Invest in Agriculture for a Lively Hood

25 October 2017 | Graeme Wilkinson | Opinion

Our National Development Plan (NDP) identifies agriculture as a key driver of economic growth and employment, which we need to develop in order to achieve Vision 2030. The NDP milestone in this regard is that by 2030, a third of all fresh produce consumed in South Africa should be produced by small-scale farmers.

Food security and agriculture is an area of South African corporate social investment measured by Trialogue annually. In 2015/6, their research showed that some 7% of all corporate social investment funding that year (totalling some R8.6 billion) was invested in this area of development. Only education (48%), community development (15%), and health (9%) received larger shares of the CSI pie. Food security and agriculture received almost as much as arts, sports and the environment, combined. Entrepreneur and small business support received 5% of all CSI funding during the period. Tshikululu reported that food security, agriculture and livelihoods attracted just on 4% of all social investments made by its portfolio of clients (out of a total of R 462 million) that same year.

To put this level of investment into context, StatsSA reports that agriculture accounted for some 2.1% of our national gross domestic product (GDP) for the year to March 2017, or some R66 billion out of a total GDP of R3.1 trillion. GrainSA calculated that agriculture, and its related sectors, together represented around 7% of GDP in 2010 (components of the food & beverage, transport, manufacturing and even retail sectors all tie in directly to agriculture in some way). Indeed, GrainSA holds that a R1 million increase in demand for agricultural output will increase the combined output of other production sectors in the economy by R2,14 million[1] (thus, a 2.14 multiple). The multiplier effect attributed to the food, beverage and tobacco industry was calculated at 2.3 times.

StatsSA have shown that the agriculture sector employs some 875 000 people (permanent and seasonal workers) or about 4.6% of the total employed population. As GrainSA puts it, this means that “the agricultural sector … uses two units of labour per unit of value added” (4.6% of the population contribute 2.3% of economic value).

Thus, food and agriculture are labour-intensive endeavours, that have a multiplier effect on the national economy. This alone provides a strong motivation for investors with a socio-economic development imperative to consider investing in food and agricultural development.

The commissioners who wrote the NDP weren’t too far wrong then, in their assertion that agriculture holds the key to greater socio-economic outcomes for our country.

The CDE recently released a report entitled, “No country for young people”. The crisis of youth unemployment in contemporary South Africa that CDE’s details can be summarised in two numbers: 7.5 million young people are not in employment, education of training (NEETs); and, our economy is adding a further 140 000 NEETs to this group, every year. The social and political consequences of this are seen as very serious. Also, these statistics also suggests that, as a country, we’re not doing too well in addressing the NDP’s key priority areas.

The CDE suggests that a focus on labour-intensive industries could help not only improve youth unemployment, but also help grow the economy. The case is made for two labour-intensive export industries, being; light manufacturing (clothing, assembly, agro-processing etc.) and tourism. Your local high school Agricultural Science teacher will be the first to tell you that clothing, tourism (especially that centred around nature conservation) and agro-processing are all activities that fall under the broad spectrum that is agriculture.

Apart from the 875 000 people formally employed in agriculture, a further 1 800 000 people admit being engaged in subsistence farming in South Africa each year (a good 850 000 of these in KwaZulu-Natal alone). And yet, given the natural resources at our disposal, the National Planning Commission believed that a vibrant smallholder farming sector would be able to leverage these resources, and in so doing, gainfully employ an additional 1 million people. The Bureau for Food and Agricultural Policy (BFAP) has been monitoring the fundamentals behind this plan for the past five years, and continues to maintain that it is still achievable.

Using the 2.13 multiplier as a rule-of-thumb, support for smallholder farming sector could thus help unlock new employment opportunities, along the agri-value chain, for some 2.13 million people! Or, about 30% of our NEET youth.

The present reality is, though, that only 10% of all agricultural households in rural South Africa (i.e. 187 000 of 1.87 million households) sell any of their produce. Indeed, only 0.52% of all rural households engaged in agricultural activities stated that income generated from the selling of farm produce was a main source of income.

