Those that typically participate in the sector in the form of seasonal labour will, however, be affected by the social distancing and other health regulations. This is a component of the labour market that could lead to an overall decline in agriculture employment this year compared to last year, albeit the share of the decline could be negligible relative to other sectors of the economy.
WEEKLY HIGHLIGHTS
The Agbiz/IDC Agribusiness Confidence Index fell to the lowest level since the 2009 financial crisis
The Agbiz/IDC Agribusiness Confidence Index (ACI) fell from the 50-point mark in the first quarter of the year to 39 in the second quarter. This is the lowest level since the third quarter of 2009, at the height of the global financial crisis. A level below the neutral 50-point mark implies that agribusinesses are downbeat about prevailing business conditions in South Africa. The ongoing COVID-19 crisis is primarily a health shock, but its impact on the economy has been severe and these sentiment results are a reflection of that. This second-quarter survey was conducted between the final week of May and the first week of June 2020. The ACI covers agribusinesses operating in all agricultural subsectors across South Africa. The ACI comprises 10 subindices and all showed a significant decline in the second quarter of the year, with most reaching their lowest levels since 2009. This comes although South Africa's agriculture and the food sector, in particular, was operational during the strict level-5 lockdown period, except the wine, floriculture, wool and cotton subsectors, amongst others, which only resumed operating fully from level 4 and 3 as discussed above.
Looking ahead, while South Africa’s agricultural sector could register an improvement in output in 2020 compared to the previous year, and also an increase in export earnings, the cloud of uncertainty around the pandemic could continue keeping the sentiment depressed. With several economies set for sharp contractions because of the pandemic, the challenge South Africa’s agricultural sector will likely face is a potential decline in demand locally and from several traditional export markets, and thus by extension lower agricultural commodity prices. This, in turn, will weigh on farmers and agribusinesses’ finances and possibly the sentiment. Another important focus in the coming quarters will be on domestic agricultural policy, specifically land reform, which had dominated the landscape before the pandemic. Any path government takes in this particular policy will have an impact on levels of investment into the sector, and thereafter long-run growth prospects.
DATA RELEASES THIS WEEK
From a global perspective, on Monday the United States Department of Agriculture (USDA) will release the weekly crop progress data. This is important data to monitor as it provides a better sense of the US 2020/21 grains and oilseeds crop conditions. The planting of US maize, rice and soybeans have recently been completed and we will be monitoring the crop conditions in the comings weeks to assess the potential yields.
On Thursday, the USDA will release the weekly export sales data. This is important data to monitor as it will give an indication of the US agriculture exports to China, and help us monitor the progress on commitments made in phase one trade deal and the impact of the COVID-19 pandemic on trade.
On the same day, the International Grains Council (IGC) will likely release its monthly report which provides a global production view of all major grains and oilseeds. In its May 2020 report, the IGC lifted the 2020/21 global output of maize, wheat and rice to record levels. We believe the current estimates will remain roughly unchanged as weather conditions have been relatively favourable in most countries since the last assessment.
On the domestic front, on Tuesday, Stats SA will release the results of the Quarterly Labor Force Survey for the first quarter of this year. In the fourth quarter of 2019, South Africa’s primary agricultural employment increased by 4.2% (or 36 000 jobs) from the corresponding period last year to 885 000. The notable job gains were mainly in the Western Cape, KwaZulu-Natal, Free State and Limpopo. This was largely in the horticulture, field crops and livestock subsectors.
On Wednesday, Stats SA will release the Consumer Price Index for April 2020. In March, South Africa’s food price inflation accelerated to 4.4% y/y, from 4.2% y/y in the previous month. We generally expect food price inflation to be subdued this year because of higher agricultural output, specifically grains and fruit. We expect the country’s 2020 food price inflation to average around 4% y/y.
On the same day, South African Grain Information Service (SAGIS) will release the weekly grain producer deliveries data for the week of 12 June 2020. This covers both summer and winter crops. But the focus is on summer crops which are currently being harvested. The winter crops are still at planting stages for 2020/21 season.
In the seventh week of the 2020/21 maize marketing year, which was on 12 June 2020, about 2.9 million tonnes of maize had already been delivered to commercial silos. About 59% was yellow maize, with 41% being white maize. This, however, is a small fraction of the expected harvest of 15.6 million tonnes in the 2019/20 production season (which corresponds with the 2020/21 marketing year).
Unlike maize, where the harvest season is still at its very early stages, there has been progress in the soybean harvest. In the week of 12 June 2020, about 1.2 million tonnes had been delivered to commercial silos. This equates to 91% of the expected harvest in the 2019/20 season. Also, on 12 June 2020, about 512 864 tonnes of sunflower seed, which accounts for 70% of the expected harvest in 2020/21 marketing year, had already been delivered to commercial silos.
On Thursday, SAGIS will release the weekly grain trade data. In the seventh week of the 2020/21 marketing year, which was on 12 June 2020, about 289 813 tonnes of maize had already been exported, all to neighbouring countries, as well as Taiwan and South Korea. This is a small fraction of the 2.7 million tonnes of South Africa’s 2020/21 maize exports we currently forecast, which is up by 89% y/y. In terms of wheat, South Africa is a net importer. In the week of the 12 June 2020, the country’s 2019/20 wheat imports amounted to 1.46 million tonnes, which equates to 81% of the seasonal import forecast.
