Overcoming Backward Capitalism in Rural South Africa? The Example of the Eastern Cape

The Performance of South Africa’s Agricultural Sector

Like macroeconomic failure, agricultural failure is seldom emphasised in assessments published by mainstream economists. One is more likely to encounters claims such as: ‘The commercial agricultural sector adapted well to the policy reforms and liberalisation efforts’, resulting in ‘an acceleration in the establishment of new enterprises in agriculture and downstream food processing sectors and foreign trade’ as the agricultural industry became ‘internationally more competitive’ (OECD, 2006:11, 17; OECD, 2013:4). Similarly, the Fifteen-Year Review for The Presidency has claimed that:

Widespread domestic and international market liberalisation, introduced in the early 1990s, has had a strong, catalytic effect on commercial agricultural production […] Physical output increased from around 18 million metric tons in 1975 to 28 million tons in 2006. This absolute increase in the volume of agricultural production has played a role in the development of the country’s manufacturing sector’ (Tregurtha et al., 2010:1, 8).

These upbeat assessments are out of step with the patently negative trends in agricultural performance since the mid-1960s (see Figure 3). The sector’s performance in recent times also calls into question the faith expressed in the ‘catalytic’ power of deregulation and liberalisation to increase output and exports.²⁰

It is not only mainstream agricultural economists who proclaim the successful ‘normalization’ of capitalist agriculture in South Africa since 1994, failing to remark on the abnormally low and declining level of the forces of production on South African farms employing wageworkers. Even in radical circles it has been claimed that:

measures to safeguard capitalist farming and agriculture in the ‘new South Africa’ following the abolition of the institutional apparatus of apartheid […] have continued since 1994. Freed from the former constraints of trade sanctions on agricultural exports, and of barriers to inward investment by international agribusiness […] production and accumulation have grown, accompanied (or accomplished) by […] technical change (Bernstein, 2013:25).

Trade data provide some of the most telling and reliable indicators of the declining relative performance of South African agriculture – partly because trends in agricultural production for domestic consumption are so poorly monitored.

The value of world trade in agricultural commodities has increased fivefold in real terms over the last 50 years (FAO, 2013:150), yet the share of South Africa’s agricultural exports in the total value of world exports of agricultural commodities has declined. It averaged a mere 0.53% of the value of world exports between 1986 and 1994, down from an average 0.85% between 1976 and 1985. More recently, South Africa’s share fell even further to an average of 0.50% between 2006 and 2008 (FAOSTAT). In contrast, the shares in world agricultural exports of several comparable developing countries (including Argentina, Brazil, Chile, China, Indonesia, Mexico and Thailand) all increased substantially between 1990/91 and 2006/7 (Aksoy & Ng, 2010:12). Measured in current dollars (see Figure 4), the gap between South Africa’s agricultural export performance and that of other, more dynamic economies has widened since the early 1990s.²¹

Part of the explanation for the slow rate of growth of South Africa’s agricultural exports is that producers lost virtually all state support during a process of domestic market deregulation and unilateral trade liberalisation that lasted for most of the 1990s (Sandrey et al., 2008:89). State support for farms in South Africa, as measured by the ‘Producer Support Estimate’, has declined substantially and is now at a very low level (about 3% in 2008–2010), well below the OECD average of 20% (OECD, 2011:252). Unlike South Africa, most middle-income developing economies have adopted policies that increased their support for agriculture over the past decade (Aksoy & Ng 2010:2).²²

The disaggregated data on the world market share of specific agro-exports confirm that export performance has been inadequate. In 2010/11, citrus was South Africa’s most important agricultural export and the country ranked as the world’s second largest exporter of fresh citrus fruit by volume, after Spain (USDA, 2012). However, since 2005 Spain has achieved consistently higher volumes and faster growth rates of exports than South Africa; even Egypt is now exporting more oranges than South Africa (FAOSTAT, 2013).

The Eastern Cape devotes about 14,000 hectares to citrus production and probably employs more than 23,000 workers in the field and in pack-houses, processing, transport, etc.²³ It is the leading producer of navel oranges in South Africa, accounting for over one third of the area in production (about 4,000 hectares). The province also accounts for about half of the national area producing soft citrus fruit such as clementine, mandarin and satsuma (more than 2,000 hectares). However, the volume of soft fruit exports from South Africa has stagnated since the early 2000s and by 2011 had fallen well below the levels reached in 2002.

