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With South Africa’s agricultural sector having experienced its driest year since records started in 1904, farmers have the backs very much against the wall. Overlay years of anti-business sentiment and the national food security concerns loom large. Dr John Purchase, CEO of the Agricultural Business Chamber reckons there were green shoots of hope in Budget 2016 as Pravin Gordhan confirmed the new direction which appears to becoming entrenched. But as with SA business generally, he believes that although what was contained in the speech is a move in the right direction it will take time – 12 to 24 months – and execution of proposed changes for trust to be rebuilt.
This special podcast is brought to you by BrightRock, and on the line now is Dr John Purchase from Agbiz. John, did the Budget go far enough for you?
Yes, Alec. Perhaps not totally far enough as we would have liked it but there was a lot of mention of agriculture, more on the smallholder side and then specifically also on agro-processing, which is encouraging. Then also on trade facilitation, which would also impact on the agriculture sector, especially in exports into Africa. There was generally quite a bit of positive news. We also liked the general trend or the new direction that Minister Gordhan spoke of, we sort of expected it and we believe it’s a move in the right direction. We’re just not sure about how well this is going to be implemented. In other words, the action that he said was necessary, if he would get full support and efficient support from the Departments. Also on the drought, he mentioned it two or three times, but didn’t commit any real figures to that. Saying that National Treasury would look at how the drought develops and pans out and then act. He would then look at what is necessary for some relief and recovery from the drought but there was no figure committed to that, so we expected it to be very, flexible around that and that is how it panned out.
Just maybe unpack that drought a little bit for us now. We hear that it is the worst in 104 years or since 1904, some people say. Could you give us some insight into when last South Africa had a drought like this and what the impact was then and likely to be now?
Yes, so if you look at the South African weather bureaus and weather services figures on drought. They started keeping reliable records from 1904, so this is the worst drought, or 2015 was the driest year on record, in South Africa, since records have been kept (since 1904). This very dry 2015 was also preceded by three-years of below average rainfall so obviously, it’s just compounded the effect of the drought. The drought is very, serious and specifically in the Free State and in the North-West Province, and in some of the other Provinces, but those two Provinces, I would guess are the hardest hit. It is very difficult at this stage to determine exactly what the impact is going to be because there are still some crops in the field and if it does rain within the next week or so, there could still be some yields and production in some of those areas. In more or less, in a month to two months time we will have a better idea of what immediate impact is of that drought. Obviously, the other effect is also on the livestock industry and they’ve run out of feed, and in many cases, also running out of water, drinking water, for their livestock, and that is, also a major concern for them. They are going into the dry season, with winter approaching, and feed is going to be very scarce. A lot of farmers are cutting down on their herds at the moment and just keeping a nucleus herd, just so that they can build up their livestock herds once it starts raining, hopefully at the end of this year, with the onset of the new season, around October/November.
Given that the farming community is not traditionally supporters of the ANC Government, was there a feeling from you and you did mention a new direction that perhaps those differences are being set aside and that because of the crisis even the Government that doesn’t generally support them would in this case.
Yes, it does seem as though they are considering it. I think what we would need to do from organised Agri Business and organised Agriculture is to come up with viable plans and measures that can support the industry because it is also in Government’s interest to ensure that we recover from this drought as soon as possible. Then you get surplus production of food, then prices fall to export parity and that enhances our food security, and it keeps farm workers employed, etcetera, so Government will have to also, see what’s in it for them. There is much in it for them if they do the right interventions, into the industry, at the right time, at the right place.
So what’s this new direction that you were talking about? Is that specifically that what you heard today from Pravin Gordhan?
Yes, in the Budget Speech and now I’m talking more macro-economically. He alluded to it, right in the beginning saying that he has to be frank and that our economy is battling. Not just because of the global economy battling but, also because of structural problems in our economy. He indicated that we would need a new direction, a new business direction, and this follows on the meeting of business in general, the CEOs, etcetera, meeting with him and with President Zuma, to charter a new way for private sector and bringing into play the MDP much, more strongly. I think he referred to the MDP and the principles of the MDP considerably in his Budget Speech. Generally, from organised business we welcome that approach for the simple reason that the MDP is what we perceive as an open competitive markets document. Its principles are generally based on an e-market system that we subscribe to, so I think that, to us there are some positive elements, certainly that came out of the Budget Speech.
One of the issues that Pravin Gordhan did mention in the press conference during our lockup was a concern that has been brought to him about policy uncertainty. I guess if you’re in the farming industry that would be also paramount in your mind. Is there anything being done there to let farmers know that the uncertainty is at least being addressed?
