Surviving COVID-19: A refection about the South African Agricultural sector

Nieuwsbericht | 24-07-2020 | 11:46

Statistics COVID-19: a reality that evades relaxed regulations

At the time of writing South Africa had recorded more than 400 000 cases of COVID-19. About 230 000 patients of these had recovered, while more than 6 000 had died. The average rate of cases was more than 9000 per day. Gauteng Province has taken over from the Western Cape Province as an epicenter of the pandemic. Latest reports have also shown that the pandemic is starting to spread widely to provinces, such as Limpopo,  which until now had very low infection rates. This in itself is starting to raise concerns among producers who are currently at the peak of harvesting season. For examples Limpopo is the largest citrus producing province of the country. According to the Citrus Growers Association, the fast growing spread of the pandemic in provinces such as Limpopo could have a negative impact on the availability of harvesting staff.

In terms of export logistics, Cape Town port has been operating at 50% capacity for some months due to COVID-19 restrictions. Western Cape Province, where Cape Town is based, had been the epicenter of the pandemic till the end of June 2020. Few weeks after the pandemic started to be recorded in the country the port authorities responded to the appeal of the industry players and  took a swift move to increase the capacity of ports situated in the Eastern Cape and KwaZulu-Natal Provinces namely Durban, Port Elizabeth and Ngqura. This was further supported by allowing possibility of containerized exports to bypass Cape Town port even in cases where the production is made in the Western Cape Province. In this case containers are transported by trucks to Port Elizabeth and Ngqura.  However, the continuous spread of the pandemic in provinces such as Eastern Cape and KwaZulu-Natal will mean that staff at the Port Elizabeth (Eastern Cape Province) and Durban (KwaZulu-Natal province) will also be affected. This could lead to disruptions in maintaining the 100% flow of logistics at these ports.

Alert level 3

In the midst of this continuous spread of the pandemic, the government has found itself changing regulations frequently and sometimes backtracking on some relaxations that were instituted earlier. 

In May we reported that the country had implemented an “alert 5 level” based approach with level 5 being the strictest level of lockdown leading to closure of most of the businesses; and level 1 being the most relaxed level leading to opening of almost all economic activities

On 1 June the country entered alert level 3. This saw further opening of the market for some agricultural commodities which were not considered essential at alert level 4 and 5. For example, the local market for alcoholic drinks was reopened. This brought some relief to sub-sectors such as wine industry.

On 17 June President Cyril Ramaphosa announced more improvements in opening the economy in what he termed as Advanced level 3. Under advanced level 3 restaurants are allowed to open for sit-in food and non-alcoholic drink services; accommodation services are allowed for business clients only and conferences are allowed to take place for not more than 50 participants and in line with specific COVID-19 restrictions which in essence concern social distancing, checking temperature of clients and using alcohol based sanitizer upon entry.

Though most of the South African borders remain closed for visitors, tourism industry has also opened with strong emphasis on keeping appropriate COVID-19 related restrictions.  

Advanced level 3 has therefore meant that more people have gone back to work, thereby increasing consumer buying power. Reporting on their consumer survey, through a webinar organised on  2 July, McKinsey & Company, Inc indicated that from June 2020 there has been some positive attitude towards spending among South African consumers. The survey also indicated that food is rated as a top priority among consumers. Other reports have further observed that due to uncertainty caused by COVID-19 there is tendency of consumers buying long shelf life food items.

The opening of restaurants, conference venues for business purposes and the tourism industry has generally meant expansion of market channels for agricultural products. However, COVID-19 related restrictions accompanied with the general change of consumer behavior and the fact that the South African borders are not open for tourists and other visitors, essentially means that the agricultural market is not open in full capacity. Thus advanced level 3 is more an improvement from the previous months of lockdown, than a complete liberation from negative forces of COVID-19 in the country. 

This limited opening of the market received a blow when the government backtracked on its lifting of the ban to sell alcoholic drinks at the beginning of July 2020. In his national address on 12 July 2020 President Ramaphosa told South Africa that his government has decided to again ban dispensing of alcoholic drinks unless the dispensing is done for the purposes of industrial activities such as producing hand sanitisers, disinfectants, soaps, or alcohol for industrial and household cleaning (https://www.farmersweekly.co.za/). This has worsened stress in industries such as restaurants, tourism and hospitality which were already affected by a lack of interest of consumers to visit these facilities due to fear of exposure to coronavirus. This also means that breweries like Heineken SA remain closed.