Lemon and lime production is also very important in the Eastern Cape, which accounts for most of the total production area in South Africa (over 5,500 hectares). In contrast to the performance of soft fruit exports, the volume of exports of lemons has increased, doubling since 2002. Nevertheless, South Africa has fallen behind the export growth rate of lemons and limes achieved by important global competitors such as Argentina and Mexico over the period 1993 to 2011 (see Figure 5).²⁴

Citrus production is labour intensive and provides a much larger number of unskilled jobs than, for instance, the auto industry Original Equipment Manufacturers in the Eastern Cape. Therefore, the failure to capitalise on growing world market demand as rapidly as competitor countries has undermined the potential growth of rural wage employment in the province (and elsewhere in South Africa).

A further indication of failure to boost significantly wage-earning opportunities in the citrus industry is the stagnation in the volume of exports of concentrated orange juice during the first decade of the 2000s. During that same period, however, concentrated orange juice exports surged in several countries, including Brazil, Israel, Mexico and Turkey (FAO, 2012:Table 22). The widening gap between the performance of Spain and of South Africa in exports of single strength citrus juice is depicted in Figure 6.²⁵

Apples and pears are other labour-intensive commodities grown in the Eastern Cape, largely in the Langkloof East area. On-farm employment to produce these crops in the province may be as high as 7,500 ‘permanent equivalent’ workers (HORTGRO, 2013:6–7). During peak season, the largest producer in the province (Dutoit Apples) employs about 2.5 workers per hectare, as well as a large number of additional workers in their pack houses. Reliable statistics for trends in exports from the Eastern Cape are not available and, although the province only accounts for about 10% of national apple and 20% of national pear production, its performance as an exporter of these deciduous fruits is probably similar to the performance of South Africa as a whole. As shown in Figures 7 to 10, South Africa’s failure to capitalise on growing world demand for apples and pears is especially evident when set against the export performances of competitors,

National exports of apples and pears have grown relatively slowly. For example, China has eclipsed South Africa’s world market share of apple and apple juice exports since 1999 (Figures 7 and 8). In 1996, China exported about the same volume of single-strength apple juice as South Africa (less than 30,000 tonnes). A decade later, China was exporting about a million tonnes, while South Africa’s exports of apple juice had fallen below its 1996 levels and have continued to decline (Figure 9).²⁶ Meanwhile, Argentina began overtaking South Africa as an exporter of pears in 1986 and that gap widened rapidly after the mid-1990s (Figure 10).²⁷

There are similar trends for other labour-intensive agricultural commodities that can contribute significantly to export revenue and to employment, such as pineapples and flowers, as well as some less labour-intensive commodities, such as wool and milk (which are important sub-sectors in the Eastern Cape).

The Eastern Cape accounts for a high proportion of South African pineapple production (historically, about 75%), which has diminished dramatically. In 2002, the harvested area was about 13,000 hectares; by 2010 it had decreased to 7,200 hectares (FAOSTAT, 2013). Pineapple output has shrunk, with the declines dating back to the mid-1980s (Figure 11). This failure to increase output and exports has come at the cost of squandering major potential export revenues and employment growth.

The extent of that lost potential is illustrated by the recent experience of Costa Rica. In 1983, both South Africa and Costa Rica were exporting about 4,000 tonnes of pineapples per year; by 2011, South African exports had fallen to about 2,000 tonnes, while Costa Rica’s had soared to over 1.7million tonnes. The Philippines has performed very impressively, as well, while Ecuador and, more recently, Panama have also achieved very high growth rates compared to South Africa’s (FAOSTAT, 2013)

The majority of pineapples – about 75% – are processed and the largest processor in South Africa (Summerpride) is located in the Eastern Cape (Jarvis, 2012). Canned pineapple exports from South Africa decreased from almost 35,000 tons a year in 2000 to zero by 2008 (FAOSTAT, 2012). Exports of concentrated pineapple juice from South Africa in 2011 (almost all produced by Summerpride and shipped from Coega) amounted to small fraction of juice exports from countries such as the Philippines and Thailand (neither of which was exporting this juice a decade earlier).²⁸ In other words, another very dynamic market in which South Africa has failed to take advantage.

