Financial Implications of the Drought

The drought in South Africa had a widespread impact, touching the lives of farmers and consumers alike. 

The agriculture sector plays a crucial part in South Africa’s socio-economic development. The repercussions of the recent drought are far-fetching and will be felt in the future.

The consequences stretch further than the South African economy. Many commercial farmers have been forced to scale down, find alternative means of living or sell their farms. This in turn affects farm workers, whose livelihoods are also linked to the productive ability of farms.

South African economy gets hit

The agricultural industry only contributes 2.5% to South Africa’s GDP. Yet, it still plays a large role in the economy and employs 3o% of the workforce. The current drought situation has severely affected the country’s agricultural productivity capacity and thus affecting negatively our economy.

South Africa has a dual agricultural economy, which means that is has both large-scale commercial and small-scale subsistence farming that supports citizens. The commercial farming sector has remained a crucial sector in South Africa’s economy. Although its direct contribution to the GDP has dropped to 2.5% in 2008, with overall linkages included in calculations, agriculture is said to contribute 14% to South Africa’s GDP, according to a report released by WWF.

South Africa is a net exporter, particularly of fruits such as citrus, table grapes, wine and apples which are found in irrigation intensive areas. South Africa also remains the largest producer of maize in Africa, but the drought has led to a drop of production of the staple food of up to 25%, according to a report by AgriSA. 83% of our maize crop and 53% of our wheat crop is produced in the dry-land areas. These zones have been identified as being most vulnerable to drought and climate change.

Only 7.4 million tonnes of maize is predicted to be harvested in 2016/2017, which is 25% less than the previous year. South Africa also exports maize to the Southern African Development Community to assist with food security in Southern Africa. Usually, an excess of 1.5 million tonnes worth R3.5 billion gets exported. However, in the 2015/2016 financial year only 630 000 tonnes was exported, leading to a loss of revenue. This will also have long term implications.

Dropinmaize

Projected drop in maize harvest for 2016/2017 period. Source: Bureau for Food and Agricultural Policy.

Drought affects farm life

The recent drought has impacted agriculture on several levels, and has direct and indirect consequences. The direct input costs have farmers have increased, such as fuel costs, electricity, feed, fertiliser and water. Farming debt has escalated by 9% from 2013/2014 to R125 712 million in the year 2014/2015. This money was used to keep farms operational, with the increase of input costs. However, farmers struggled to pay back the money due to the drought altering the amount and starting dates of the rainfall, which impacts on their ability to plant crops, leaving many farmers unable to pay back their debt.

Commercial farmers report to have received little financial aid from government. Director Andre Roux, Director of Sustainable Resource Management at Western Cape Department of Agriculture, says that no funding has been received from the national government. AgriSA recorded that to date they have assisted 15 974 farmers in total with funding, 12 921 commercial farmers and 3053 emerging farmers. This was through financial support, donation of feed for livestock and donation of water tanks.

GraphSA-Finances

Money donated to farmers by AgriSA for 2015-2016. Credit: The Aqua Project.

Roux says that many people have forked out to donate to struggling farmers, including an old age home in Paarl, who gifted R11 000 to struggling farmers in the Cape Winelands region. Truck drivers delivering goods to Knysna area would return with truck loads of free feed for affected farmers.

Indirect consequences felt by farmers could be needed to reproduce livestock at the end of this drought season. This means that the farmer has to hold their livestock off the market and replenish its stock, which means a drop in income for the short term and an increase in input costs such as feed and water.

Farmers in the dry-land areas are more vulnerable to climate variability and have been strongly impacted by the drought. 83% of the maize, 73% of sugarcane and 53% of wheat are produced in these regions. Difficult drought conditions in the sugarcane industry alone has resulted in a job losses of more than 6 500 workers.

Hike in food prices

Even consumers have felt the effect of the recent drought on their wallets. The sharp increases in food prices have been most felt by the poor who spend about 33% of their monthly income on food. For the period between August 2015 and August 2016, the basic food basket for the working class has increased by 19.6%, reports PACSA. PACSA is a group based in Pietermaritzburg that tracks the inflation and calculates the costs of basic food baskets of essential household items for the working class citizen. Food prices have been increasing steadily over the past year due to the drought, but in August 2016 it has reached the most expensive yet.

Staple foods have increased the most by approximately 24% in 2016. Food products such as maize and potatoes have increased the most, as they are produced in the drought-stricken areas.

However, the price meat has increased the least in price due to a saturated market. Grazing areas have been severely affected by the drought, and as result many livestock farmers have had to sell their animals to be slaughtered. According to AgriSA, between November and December 2015 an excess of 23% of cattle, 37% sheep and 12% pigs were sold to slaughterhouses. Yet, Roux reports that the price of meat will increase over the next few years as farmers will hold onto existing livestock in hopes of replenishing their stock.

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