A year of plenty in the middle of COVID-19

In terms of output, the South African 2019/2020 growing season has been one of the best in the country’s primary production history, thanks to good rainfalls during this season. This is well reflected in the export market[1]. For example, estimates are showing that in 2020 the country will export 140 million tons of citrus compared to 127 million tons in 2019. For the commodities that are largely feeding the local market such as red meat, poultry, milk and potatoes producers are sitting with stockpiles that are struggling to move to the market due to the lockdown restrictions, changes in consumer choices and limited buying power of consumers.

The positive outputs from 2019/2020 season are also reflected from the fact that gross value added by the industry has grown by 27%; increased job creation which grew by 3% and increased sales in combined harvesters which grew by 14%.

Confident and resilient market

Part of the confidence of the primary producer to continue with business relies on the confidence and resilience of the off-takers and consumers. As food services were declared essential services

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[1]. Export market has remained open during all levels of COVID-19 lockdown.

even during alert level 5 of lockdown, off-takers have always continued with business. Off-takers such as RSA Market Group, the country’s biggest fresh produce agent, have even gone to the extent of expanding their operations by opening new outlets. The fresh produce markets in South Africa are an important link between producers, off-takers and distributors. All this happens under the strict observation of COVID-19 related restrictions meaning that temporary closure and thorough disinfection of some market outlets has sometimes been implemented due to identified threat of COVID-19 cases. For example, between 24 and 26 June 2020, the second biggest fresh produce market of the country, Tshwane market, based in Pretoria, Gauteng, was closed due to a case coronavirus patient identified at the market. According the CEO of the RSA Group,  Jaco Oosthuizen, this closure resulted in the loss of sales of up to R28 million Rands, (About 1 450 700 Euros).

During the first phase of lockdown informal traders could not get licenses to distribute their goods into rural areas and townships. This meant that temporarily there was a shortage of fresh food in these areas, meaning that food security was hampered. But from alert level 4, informal traders went back to business, thereby restoring access to food in poor communities, while at the same time acting as a market opportunity for the producers.

This situation is reminiscent of resilience and confidence of the industry being boosted by the fact that food is an essential service. But it also reflects that COVID-19 remains a disruption regardless of how resilient and strong the industry maybe.

The confidence and resilience of the agricultural industry in South Africa has also been boosted by other factors including:

• Continued food related export trade in midst of COVID-19
• Relaxing after initial refusal of regulations to allow informal traders to continue operating
• Use of new market systems such as food deliveries
• Extensively food parcel schemes aimed at supporting poor communities in midst of widespread loss of jobs

Reconfiguring the meeting place and time

Like most parts of the world, information and business exhibitions accompanied with targeted business to business meetings such as matchmaking are part of the agricultural development tradition of South Africa. Against this tradition, the year of 2020 is not an exception. For example earlier this year we published a number of agricultural conferences and trade shows which were scheduled to take place this year.  These conferences have now joined the list of postponed or cancelled events across the world and some have resorted to organizing virtual conferences.  

Uneven playing field

COVID-19 restrictions, loss of jobs and social distancing tendencies and policies have resulted in a situation where different food commodities are not receiving the same preference from consumers. Commodities such as tobacco and alcoholic beverages have remained victims of lockdown policies since the pandemic was declared a national disaster by the South African Government. When alert level 3 restrictions were instituted at the beginning of June, ban on selling of alcoholic drinks was lifted. On 12 June this ban was instituted again after the Department of Health had observed that alcohol related accidents and domestic abuse were highly contributing to shortage of hospital beds for COVID-19 patients.

Tobacco has not been allowed to enter the market since lockdown restrictions were instituted, resulting in unsuccessful legal challenges by the industry representative bodies to the Government.