South African exports of all types of cut flower have increased much more slowly compared with those of other African and of Latin American producers. Figure 12 shows a particularly dramatic example of such relative failure. The value of Ethiopia’s exports of cut flowers in 2003 was miniscule compared to that of South Africa. But by 2007, the value of Ethiopia’s exports had exceeded South Africa’s and by 2011 it was dwarfing them.

An important reason for Ethiopia’s success has been the state’s decisive intervention to support the expansion of flower exports by subsidising investors’ access to land, long-term credit and airfreight, and by offering tax holidays to foreign investors (Gebreeyesus & Iizuka, 2012:24). In contrast, South Africa’s flower exporters have experienced major logistical difficulties for many years (Kaiser Associates, 2000), due to inadequate investment in handling capacity, especially at provincial airports. Exporters have found it difficult to predict the availability of airfreight capacity (Department of Transport, 2008).²⁹ More recent research suggests that flower exporters face relatively high airfreight charges compared to their competitors in Africa. In addition, the main flowers grown under protection in South Africa are roses (T-Hybrid), but compared for example to Kenyan roses, quality and productivity are low (de Visser & Dijkxhoorn, 2012:48, 31).³⁰

The livestock industry in the Eastern Cape makes a major contribution to national production of wool and milk, and involves a large proportion of the sheep, goats and cattle farmed in South Africa overall. For example, virtually all of South African exports (and over half of world production and exports) of mohair are from the Eastern Cape. However, the nominal value of mohair exports from the province fell by about half between 2002 and 2010, from nearly 2 billion Rand to about 1 billion Rand. (DAFF, 2011:19). Annual production of mohair reached more than 12 million kgs at the end of the 1980s, but had fallen to 2.3 million kgs by 2012, reflecting a huge fall in the number of goats in South Africa over the same period (Mohair South Africa, 2013:18).

Similarly, South African exports of greasy wool have declined in absolute terms and at a much faster rate than exports from its major competitor (Australia). In the 1960s, South Africa regularly exported well over 100,000 tonnes of greasy wool, but by 2010 those exports had decreased to about 35,000 tonnes, compared with exports of about 300,000 tonnes from Australia (FAOSTAT, 2013).³¹

South Africa’s exports of dry salted sheepskins in 2011 amounted to about 40% of the volume achieved in 2003, while the volume of exports of sheepskins with wool halved between 2007 and 2011 (ibid). The volume of exports of all hides and skins from South Africa now stands at about 10% of the level recorded in 2003. That decline is reflected in the sharp fall in the value of exports of hides and skins from the Eastern Cape over the same period (DAFF, 2011:12 & Figure 29).

Employment creation through forward linkages to export industries using leather inputs has been constrained by the inappropriate quality and insufficient quantity of the leather produced in South Africa. Only about 60% of South African hides are suitable for use in the automotive industry, which makes the leather seat and kit component industry in the Eastern Cape heavily dependent on imported raw hides (DTI, 2008). Similarly, imported leather accounts for a large proportion of inputs into South African tanneries that supply the declining local shoe industry (ITC, 2010:14).

The Eastern Cape accounts for over a quarter of total milk production in South Africa. About 15,000 people are employed for wages on a rapidly declining number of dairy farms in the province (DAFF, 2011). Between 2000 and 2011, the volume of South African milk exports declined from about 130 000 tonnes to about 112 000 tonnes. Over the same period, New Zealand dramatically increased its milk exports – from about 8.6 million tonnes to about 11 million tonnes (FAOSTAT, 2013) – proof again of the scope that existed for making foreign exchange and employment gains in this sector. Not only did South Africa fail to expand output and employment by expanding these exports, it allowed the gap between milk imports and exports to widen since 2003 (FAOSTAT, 2013).

There are many other product-specific examples of similarly weak agricultural performance, both for the Eastern Cape and elsewhere in South Africa. However, devising an analytical framework to explain such dismal performance is probably a more important task than presenting more and more cases of failure. The following section of this paper offers the rudiments of such a framework.