I South African Agriculture in the World Economy

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ISOUTH AFRICAN AGRICULTURE IN THE WORLD ECONOMY restrictions and distortions . . . so as to reduce the Apart from the well-known customs unions and free I uncertainty, imbalances and instability in world trade agreements (FTA's), such as the European Union, agricultural markets". NAFTA (North American Free Trade Agreement) and P.J.A. Swart Mercosur, important other developments in this field Agric11/t11ral Co1111sellor in Geneva, Switzerland l11is Jed to an agreement on agriculture and a nwnber of include EU enlargement and EU initiatives to explicit commitments by members regarding domestic restructure its relationship with Mediterranean countries support, market access and export subsidies in to allow for freer trade; and greater coherence in each of INTRODUCTION THE DOMESTIC REVOLUTION agriculture. the Asian continent, the Pacific Rim and the Americas.

South African agriculture has in recent years not only The last approximately fifteen years have seen South In the agricultural field the relevant agreement and South Africa is also investigating the possible value of a witnessed a rapidly changing international trading African agricultural marketing policy move onto a commitments by members are a first step in a process free trade agreement with the EU and has recently environment, but it has also experienced a dramatic course which almost inevitably would bring it to the which is due, according to the so-called built-in agenda initialled its agreement to a SADC (Southern African change in the way the marketing of its products is doorstep of the elusive and unattainable free market. of the WTO, to be taken up again in further negotiations Development Community) Trade Protocol that foresees managed. Although the title of this paper could cover a South Africa has in the nineties followed an accelerating in 1999. the phasing out of customs duties between SADC wide range of topics, I will limit my remarks to the main process of liberalisation of its agricultural markets, members over an eight year period. l11ese latter two issues that I believe are shaping the nature and which has been more dramatic than is generally Alongside the results of the Uruguay Round a number of developments are discussed further below. trajectory of South Africa's agricultural trading realised. new issues relating to trade are being debated in relationship with tl1e rest of the world. Some of these international forums, such as the relationship between l11is trend toward regional blocs, in as much as it issues have a local character, whilst others are of an This process of deregulation has its roots in the calls in trade and the environment, labour standards, represents both further liberalisation between bloc international dimension and which have in the past - the early eighties by a previous Minister of Agriculture, investment, bribery and corrnption, competition policy members and therefore possible market shifts from a Soutl1 African perspective - been more or Jess Mr Greyling Wentzel, for more market-related and food security. Although no consensus has been detrimental to non-members, needs to be closely completely exogenous variables. With a new acceptance production in agriculture. l11ese initial steps were reached on these issues, some will move to the centre followed and appropriate policy steps taken in the event in the world community, South Africa has in the last two followed in the nineties by a growing debate on stage in ensuing deliberations in the WTO and may be that our interests are affected. years been in an excellent position to grasp new market statutory marketing in agriculture, which was enthused addressed at the WTO Ministerial Meeting in Singapore opportunities. This acceptance has also allowed South by the reports of the Kassier Committee and of the in December I 996. SOUTH AFRICAN AGRICULTURE AND THE EU Africa to participate in the international policy Agricultural Marketing Policy Evaluation Committee environment in which it operates to a greater extent tlian which were appointed by Minister Kraai Van Niekerk. After almost two years since the WTO's inception, it is l11e implications of a free trade agreement between the in the preceding years. While these documents and the draft White Paper on evident that there is good progress with the EU and SouU1 Africa have over the last nine months Agriculture and the draft Marketing of Agricultural implementation of the commitments negotiated under been rigorously analysed in Government circles in THE GLOBAL ECONOMY Products Bill have been widely and critically debated, the Uruguay Round agricultural reform programme. In collaboration with the business community and Jabour they represent milestones in the tone and direction of the first year the Agriculture Committee has principally representatives. l11e Department of Agriculture has The 1996 Trade and Development Report (UNCTAD, the liberalisation process. focused on tl1e implementation by members of their worked closely with the agricultural community in a 1996) concludes that growth in world output continued market access c01mnitments, e.g. tarification and Steering Cmmnittee chaired by the Deparlnlent in this in 1995, but at a reduced rate of 2,4% which is expected l11e deregulation cause within South Africa's minimum market access quotas, while the Co1mnittee's matter and to ensure close co-operation and consultation to slow even further in 1996. The growth rates in newly agriculture has been supported, inter alia, by a changed perspective is broadening to the other areas such as on 0U1er issues relating to agricultural trade. In general industrialised countries in Asia considerably outstripped domestic economic and political enviromnent, new export subsidies and domestic support, as compliance to the agriculture sector is in favour of an FIA if certain that of the developed world, with China continuing to be teclmologies and infrastructure, a shift in public commitments regarding these measures are notified by conditions can be met in the negotiations. one of the fastest growing economies, expanding at a sentiment, international developments, practical members to the WTO. rate exceeding I 0%. In Africa growtl1 at 3% was realities, and the lively free market debate itself. The EU is Soutl1 Africa's main agricultural export generally higher than in Latin America where growth, South African import duties of practically all market. While domestic agriculture remains a sensitive with the exception of Chile, has slowed to 1% . The l11e growing realisation in the sector that statutory agricultural products have been