In 2020 the South African economy contracted by 7%. It was a record, and not the kind that you want against your name. With global lockdowns and almost all sectors disrupted, growth was in short supply.
In that same year, however, South Africa’s agriculture sector contributed positively to the country’s gross domestic product by growing 13,4%. In 2021, the year-on-year increase was another 8,3%. Throughout the two difficult Covid-19 years, agriculture has been supporting South Africa through economic shocks.
Those same exports, however, became tricky as the pandemic impacted on global logistics and just as the world seemed poised to take a deep breath and soldier on after theCovid-19 pandemic, Russia invaded Ukraine.
For the agriculture sector, the conflict has immediate and significant impacts.
‘About 8% of our citrus goes to Russia; that is 11 million cartons,’ says John Hudson, national head at Nedbank AgriBusiness. ‘For pears and apples, it’s about five million cartons – so Russia is definitely an important [contributor to] demand.’
And hanging over all of this is the pressing challenge of climate change and how that could impact South Africa’s agricultural production capacity.
Hudson, however, believes that there is hope and says that Nedbank AgriBusiness sees positive signs of the sector already starting to adapt in order to head off some of the impacts of climate change. He also believes that the sector will pull through the challenges brought about by the invasion of Ukraine by Russia, and could show positive growth, albeit slight, in this year as well.
‘As a country, and certainly as a sector, we are quite resilient,’ says Hudson. ‘One of our strengths as the South African agriculture sector is our ability to deal really well with change and unforeseen events.’
Hudson argues that the lack of subsidies and government backing over many years has actually set the sector up for sustainability in the face of uncertainty.
Market disruptions due to Ukraine crisis
The repercussions of the Eastern European conflict can already be felt in higher fuel prices and, of particular concern for the agricultural sector, in fertiliser prices. It will also filter through into food prices.
‘We are talking about disruption in a region that supplies 14% of the world’s wheat production,’ says Hudson, and this will also work its way into increased food prices such as bread.
Some players in the sector will benefit – notably those that are producing maize, wheat, sunflowers or soya, says Hudson. ‘You stand to do well if you are producing what the world will need to make up for the shortfall,’ he says.
The most worrying aspect, says Hudson, is how the indirect impact of the crisis will hit the poorest of the poor.
Producers could still look at import substitution or finding new markets for the fruit that was planned for Russia, but the inflationary pressure (in particular food price inflation) will cause suffering for the part of the population that is already going to bed hungry.
An IPSOS study conducted in 2020 showed that during the height of the Covid-19 restrictions, 40% of South Africans went hungry. Rising food prices will exacerbate the situation even more.
Climate change finally becomes business risk
On the environmental front, Hudson points out that there has been a shift in how the agri-sector views climate change – from something that is a concern, but perhaps not pressing, to a serious business risk that must be addressed with urgency.
Until recently, Hudson argues, the producers would acknowledge the existence of climate change, but would often have a more urgent focus, ie, expanding an orchard or building a pack house.
‘What we are seeing now, is that farmers have started listing it as one of their biggest business risks. And that is a game changer. Now we see evidence of the sector understanding that not addressing it would be their downfall,’ he says.
As an institutional lender to the sector, Nedbank AgriBusiness has witnessed demand for loans in this space increase.
‘We are seeing much higher demand on our side for climate-friendly water and energy solutions. We have funded many ground-mounted, floating and roof-mounted solar installations in the recent past,’ he says.
The load-shedding schedule over the past year was obviously a contributing factor. Feedback from some of the loan recipients confirms that renewable energy, which will have a positive impact on the environment, is now seen as a necessity for security of supply and combating rising electricity costs.
Every little bit helps
Nedbank, through its partnerships, is also playing an important role in raising awareness around climate change and the dangers of a loss of biodiversity. It also supports various initiatives that actively combat the impact of climate change.
‘Our relationship with nature is broken. We are seeing more and more evidence of it, every day,’ says Hudson. The World Wildlife Fund’s Global Living Planet Index has measured an alarming average drop of 68% since 1970 in the population sizes of mammals, birds, fish, amphibians, and reptiles, for example.
‘Biodiversity is an important factor for, among other things, soil health. It is such a major factor in terms of regenerative agriculture,’ says Hudson.
‘We are seeing a lot of good work being done in that space through our partnerships with, for example, the Greenpop Foundation and The Bee Effect.’
While the impact of Covid-19, the advent of the Ukraine crisis and climate change may seem daunting, forming a dark cloud over the road to the future, Hudson is still optimistic.
‘Yes, 2022 just got tricker, but as a country we have the strength to get through this. The last two years have also emphasised the importance of agriculture to the rest of the country and for the economy, and I think that is very positive,’ he says.
Brought to you by Nedbank Agri.
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