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Agricultural trade and employment in South Africa

The linkages between agricultural trade and employment in South Africa have to be assessed against the background of the significant agricultural reform process over the last ten to twelve years as well as the legacy of the policies and resulting institutional framework inherited from the apartheid era. By the late 1970s the racial segregation of South African agriculture was complete, subsidization of commercial farming peaked and the productive base of the farming sector in the homelands ceased to provide any meaningful income opportunities to all but a handful of farmers. By the end of the 1990s, the deregulation of domestic agricultural markets as well as the liberalisation of trade was all but complete.

However, despite reformist policies such as land reform and institutional restructuring, the sector remained divided: on the one hand, commercial (largely white) farmers faming on privately owned land, and on the other hand, small-scale subsistence (exclusively black) farmers in the communal areas. There are fewer than 40 000 commercial farms overall. While fewer than 2 500 farmers produce more than half the total output, well over 1.2 million are subsistence farmers. The latter represent a wide range of farming systems, with a few commercial farmers and mostly homestead gardens.

Where employment data for agriculture do exist, it is almost always for the commercial farmers only. This, combined with the poor quality of employment data, complicates analysis of the linkages between reform and employment in the sector. The principal policy dilemma in this case is that reforms designed to improve productivity in agriculture are at odds with the policy of trying to decrease rural unemployment and, thus, poverty.

Other reforms in the post-apartheid era have included the introduction of minimum wages and improved employment conditions for farm workers; the deregulation of the Control Boards that were responsible for interventions in the agricultural market; substantial liberalisation of international trade; and the withdrawal of a large proportion of the farmer support services provided to commercial and small-scale farmers alike.

While these reforms took place after South Africa became a signatory to the Marrakech Agreement, the country unilaterally lowered most of its tariffs in agriculture to well below the bound rates of the Agreement on Agriculture. There are two consequences of the comprehensive shifts in policy that are important: the change in the agricultural production portfolio of the country and the shift in trade patterns.

Since 1965-67 animal production has generally maintained its relative share of total agricultural production (40%) and, given the nature of South Africa?s agricultural resources with only some 17% of the available agricultural land suitable for cultivation, this is to be expected. However, the relative share of different kinds of animal products has shifted over this period, with the production and consumption of red meat stagnating and being replaced by the increasing production of poultry meat. Horticulture has increased its share of production by 10 percentage points to 27% at the expense of field crops (with historical highs of 49.5% in 1980 and historical lows of 24.1% in2005). This increased horticultural production is especially apparent in the case of fruit and wines that experienced exceptional growth.

It is the demand-pull from an increase in exports of horticultural products that is driving the relatively faster growth in their production. This, in turn, has influenced the agricultural trade balance of the country, although it is a striking feature of South African agricultural exports that there have been limited overall changes in its export portfolio and destination for several decades. Conversely, equally influential on the other side of the agricultural trade balance has been the dramatic increase in soybean-oil cake for poultry feed: from ZAR 195 million in 1996 through to ZAR 2.4 billion in 2010.

While the employment levels are notoriously difficult to enumerate, (given the presence of seasonal labour, etc.), the trend is unambiguous: agriculture has shed about a million workers over the past four decades. Employment on farms fell by 50% or 800 000 workers from 1968 to 2003 in the period prior to democratization and the significant agricultural reforms. Nevertheless, since 2003 almost another 200 000 employment opportunities have been lost in primary agriculture. There are some signs of improvement, but many of the newly created employment opportunities are limited to seasonal workers during harvest in the orchards and vineyards and, thus, remain volatile.

One encouraging feature is that the hiring and firing patterns seem to be gender neutral.

Reviews of the linkages between trade liberalisation and poverty reduction in South Africa have attracted considerable attention over recent years. There are no conclusive answers except that liberalisation alone was not sufficient to reduce unemployment and poverty, especially not amongst the unskilled and rural poor. This is partly because the poor are largely disconnected from the formal sector, partly because economic and export growth has not created employment anyway and finally, because liberalisation is still seen as incomplete by some.

The recent initiative of South Africa's Trade Policy and Strategy Framework identifies the government's major national development goals as, inter alia, employment creation, economic growth, poverty reduction, industrial development and restructuring, and the promotion of high value-added exports. However, the key question about the impact of trade liberalisation on growth, employment and poverty is a complex and largely unanswered one. The process of trade liberalisation is well-documented and straightforward. The extent of liberalisation is equally well-documented, but not universally accepted.

Most difficult to assess has been the impact of trade liberalisation in South Africa on trade, employment, prices and productivity, and this is especially true for assessing the impact of trade liberalisation on growth and poverty. Researchers have argued that the political economy questions surrounding the distortions created by the apartheid era are particularly important for the rural sector where production became increasingly capital- and skill-intensive following liberalisation (contrary to the initial expectations that there would be an increase in employment of the abundant low-skilled labour).

This paper uses two different computer models to assess the impact of liberalisation on employment in the agricultural sector. While they are different, with different underlying assumptions and structures, they both indicate a positive relationship between liberalisation and employment in the sector, in contrast to the empirical evidence over recent years. Perhaps the post-apartheid adjustment has largely taken place in the agricultural sector and, therefore, the past may not be an accurate indicator of the future in South African agriculture.

The GTAP model suggests increases in agricultural employment in the primary sector of around 1% and of 1.5% in the secondary sector. This is in response to general output price increases of around 0.5% in the agricultural sector. The PROVIDE model also gives an employment increase of 1.5%, based upon the latest numbers of persons employed in agriculture. Importantly this job increase is orientated towards females and the increase in non-white household income is double that of white household income.

*  Executive summary to:  Sandrey, R. et al. (2011), “Agricultural Trade and Employment in South Africa”, OECD Trade Policy Working Papers, No. 130, OECD Publishing. http://dx.doi.org/10.1787/5kg3nh58nvq1-en

Background documentation of the Global Forum on Trade, November 2011

A. Working papers of the ICITE

B. Related documents on Trade issues

A. Working papers of the ICITE

Date: 
1 November 2011
Source:
OECD
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