Yes, I think that is a very, relevant point. We have been raising this with Government at numerous levels, whether it is at NEDLAC or with the Directory Departments of Agriculture, Forestry, and Fisheries, but specifically also within rural development and land reform because much of the policy uncertainty is around land reform and water reform. Labour issues but it is only around land and water reform, and we need far more clarity on those issues. Government themselves have recognised this as a problem. Minister Gordhan also mentioned, very specifically mentioned that there’s a Task Team under Minister Jeff Radebe that’s looking through their SEIA team (the Socio Economic Impact Assessment Team) at some of these unintended consequences and policy uncertainty issues. We welcome that because it is a huge deterrent, in terms of investment into this sector – by farmers and by industry in general. A lot of work will have to go into that because it’s a major factor.
When you take the Budget overall, are you feeling that it’s a positive, a step forward for the farming community?
For the commercial, sector not so much. It will depend on what happens with the droughts relief and recovery plan that they come up with. In fact, there was some negatives and it’s usually for the commercial agriculture sector. In that capital gain stats have been increased by, I think from 20 percent to 25 percent, so that is quite a steep increase and that affects sales of farms, etcetera. There are some negative things too and I think the Estate Duty is also going up, so there are some negative things. Obviously, the Budget is aimed more at the pro-poor and taxing the relatively wealthy, if I can put it that way. There are some concerns for the commercial sector, in terms of whether it would attract the necessary investment to grow the sector. Generally, overall, if you look at the bigger picture I think, generally, I’m fairly, happy with the Budget. One can complain on a couple of things but I think the emphasis on agro processing, generally on agriculture, and looking at the NDP as the basis for much of the development. Moving more towards a more, business friendly environment – I think that is the right direction. How it is going to now translate into action and implementation from Government – well, I think the jury is still out on that and that’s going to be the critical one. It is all good and well, saying that we’re going this way but to regain the trust of investors, both local and foreign investors, is going to take time. You’ve got to build that trust through actions and implementation and that is going to be a 12 to, at least, 24-month process, to really, regain the trust of the international investors, local investors, and etcetera to say yes, now we’re on the right path with our economy. I think the capacity and the potential is there for us to go in that direction. From business side he also alluded to working groups that have been established out of these engagements with private sector, captains of industry, and we’re already engaging on the agriculture side, or the agro value chain, agro food, value chain grouping. There’s already a grouping, that’s been established for that, so yes, we are hopeful that even within those engagements, we can create a better environment for agriculture and agro business to prosper in.
I guess if I was to summarise it all, and I’d like to get your view on this. The person who was thinking of selling his farm before the Budget might hold off a little bit longer. He’s not over the moon yet but he could see some hope.
I personally think that yes, there is a bit more hope. My sense is that it is more investor friendly and it’s more agriculture friendly, but one will have to see the detail from the different Departments. There are so many, different Government Departments that impact on agriculture. The Department of Agriculture, oddly enough is where the least impact is. It is more the Department of Rural Development, and Land Reform, the Department of Trade and Industry, the Department of Water and Sanitation, the Department of Labour. All these Departments, with their policies and legislation impact on the agriculture environment. It is all going to depend on how this holistic picture is translated into an investor friendly environment for the broader sector.
So if Business is no longer perceived as the enemy, as somebody put it a little earlier today to me, then we might be moving in the right direction?
Exactly, and that perception of Business being the enemy – I’ve heard and Government officials have said that Business is the enemy, and they were serious. We’ve got to change that mindset and that is what the new direction must entail. If it does not entail that well, then we’re back to square one and we’ll continue on the slide that we’ve been seeing over the past number of years.
It’s going to take time, as you say John but at least it is a move in the right direction. Your organisation, Agbiz, how many people do you represent and what do you think the mood is going to be amongst them?
Yes, Alec we represent approximately 90 members. It is not the farmers, it is those businesses that provide services and products to the farmer, and take product off from the farmer trade, process store, and it is across many value chains. Whether its grains, wines, fruit, meats, and poultry – it’s across all the value chains and it includes the four major commercial banks, involved in the agriculture sector. All the insurance companies, DFI’s, like Nam Bank and IDC. The total turnover of our membership is well over R350bn, which is a sizeable chunk in the economy. Yes, we play a very, important role in food security in South Africa, and in business, general.
What do you think, generally, when you get to your next meeting, and all your team, all the guys are sitting around the table. What do you think they’re going to be feeling? A little bit more hopeful. A little bit more…
I think, yes, they will definitely be a little bit more upbeat. It is also so that we are engaging with DTI and on a new path, also in terms of agro processing. This is quite positive and at our next meeting, we are engaging specifically with DTI. I think we are seeing some of these moves already, from certain departments, and this is fairly, positive but I don’t want to just, say. I also want to see their actions. I also want to see the implementation of the vision that was given to us today. That is going to be critical in building that trust and then building that investor confidence.
Dr John Purchase is with Agbiz and this special podcast on Budget 2016 was brought to you by BrightRock.
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