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SA’s Agriculture Sector – a Key Driver of Economic Growth

  • 31 May 2021
  • 2 min read
Microbioligist inspecting herbs in hydroponic agricultural lab

I recently came across the statement that “Agriculture is the foundation of developing economies”[1] - a sentiment with which I largely agree. South Africa (SA), as one such economy, must therefore foster a healthy agricultural industry that contributes to the country’s gross domestic product (GDP), food security, social welfare, job creation and ecotourism, while adding value to the country’s wealth of raw materials.

Futuregrowth is eager to support this vision, through responsible investment in the sector, that yields an appropriate risk-adjusted return for our client funds.

In the wake of the Land Bank saga - which in April 2020 saw the biggest agricultural funder in the country default on its debt, precipitating a severe liquidity challenge - the SA agricultural market is in need of alternative sources of funding. Land Bank once funded close to 30% of agricultural debt in the country, without which we risk a loss of employment in the sector, loss of GDP and export revenue, and rising food inflation if we become more reliant on imported foods.

We have embarked on a strategic initiative at Futuregrowth to grow our presence in the agricultural sector from both a debt and an equity perspective, alongside a broader strategy to support infrastructure investment across various critical sectors of the economy.

An Agri-Sector Outlook

Key Features of the Sector

Infographic showing key features of the agri sector

1. Volatility influenced by climate change, political actions, and social change, amongst other factors.

  • Variable weather conditions and climate change cause a fluctuation in yields, which impacts local and global supply dynamics. This creates volatility in volumes and crop prices.

  • Geopolitical influences and government actions:

    • Global supply and demand pressures emerge when governments take actions to subsidise production (as is evident in the EU and USA) or when they ban exports due to concerns about domestic supplies (this has been known to occur in Russia). Another significant global influence is China, with the US-China trade tensions being a recent source of volatility for certain agricultural commodities.

    • Locally, policy uncertainty around land expropriation has had an impact on the ability to access capital investment in the sector.

    • Changing consumer preferences due to lifestyle and social factors shift demand away from certain product groups in favour of others[2].

2. Complexity: Agriculture is not homogenous - there are many different crops and food types, each with their own unique and fragmented supply chains. There is diversity within each crop, in terms of how and where it is produced, and by whom. The complexity is intensified by environmental factors, which influence regional and yearly production and are difficult to accurately predict.

3. Scrutiny: Role players in the agriculture and food value chain are under pressure to improve the traceability of (and information about) the food we eat. Consumers are rightfully becoming more conscious about the content and safety of our food, together with how it is produced and the environmental and social impacts of this.

A Key Driver of Economic Growth

Notwithstanding these complexities, agriculture is widely anticipated to be a key driver of economic growth both locally and internationally. Within a troubled global economy, the agriculture and food value chain sectors remain a strong outlier, driven by population growth, urbanisation and the rise of the middle class.

South Africa has a highly diversified, market-oriented agricultural economy that extends across various product ranges, including all major grains (except rice), oilseeds, deciduous and subtropical fruits, sugar, citrus, wine, most vegetables, livestock, and a well-developed poultry and egg industry. Value-added activities include the processing and preserving of fruit and vegetables, dairy products, livestock and grain mill products, amongst others.

The outstanding performance of the sector last year - with growth in all four quarters - was in sharp contrast to other sectors of the economy. Stats SA reported growth in agricultural GDP of 5.9%[3] in the fourth quarter of 2020, bringing the overall agricultural GDP growth to 13.1% year-on-year (relative to a 7% economic contraction for the country as a whole). This outperformance was underpinned by high levels of agricultural output following favourable production conditions (on the back of a La Nina weather pattern); high commodity prices; strong export demand; and a favourable rand exchange rate. The sector was also classified as an essential service, allowing it to remain operational during the lockdowns.

Exports Continue to Increase

Infographic showing how exports continue to increase

The SA agricultural sector remains a net exporter, with exportable volumes of various commodities growing annually, subject to weather conditions. In 2020, SA’s agricultural exports hit $10.2 billion, a 3% increase from the prior year and the second largest level on record. At the same time, agricultural imports fell 8%, leading to a 26% annual increase in the agricultural trade surplus, which widened to $4.3 billion in 2020. The top 10 export products were citrus, grapes, wine, apples and pears, maize, nuts, sugar, wool and fruit juices, with Africa and Europe serving as the largest markets for SA agricultural exports (followed closely by Asia).

Citrus, as a sub-sector, experienced a notable increase in demand due to the pandemic-related demand for Vitamin C. Citrus exports hit a record high in 2020, with SA cementing its position as the second-largest exporter of fresh citrus in the world, after Spain. This follows a period of citrus production growth in response to a spike in global demand (especially for soft citrus and lemons) and the attractive investment returns and profit margins. This growth in citrus demand is expected to be sustained throughout 2021 and beyond.

2021 Is Set to See the Momentum Continuing


  • Favourable weather has resulted in increased summer crop plantings, raising the prospect of an even larger maize harvest than in 2019/2020. Industry estimates suggest the country could export 2.8 million tons of maize in 2021/2022, the largest volume since the 1994/1995 season.

