26 August 2020
At a time when most industries will be reducing employment, it is hoped that agriculture will at least maintain employment in primary activities.
Agriculture has kept its employment levels up because by nature it is a labour-intensive sector, employing nearly 900 000 people in South Africa directly. In fact, there are many agricultural industries, such as fruit exporters, that are currently increasing employment, albeit seasonal work.
Another reason that agriculture deserves recognition is that on a commercial level, it is a strong employment multiplier. This assists in alleviating poverty and even helps in the establishment of new businesses and investment.
Lessons from a crisis
It is well documented that food production and availability is strategically crucial to any country, but the coronavirus disease (COVID- 19) crisis has also shown the importance of being food-secure; that is, being able to produce the bulk of the country’s staple food requirements.
What is key is not just the production of food, but the logistics and supply chain to make this food available at affordable prices throughout a population. In this regard, the role of the informal sector has recently been illuminated.
There is a complex supply chain in the informal sector, the importance of which is becoming apparent. In this respect, future partnerships between formal producers/networks and the informal sector may become increasingly necessary.
Another lesson from the COVID-19 crisis is that food consumption patterns will most likely change in many African countries. Due to economic hardship, it is expected that expenditure will increasingly be aimed at basic foodstuffs, and more expensive food will, on aggregate, represent a smaller portion of the expenditure basket.
This is not an economic benefit, of course, but a logical result of economic recession.
The phenomenon will be seen particularly in developing economies. Where countries are not self-sufficient in staples, exchange rate depreciation will make imported food much more expensive. This makes the production of affordable staple food such a strategic imperative.
Profits for fruit exporters
In richer countries and regions, such as Europe and the US, the demand for fresh fruit has increased dramatically, and strong price effects have been seen. There are varied reasons for this, but one is the renewed appreciation of the importance of a healthy diet.
Another factor has been smaller harvests in other exporting countries, which have created opportunities for South African produce.
For exporters, currency depreciation is positive over the short term. In South Africa, the rand has depreciated more than 20% over the past 30 days.
Fruit exporters, specifically, will see the benefit of this over the next 12 months. It is expected that profits over the next six to 12 months will be particularly good, assuming that the logistics chain is not dramatically disrupted.
A depreciated currency also makes exported goods more competitive on international markets.
Over the long term, however, the impact on exports will not remain positive, as most of the inputs in the agricultural value chain, including fertilisers, pesticides, shipping costs, machinery and fuel, are US dollar-based. Diminishing and negative returns tend to be seen beyond a certain level of depreciation.
For countries reliant on food imports, currency depreciation will add enormously to the fiscal burden. This is because imported food will become more expensive, and with government finances under stress due to increasing unemployment, food dependence will increase in these countries.
Due to poverty, the inability to produce enough food and the need to avoid reliance on expensive food imports, governments will have to relook at agricultural policy and strategy.
With many people in Africa involved in subsistence and small-scale farming, programmes to increase yields and the use of technology will have to be intensified, and new strategies will need to be implemented.
Agriculture, like any investment, requires sound regulations and policy consistency. In this respect, agricultural and trade policy must be aimed at increasing trade and the mobility of goods between countries.
The stimulation of export industries will be increasingly important. There is still much room for agricultural export development in African countries, and governments should encourage activities that can assist with staple food production.
It is also important to reduce red tape, and over-regulation must be liberalised wherever it occurs. Governments and development agencies will have to find a balance in policy to achieve two objectives: first, increasing food security by producing more staples locally, and second, stimulating the production of exported products to increase GDP and currency earnings.
The road ahead
It is accepted as a universal truth in agricultural production that technology and investment will become even more important, and the necessity of utilising technology in agriculture is unquestioned. Governments will have to attract and lock in the private sector to assist with this, because public- private partnerships are proving to be the most feasible way to achieve this.
To take advantage of opportunities in agriculture, particularly in the post-COVID-19 era, businesses need to take several lessons to heart. The first is the need to maintain a strong balance sheet that can sustain agricultural operations in uncertain and stressed environments. This means ensuring that the business has manageable (lower) gearing and leverage.
A strong balance sheet gives a business financial flexibility and the ability to absorb shocks. Many businesses that are now failing are likely to have had weak balance sheets, preventing financial institutions from assisting them.
Another important lesson is to appreciate the need for risk management. Businesses need risk strategies for various reasons, such as what to do to prevent employees from becoming ill, and how to react when they do.
The worst thing that can happen to a fruit packhouse right now is for it to be closed due to employees falling ill. Similarly, if a business has foreign exchange exposure, it needs a risk strategy or a policy that includes hedging.
A business also needs to look at its logistics as part of risk management and its ability to keep on doing business. For example, is there an alternative plan if a transporter cannot transport employees or produce?
Lastly, employee relations are of the utmost importance. When a shock of the magnitude of COVID- 19 occurs, you need your employees to support you. This will only happen if you have had consistently good and fair strategies in the past regarding remuneration, working conditions, treatment of staff, and communication and leadership.
Source: Farmer’s Weekly