Drought Made 2016 a Tough Year for Framers

30/12/2016

By Hamlet Hlomendlini: Senior Economist- Agri SA

Enquires: (012 643 3400, hamlet@agrisa.co.za)

2016 was particularly tough for South African farmers and will be remembered as such as the country
came face-to-face for the second consecutive year with one of the severest droughts since 1904.
Extremely high temperatures were experienced towards the end of 2015 and at the beginning of 2016
hampering planting for the 2015/16 season and resulting in total crop failure for some of those
farmers that we able to plant.

It is for this reason that 2016 is going down as another year of below average agricultural production
output. It is in 2016 where the impact of drought clearly manifested itself as the cultivated area and
crop yields significantly declined, while thousands of livestock died helplessly.

The economic impact of drought was also clearly visible as profitability, solvency and liquidity position
of many farming operations was adversely affected and in some instances pushing some farmers out
of the farming business for good. It is estimated that more 15 000 farmers (mostly emerging
commercial farmers) have surrendered their farms to their financial institutions for auctioning as they
can no longer afford to make their credit and loan repayment. The African Farmers Association of
South Africa (AFASA) in the Northern Cape, indicated that over 30 farmers they represent have quit
the farming sector.

In 2016, farmers’ debt with South African banks climbed above R125 billion, the highest-ever debt
recorded against farmers. Undoubtedly, the impact of drought has placed many farmers under
financial and cash flow strains. On the other hand, due to lower crop yields, South Africa has for the
first time in many years become a net importer of maize and this has negatively affect its agricultural
trade balance. Crop enterprises such as maize and sugar, which normally contribute to the sector’s
positive trade balance, have shifted to a negative net trade position in 2016.
It was estimated that maize production this year will shrink by 28% to 7.1 million tonnes in the 2016/17
season, from 9 million tonnes harvested in the 2015/16 season (which end in April). It was further
estimated that to meet the country’s consumption requirements up to 3 million tonnes of maize
would have to imported by the end 2016. As of November 2016, only about 1.95 million tonnes
(approximately 65% of the estimated figure) of maize had been imported since May, mostly yellow
maize from Argentina, while white maize imports largely originated from Mexico and USA.

Livestock farming was also dealt a huge blow as farmers were forced to sell their animal impetuously
to abattoirs, or else watch them die helplessly. Slaughter rate went up considerably (compared to the
previous years) during October to January 2015/16. Slaughter rates of 23% (cattle), 37% (sheep) and
12% (pigs) were reported during this period. On the other hand, pictures of thousands of dead animals
(mostly cattle) became an “everyday” sight on most of our media platforms. It is those pictures that
stirred up emotions of many people in different organisations and from all walks of life and compelled
them to partner with Agri SA and raised R16 million drought fund at the end of July 2016 which was
distributed amongst the severely affected farming communities in all the country’s 9 provinces to ease
the impact.

Drought is a naturally occurring part of the weather cycle and cannot be prevented, however, it is very
hard not to blame government for not responding immediately to calls made by organised agriculture
to assist farmers. Government has been very aggressive in its approach to bail out poorly managed
State Owned Enterprises like SAA and Sanral and others. For instance, SAA made a loss of more than
R4 billion in one year, and Government granted them a R5 billion state guarantee—yet farmers, who
for the last 10 years made a net tax contribution of about R50 billion are to some extent side-lined
even at the worst challenging time of their lives. Perhaps the impact of drought on agriculture could
have been minimised and many farmers could still be in business had the government responded with
the same urgency and aggressiveness as they usually do when SOEs need to be bailed out.

Throughout 2016, Agri SA made various submissions to government on what is needed to support
farmers ease the impact of drought and to ensure they continue crop production in the coming
season. Government made funds available mainly for fodder up to now and apparently about R500
million was voted for drought relief in the recent medium budget. Whether this fund was allocated as
efficiently as possible is debatable. On the positive side, Agri SA had engagement with the Department
of Agriculture, Forestry and Fisheries (DAFF) between October and November, again discussing what
could be done to assist farmers deal with the after effects of drought. The good thing about this
engagement is that it was called by the government which raised the hope that they will have a serious
look as to what can be done.
Positives: While 2016 was on average a bad year for agriculture in South Africa, it was not entirely all
doom and gloom. Despite challenging circumstances, the agricultural sector showed job gains during
2016 compared to other sectors of the economy—reinforcing the importance of the sector to the
economy.

2017 promises to be a good year for farmers: 2017 promises to be a good year for farmers. This is in
light of good rains that have fallen over large parts of the maize producing areas since October 2016.
This has to a greater extent encouraged planting which already started in October. In some parts of
the country, planting is in fact complete and in some, maize has started growing.

Although at the early of the season, the 2017 production outlook is positive compared the 2016
output. Some estimates suggest that aggregate maize output will reach 12 million tonnes in 2016/17
season. On average South Africa per season produces between 11.5 million 12 million tonnes of maize
under normal weather conditions. However, at the wake of the worst drought ever recorded, it is
rather a bit optimistic to expect that maize output will reach the roof of the its per season average
output. A likely achievable figure is between 11 million and 11.5 million tonnes for the current season.
This will however improve significantly in the 2017/18 season provided the weather condition remain
favourable.

Livestock farmers have already started rebuilding their livestock herds. Although, it will take up to 3
for some farmers to fully build their herds, improved weather conditions bring about hope that
pastures will grow, water reservoirs will be filled and no animal will die helplessly in 2017.

On the consumption side, a good year for agriculture means a good year for consumers. Usually a
good agricultural year is followed by a drop in food prices. 2017 is likely to bring about lower food
prices provided that global shocks like oil prices and other micro economic variables remain
favourable.