  • SA wine grape production is also expected to be larger than in 2020, and there is general optimism about the 2021 harvest in the horticulture subsector, as well as in other field crops.

  • The Citrus Growers’ Association (CGA) recently indicated that the SA citrus industry is likely to break all previous export season records with an estimated 158.7 million cartons in 2021, up from 146 million cartons in 2020.

The high yields and positive prospects for the sector should curtail food and overall consumer inflation - and enhance the sector’s contribution to GDP.


The anticipated growth in agricultural exports from SA is however likely to place pressure on the country’s logistics infrastructure, from handling facilities to transport (road and rail) and the shipping ports. Industry players (such as the CGA) have expressed concern over the country’s logistics systems, after struggling with port congestion and a shortage of refrigeration equipment in recent years. The expected bumper harvest in 2021, and the long-term prospects for this key sector require that we overcome current operational inefficiencies and avoid those that might erupt in future. We need an efficient and cost-effective logistics industry that can facilitate the movement of commodities, not only between SA provinces, but also to export markets. This presents an opportunity for infrastructure investment in the sector.


The bullish outlook for the sector, in an otherwise strained post-COVID economy, also presents an opportunity for agricultural R&D. In line with global trends to meet the rising food demand driven by population growth, agricultural R&D in SA could contribute towards higher yields and lower post-harvest losses.

Many regions globally have reached their agricultural land expansion frontiers, such that increasing agricultural output requires increased productivity. Optimising yields through intensive input use, new cultivars and better production practices will hopefully increase agricultural sustainability and resilience in the longer term.

A growing focal area for R&D, according to agricultural economist Dr Thulasizwe Mkhabela, relates to zoonotic diseases, food-borne pathogens, and vaccine development for livestock diseases. There is also scope for the development of digital innovations in the SA agricultural sector (agri-tech), particularly those that address the constraints and needs of smallholder farmers.

The Importance of ESG[4] in the Agri-Sector

If unchecked, the negative impacts of agricultural development that prioritises maximum productivity by exploiting natural resources while disregarding the complex hidden costs (financial and otherwise) of food production, will prevent us from meeting our growing demand for food and fibre on a sustainable basis.

The long-term health of the agricultural sector relies heavily on the sustainability of farming methods. Farming practices must not only ensure profitable yields but also the wellbeing of the factors of production: the environment, the farm workers and the surrounding communities.

Agriculture has done more to reshape the natural world than anything else we humans do, both its landscapes and its fauna and flora. Our eating also constitutes a relationship with dozens of other species - plants, animals and fungi - with which we have co-evolved to the point where our fates are deeply intertwined.

Michael Pollan, The Omnivore’s Dilemma

In seeking institutional investment, agri-businesses must also ensure that their governance structures; financial reporting systems and processes; risk management frameworks and internal control environments are investment ready and can be held up to scrutiny.

Land Reform - One of the Greatest Uncertainties

One of the greatest uncertainties facing SA agriculture in recent years has been around the implementation of land reform. The general perception is that government’s execution of land reform strategies has been poor, resulting in various failures. Without a clear land reform policy framework that is well-executed, the inequalities of the past will continue to increase - and we run the risk that the core of the commercial agricultural sector, which is a key driving force of the economy and food security in the country, will collapse.

In October 2020 the Minister of Agriculture, Land Reform and Rural Development announced that the government would be making 896 farms (totaling 700 000 hectares of under-utilised or vacant agricultural State land) available for emerging farmers. This is part of government’s contribution to the land reform programme, which has seen 135 117 hectares of land released under 30-year leases to selected emerging farmers since February 2020, with women and youth being prioritised in the beneficiary selection.

I view this as positive. That said, robust and transparent criteria for awarding the land is critical to create confidence in a corruption-free process. Further, availing government land is one step, but other important aspects will be:

1. the readiness of the beneficiaries to farm, i.e. their know-how of farming; and

2. the ability of the farmers to access the necessary resources, such as finance and infrastructure.

Mentoring and support will be crucial to set the beneficiaries up for success. Further, for emerging farmers to access capital to develop their land, we need blended finance models to be developed between government and the private sector - and for these to be implemented as soon as possible. Strong public-private partnerships will be crucial to the success of the reform initiatives. 


  • Overall, we at Futuregrowth are cautiously optimistic about the South African agricultural sector and its ability to be a source of future GDP growth.

  • Despite the effects of the COVID pandemic, no major structural changes in the demand for food are expected on a global level over the next decade. Population growth continues to drive increased absolute demand, although individual countries will experience different trajectories in the demand for specific commodities.

  • Implementation risk continues to threaten the SA government’s efforts to reform the sector.

  • Consumers are expected to increasingly emphasise safety, reliability of quality and supply, and ethics in food production systems.

  • We see areas for investment opportunity in agri-tech; agriculture and food value-chain-related logistics and infrastructure; and in thriving agricultural sub-sectors such as citrus production and export, amongst others.

[4] Environmental, social and governance (factors)

[3] Annualised, seasonally-adjusted quarterly

[2] E.g. we expect to see a shift away from red meat in developed countries due to environmental concerns and perceptions about health, whereas rising consumer incomes in developing countries are expected to have the opposite effect.


Tags: Agriculture Responsible Investing

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