Outlook for the agricultural sector into 2021

by Paul Makube, Senior Agricultural Economist at FNB

01 October 2020 – Against the backdrop of a contracting overall economy with South Africa’s gross domestic product (GDP) for 2020 forecast to decline by over 8% year-on-year (y/y), there is a silver lining in the agricultural sector outcomes for the next season. Following two consecutive quarters of stellar performance by the agriculture sector with 28,6% and 15% quarter-on-quarter (q/q) seasonally adjusted annualised growth, we expect a similar feat in the remaining quarters of 2020 due to a combination of a good crop harvest, strong agriculture exports, and the unseasonably high commodity prices.

Broad summary of the agriculture outlook

• Agriculture growth momentum will continue into 2021, contributing positively to overall SA GDP outcomes.
• Favourable production conditions on the back of a La Nina weather pattern will spur farmers to plant more area under summer crops and improve grazing for livestock.
• Supplies of grain, oilseeds, and horticulture crops will be adequate for the year ahead.
• Surplus production of agriculture commodities will tame food inflation and contribute towards a benign overall consumer inflation in 2021.
• The implications are for interest rates to remain at record lows for a bit longer, benefiting consumers.
• Strong export drive to continue due to the increased availability of product and high international demand.
• Positive feed input cost outlook for the livestock sector as higher grain and oilseed output will eventually limit further upside for raw inputs.
• Consumer consumption trends are expected to continue to change with more emphasis on safety, reliability of quality and supply, and ethics in food production systems.
• Pressure on disposable incomes will lift grain consumption, which forms part of basic products and staple food.