Therefore, there is great potential for smallholder farming both in terms of the number of participants that could be cultivating the land, and, in the economic value that could be derived from such activity.

There seems to be a slowly growing awareness of this untapped potential in our land and soils. However, land as a political hot potato appears to be an issue that is distracting us from the value that lies in our soils, and the investment that we will need to continue to make to realise this value. Investments in know-how, yes, but also in water infrastructure (e.g. irrigation schemes) and in developing greater market linkages. These are difficult to get right, but far from impossible.

Through our work in this space, Tshikululu has come to appreciate that there are four ‘truths’ that apply to any sustainable agriculture enterprise, no matter its size. Every farming enterprise, according to WesBank Fund programme partner, Abalimi Bezekhaya, requires the following:

Sustained access to expertise;

  1. Sustained access to inputs;
  2. Sustained access to markets; and
  3. Sustained access to credit.

These ‘truths’ are in evidence whether you’re growing tomatoes on your windowsill or whether you’re a tomato production powerhouse, like ZZ2. These ‘truths’ resonate in the BFAP 2017 Baseline Report, where the BFAP point out that “despite the increase in the number of households engaging in agricultural activity, these areas are characterised by low productivity, lack of access to finance, and lack of access into more formalised value chains” (p. 9) – assuming that productivity is a product of access to expertise and inputs, and that value-chains are inextricably linked to markets = all four ‘truths’ are cited. You’ll find them in every example, if you care to look for them. Even the gogo who borrows seed from her neighbour has exercised her access to a localised form of credit.

Any social investment strategy that seeks to support food sovereignty, food security, and/or sustainable agricultural livelihoods, therefore, needs to ensure that these four ‘truths’ are factored in. Factored into the principles, objectives, and anticipated outcomes. Factored into the sustainability plan. Factored into the theory of change, and, crucially, into the financial models.

The challenge presently, seems to be around how to build new, more efficient, networks of exchange between producers and consumers. We are cautioned by academics (such as Cochet, Anseeuw, and Fréguin-Gresh, 2015, and the team at the Institute for Poverty, Land and Agrarian Studies (PLAAS)), and advocacy groups (such as PACSA), to beware of the trap of thinking about agricultural development as a choice between binary opposites. That is, to think of agriculture as either subsistence smallholder farming or corporatised commercial agriculture.

Indeed, I have flirted with this binary view by citing StatsSA data which only counts “185 000 employed in formal agriculture” and juxtaposes this figure with “1 800 000 people engaged in subsistence farming”.

The reality is much more diverse and varied. In their book, South Africa’s Agrarian Question (published by the HSRC Press in 2015) Cochet, Anseeuw, and Fréguin-Gresh contend that there is evidence across our rainbow nation of a plethora of ways of farming, ways of engaging with our natural resource inheritance and with the market, ways that are varied and nuanced. Their research has unearthed examples of successful models that are hybrids of smallholder and commercial agriculture approaches, traditional and modern, local and global.

And, from their research, it would seem that these models’ greatest challenge isn’t water or land reform – but the dogged inflexibility of policy and regulation that is routed in a binary view of agriculture. Policy that seems to want all agricultural enterprise to look the same: to look conglomerate and exclusive.

How can social investors better enable the nurturing of diverse examples of local and sustainable value chains? In short, we call on fellow social investors in South Africa to get behind public-private partnerships that:

  • Link networks of local produces (the small-scale farmers the national planning commissioners spoke of) to local markets (consumers of fresh produce) and beyond (consumers of processed produce);
  • Open the value-chain to participation by a plethora local players; and
  • Allow for the value-chain to include as many people as sustainably possible.

No-one is likely to become millionaires quickly this way, but a majority in the community would be able to grow their wealth – modestly, and sustainably. And as a result, thanks to the wonder of compound interest over time, every South African will begin to see their hood become truly (economically) lively!