But it is not only tobacco and alcoholic beverages that have suffered COVID-19 related challenges. During a webinar organised by the Produce Marketing Association (PMA), Chief Executive Officer of Grow Fresh Produce Agents, Hendrik Eksteen indicates that during COVID-19 period consumers have shown tendency to buy food items that have long shelf life, mainly due to the fact that they are afraid to enter retail shops and markets frequently as this increases exposure to coronavirus. For examples most consumers prefer to buy dry maize instead of large potatoes. Other food items that have received less preference from consumers are lettuce, baby marrows and apples.

Coupled with long shelf life food items are the items that are known to have positive health benefits. Citrus fruits, garlic and ginger have been found to receiving high demand both in the local and export market. Pineapples have also been in high demands mainly due to the tradition of using this fruit to produce home brewed alcoholic beverages – alcoholic drinks made from pineapples are seen as replacement of alcoholic beverages which are usually bought from retailers.

Thus the continuous spread of the pandemic and the changes in consumer preferences accompanied with logistical and management challenges in the face of COVID-19 have resulted in South Africa experiencing the lowest Agribusiness Confidence Index (ACI) since 2009. Quoted by Farmers Weekly Magazine, Wandile Sihlobo, comments that “the impact of the ongoing COVID-19 crisis on the economy had been severe. While South Africa’s agriculture sector could register an improvement in output in 2020 compared with the previous year, and also an increase in export earnings, the cloud of uncertainty around the pandemic could continue to keep the sentiment depressed. The capital investments confidence sub-index fell by six points from the first quarter of 2020 to 38 in the second quarter. The downbeat sentiment is in part due to general challenging financial conditions amid the COVID-19 pandemic.”

Budget of Department of Agriculture, Land Reform and Rural Development reduced

A recent South African Parliamentary briefing shows that the Food security, land redistribution and restitution programmes budgets have been reduced in the recent department's adjusted budget. The initial February budget allocation for the department of R16.8 billion was reduced to R14.4 billion. The greatest portion of the cuts of R1.89 billion within the department was in the programmes which deliver on food security, land redistribution and restitution. The food security programme had cuts of R939 million, land redistribution and tenure reform R544 million and land restitution R403 million. These programmes are core to achieving outcomes in food security and achieving economic transformation priority through redress and equitable access to producer support. This means mainly developing farmers are getting less support from Government for the short term. For the 2020/2021 budget year, provinces will receive lesser allocations for producer support for production and infrastructure.

In respect of land redistribution and tenure reform, the land development support was scaled down and this support would be extended to the identified 146 projects. Other applications relating to land support will only be considered in the 2021/2022 financial year. Relating to land acquisitions, new projects will not be considered and no new valuations will be conducted on land for acquiring. The current funding will only cater for current commitments.

The department's rural development budget had a cut of R199.7 million. This will negatively affect "rural social infrastructure", which includes the revitalisation of irrigation schemes. This will lead to delayed implementation of on-farm infrastructure projects.

It is not doom and gloom

Though largely a challenge for the general society and for most of the economic activities, there are areas that have been recorded as opportunities presented by COVID-19 to the South African agricultural sector. Agricultural informal traders who are selling to a large population of the country have continued to operate. There are also observations that due to loss of jobs and due to the fact that some businesses (e.g. selling of alcohol and tobacco) are not allowed to operate, there has been more new entrants in the informal food market. According to Hendrik Eksteen, this has been aided by the fact that the country’s “barriers to entry into food business are very low and thus creates enormous opportunities for any entrepreneur.”  Hendrik Eksteen, observes that most of these “new entrants will remain customers on our markets, even after COVID-19 has been forgotten. The market has become their new place of business and main source of income going forward”. On the flip side, this has meant that direct sales from the farmer to the trader has increased to the detriment of the country’s National Fresh Markets.

Loss of jobs have also meant that most of the poor communities have  to rely on charity initiatives around feeding and food distribution schemes established in response to COVID-19 by NGOs, government organisations and private companies. These schemes have served as the market channels for most of the primary products that could otherwise be sold through conventional market channels.

Additionally, there is a continuous flow of food export to neighboring countries. This market has also acted as a relief to most of the primary producers.

Basing on these developments Hendrik Eksteen concludes that, “Although there are less cash in households, people still have to eat”. This human reality, in itself, has served to keep the South African agricultural sector alive in midst of the fast growing pandemic.