Johannes Wessels: Drought’s R16bn tsunami – small, medium towns at risk

It’s government statements like these which really makes one wonder if the drought has well and truly been swept under the carpet. “We, however, have to contend with drought, which has resulted in losses worth R16 billion across the sector.” Where’s the urgency? And while northern neighbours Zimbabwe declared a State of Emergency, the South African government sits idle. Government says R1 billion has been prioritised and available to farmers through loans but even if the money’s there (reports suggest there’s only R400m), it’s a fraction of the damaged caused already. According to Johannes Wessels, it’s only going to get worse. He looks at the knock on affects of the drought, and we’re not talking about the price of goods and food security. He says it’s likely to fuel the next destructive wave of urbanisation. An interesting read. – Stuart Lowman

By Johannes Wessels*

The absence of oil well rigs confirmed we were not flying over Libya… Flying to Bloemfontein last weekend the scorched desert-scape below reminded me of the words of a German exchange student who stayed with us in Bloemfontein in 1996 when asked what impression of the Free State she would remember: “The vast stretches of brown with the green patchwork of crops”. This time the red or ash grey extended over vast fields without cultivation broken in isolated places by semi-green irrigation circles clearly showing the ground water is also under threat.

Agri SA and Grain SA have repeatedly asked for the declaration of a State of Emergency and the release of funding to assist commercial and emerging farmers to ride out the drought storm. Warnings have been streaming in from several sides: Food security is under threat.

A maize plant is seen at a field in Hoopstad, a maize-producing district in the Free State province, South Africa, in this January 13, 2016 file photo. South Africa will likely harvest 7.255 million tonnes of maize in 2016, 27 percent less than the 9.95 million tonnes reaped last year because of a scorching drought and late plantings, a government agency said on February 25, 2016. REUTERS/Siphiwe Sibeko/Files
A maize plant is seen at a field in Hoopstad, a maize-producing district in the Free State province, South Africa, in this January 13, 2016 file photo. South Africa will likely harvest 7.255 million tonnes of maize in 2016, 27 percent less than the 9.95 million tonnes reaped last year because of a scorching drought and late plantings, a government agency said on February 25, 2016. REUTERS/Siphiwe Sibeko/Files

It is over simplification to equate food security with food self-sufficiency. Singapore has food security but is far from producing within its borders all or most of the food its citizens consume. If South Africa can import food to meet shortfalls in local food production, food security is in place. Rand weakness is a risk for food affordability. Food insecurity is not caused by drought or crop failure: it is caused by bad politics.

Back to the parched earth: no-one seems to realise the systemic implications of the drought on our society.  Culling decimated herds and seeing commercial farmers losing their farms and livelihood are but one (tragic) facet of this crisis. The drought has the potential to cause a tsunami of:

  • Collapsing employment in the commercial agriculture sector
  • An implosion of the economies of small and medium sized towns in drought stricken areas, especially in the Free State, North West, Eastern Cape and Northern Cape with far reaching implications for businesses in these towns, rising unemployment in the non-agricultural sector, as well as municipal income.
  • Massive migration to the cities and major towns resulting in shanty town sprawl.

Government interventions to drill boreholes and other emergency propping up of water supply to towns as well as well-intentioned efforts by private sector to get fodder to farmers amount to wall-papering the cracks.  There is a failure to understand the economy is a system and that this crisis requires systemic interventions. Elastoplast approaches will fail.

Read also: United Nations: Drought sees 14m face hunger in Southern Africa.

As pulling a loose thread on one side of a large wall-mounted tapestry will cause distortion and even an unravelling of the tapestry on the other side, the impact of the drought on our economy will not necessarily be the worst on the farms with lost harvests, the shrinking of livestock herds, the bankruptcy of farmers and the shedding of farm labour as everyone is focusing on: The livelihoods of numerous towns (and municipalities) are about to unravel with enormous implications for employment, investment and demands on public expenditure.

The intense and long drought poses three concurrent threats to our small and medium towns:

  1. The declining expenditure patterns on businesses in small and medium towns due to lower farming income and farmers and farm workers losing their livelihoods, will be immense. Surviving farmers will also experience cash flow restrictions. The general enterprise offer in towns will decline because of lower expenditure patterns.
  2. EOSA’s database of 17 283 formal businesses in the Free State Province (covering Bloemfontein and all towns but excluding formal farming enterprises) indicate enterprises that serve commercial agriculture (e.g. fertilizer suppliers, aerial crop dusting, commercial harvesting services, veterinary surgeons, irrigation consultants, marketing agents) form in several municipalities 1 out of 8 formal businesses.  EOSA classify those businesses in a sector as “Agricultural products and services” (APS). A decline in commercial agriculture directly threatens the existence of these enterprises. Local municipalities in the Free State that are extremely exposed to this decimation of enterprises (% of APS enterprises in brackets) include Nala LM (17.2%), Nketoane LM (13.6%), Kopanong LM (12.8%), Masilonyana LM (12.7%), Letsemeng LM (12.6%) and Mafube LM (12.4%).
  3. In addition to enterprises of the APS category, substantial businesses are built on processing locally produced agricultural products (e.g. dairies, milling, production of animal feeds, etc.) The “processors” do not depend on local consumers (the local farmers) but adds value to transform locally produced agricultural commodities into an advanced intermediate or final products, e.g. sundried tomatoes, canned asparagus, chorizo sausages.  These enterprises therefore improve the flow of money from outside into these localities.

All those businesses will not only shed labour through closure or down-scaling, their declining expenditure on IT services, stationery, fuel, rates and service payments in the towns will hurt private sector and further threaten the already bleak income streams of several municipalities.

Through a clustering process EOSA can identify the specific towns where the impact of the drought on the enterprise offer in towns has the highest risk. In the case of the Free State towns in Cluster 3 enterprises in the APS sector form 18% or more of the enterprise offer in that town. The towns in that cluster are Bothaville, Viljoenskroon, Hoopstad, Bultfontein, Clocolan, Reddersburg, Petrusburg and Hertzogville.

FS Clusters Agric Prod Services 2013

Towns in the Eastern Cape where APS sector enterprises form more than 18% of the total local enterprise offer in the towns are Somerset East, Middelburg, Aberdeen, Hofmeyr, Steynsburg and Jansenville.

Read also: Fanie Brink: Worst drought in 20+ years. Food crisis imminent.

A 2014 Monitor Survey of 720 firms in the Free State also indicated that both the APS and Processor enterprises had substantially higher average turnover per firm than the sample average. The next Figure shows that in the case of the APS sector just over 40% of firms had an annual turnover exceeding R20million with Processors having 12.1% of firms in that turnover category. For the whole sample comprising firms of all 19 sectors only 9.5% of firms had an annual turnover exceeding R20 million.

The negative financial impact on the towns will therefore be immense.

Figure for Dought 1  Enterprise urnover categories in FS towns

The declining income and prospects in such towns will fuel a next wave of urbanisation increasing the pressure on the larger towns and cities. With a large number of new entrants into the cities and large towns unskilled for the modern sector, the prospects of these incumbents landing more than the occasional piece job are grim.

The drought in all likelihood will yield a bumper harvest of growing informal settlements, a substantial increase in demand for social grants and undermine the economic livelihood of a large range of towns and municipalities.

  • Johannes Wessels, director at EOSA (Enterprise observatory of South Africa)