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Review of Agricultural policies in South Africa

Review of Agricultural policies in South Africa. Václav Vojtech Directorate for Food, Agriculture, and Fisheries. Pretoria, 19 April 2006. Overall situation. Largest African economy, highest GDP per capita Highly unequal income distribution

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Review of Agricultural policies in South Africa

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  1. Review of Agricultural policies in South Africa Václav Vojtech Directorate for Food, Agriculture, and Fisheries Pretoria, 19 April 2006

  2. Overall situation • Largest African economy, highest GDP per capita • Highly unequal income distribution • Dual economy, high contrasts in infrastructure developments • High levels of unemployment and poverty • Large low skilled population and HIV/AIDS are major constraints to growth

  3. Important policy reforms • Highly regulated economy … • … was partly liberalised in the 1980s and early 1990s • Economic reforms completed after 1994 • Reforms also addressed social injustices, inequity and poverty (Black empowerment, Land reform) • Decentralisation of state administration

  4. Macroeconomic reforms • Price and market liberalisation • Tight monetary and fiscal policies provided stability • Increase in real interest rates and floating exchange rate • The economy is more open to world markets but is still vulnerable to outside shocks • Reforms did not succeed to bring the high level of unemployment down

  5. Agricultural situation • Primary agriculture is 4% of GDP and 10% of reported official employment • Potentially arable land and water resources are limited and unevenly geographically distributed • Highly dualistic nature of farming

  6. Development of agricultural production(Index 1990=100)

  7. South Africa agro-food trade • 30% of production exported • … mainly wine, fruits and vegetables, sugar, and maize • Europe main destination for exports, followed by Africa and Asia • Imports distributed more evenly

  8. South African agricultural exports and imports(million USD, constant 2000 prices)

  9. Reform of agricultural policies • First reforms in the 1980s and early 1990s • From self-sufficiency to a more open economy • Deregulation of the marketing of agricultural production • Foreign trade deregulation • Reduction of support to agriculture • Shift in budgetary support from commercial farming to the development of small scale farming

  10. Effect of Policy reforms • Difficult period of adjustment • South African agricultural industry less dependent on state support • More internationally competitive

  11. Land reform policies • Redress past injustices, more equitable distribution of land, alleviate poverty in rural areas, efficient farming sector • Three main elements of Land reform (land restitution, land redistribution and land tenure reform) • Development of programmes supporting land redistribution

  12. Trends in producer support • 1990s: decline in market price support, budgetary payments • 2000s: increasing budgetary support, variations in market price support • Rising expenditure on general services

  13. Support to agriculture • Low relative to OECD member countries; similar to Brazil, China, Russia and Australia • MPS major component due to border measures • High variation across commodities – high support for sugar (above average support also for milk and sheep meat). • Relative cost to economy: half of OECD average

  14. PSE by country, 2000-03 average(% of gross farm receipts)

  15. South AfricaComposition of PSE, 1994-2003

  16. South AfricaPSE by commodity, 2001-03 average(% of gross farm receipts) average %PSE5%

  17. Composition of TSE in South Africa General Services Support Estimate Producer Support Estimate

  18. Market access barriers to SA agricultural exports • South Africa is a large exporter of wine, fruits and sugar. • Trade in wine and fresh fruits is strongly oriented to the EU market, with varying levels of protection • The preferences don’t exclude SA from seasonal elevation of tariff barriers • The sugar sector is one of the most protected and distorted in the OECD area.

  19. Welfare impacts of trade and agricultural domestic policy reforms • SA benefits from global liberalisation • … one third of total welfare gains are from agricultural liberalisation • ... most of which comes from liberalisation of OECD agricultural policies • There is evidence of redistribution both between racial groups and provinces

  20. Policy challenges and recommendations • Achieving higher and sustained economic growth is crucial for improvement in rural areas • Increased farm competitiveness is essential to respond effectively to more open markets • Development of rural and social infrastructure

  21. Policy challenges and recommendations (cont.) • Income diversification are key to addressing rural poverty • Policies to increase participation in the rural economy • Land reform is facing implementation challenges • Development of a viable small scale commercial agriculture

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