re-evaluated in U1e last sector for both the EU and Soutl1 Africa, the removal of share in world trade of developing Asian countries now marketing systems that had served agriculture relatively two years, and minimum market access quotas, where all import duties on agricultural products, as implied by surpasses that of the USA, the European Union (EU) or unchanged in principle since the mid thirties were no appropriate, have been opened since the begi1ming of a full FT A, would be unacceptable to both parties. Japan. Economic recovery in certain Central European longer sustainable in the nineties, Jed to an accelerated the year. Although a few industries have difficulties However, there is a WTO requirement that substantially countries is well under way with growth at 5%, while liberalisation of statutory marketing in the last three with minimum market access, Soutl1 Africa should all trade should be covered by an FIA and that no sector output continues to decline in other Central and Eastern years. In 1990 there were 21 agricultural marketing otherwise not find it too painful to meet its WTO should be excluded. l11is means that agricultural trade European countries. boards, the majority of which had a profound influence agricultural cmmnitments. will need to be included and, from a South African over the price; the export and import; and manner in export perspective, we would wish to see market access A general trend is that the economic recovery since 1993 which the products they controlled, were marketed. In view of the progra1m11ed next round of WTO for all our major products improved by an FIA. in the developed world has not been as rapid as during With the exception of most vegetables and subtropical negotiations on agricultural trade in 1999, I would Disappointingly, the EU has chosen to exclude from the the previous two cycles of expansion and is expected by frnit, important facets of the marketing of practically all rec01m11end that the agricultural sector and notably negotiations a number of agricultural products which are UNCTAD to slow to below 2% in 1996. Within this the other primary food and fibre agricultural products members of the AEASA should, in the next three years, important to South Africa. This and the fact that group the USA continues to outperfonn the Eurepean were managed in some or other fonn by producer- focus attention on international agricultural trade and Government support to the EU's agriculture by far Union and Japan. dominated control boards. Through the lnlport and work together with the Government to formulate sound exceeds that which is received by South African fanners Export Control Act (Act 45 of 1963) and the Marketing and coherent negotiating objectives. In the meantime will have to be addressed in the negotiations. From a development perspective UNCT AD singles out Act (Act 59 of 1968), quantitative limits were placed on South Africa should fully participate in the WTO the common and central role that trade and the the import and export of most major agricultural process of ensuring fairness and transparency in SACU AND SADC expansion of exports continues to play in the growing products. Agricultural producers themselves had an agricultural trade. l11e Department of Agriculture has economies of East Asia. Furthennore, UNCTAD important input into this process. In this way the positioned itself to follow and contribute to the Africa is one of the regions in which South African trade identifies three features that typify the transition and producer's price was shielded and the trade was otlen international debate and activities on the above has grown the most rapidly in the last few years and growth in these countries. Firstly, they demonstrate the committed to a single regulated marketing chmmel. mentioned issues. with which South Africa has a positive trade balance. importance of establishing a dynamic interaction between exports and investment in industrialisation. Since 1990, in concert with the changing approach THE PROLIFERATION OF TRADING BLOCS Normalising South Africa's relations with Southern Secondly, they illustrate the possibility of fully internationally, the South African marketing boards Africa has become a primary feature in our foreign mobilising natural resources and abundant unskilled came under increasing pressure to allow greater Practically no major trading nation is presently not a policy. l11is is evidenced by the current re-negotiation labour in their quest for growth and, finally, they participation on local and international markets. A very member of some form of preferential trade arrangement of the Southern African Customs Union in which the highlight the need for upgrading industry and teclmology incisive process of deregulation of the powers of or bloc. Furthennore, new associations between democratisation of decision making, a preserve of the in order to raise productivity. marketing boards follo wed and the last two years have partners, entailing liberalisation to a greater extent than South African Government in the old agreement, is their cmmnitments in the WTO context, are regularly playing an important role. Equally, South Africa's being promoted. membership of SADC and in particular its agreement to

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seen the elimination of producer controls over imports, This epithet is supported by a perceivable shift by WORLD BANK. (1994). South African Agriculture : STATISTICAL BULLETIN. (1995). Central statistics tarification of agricultural imports, the removal of most governments from bilateral to multilateral relations to Structure, performance and options for the future. World Office. Ministry of Finance and Development Planning, single channel marketing schemes, and a general deal with the broader, more complex and integrated Bank, Washington. Gaborone, Botswana. reduction of the authority of marketing boards. While nature of modem economic matters. the number of boards has reduced to I 5, their influence YANXI ZHANG. (1996). Agricultural science and VAN ROOYEN, J. (1996). Food security a vital issue. on the market has waned to a far greater extent than is The WTO came into being in January 1995 as a result of technology in China : Its development and outlook. Fanners' Weekly. August 30. generally recognised. In many cases the remaining the lengthy Uruguay Row1d of multilateral trade Peoples' Republic of China. boards now perform mainly non- trade distorting negotiations. While the General Agreement on Tariffs functions such as generic advertising and market and Trade (GA TT) 1994 updates the rules which have information. The only notable and substantive statutory applied to international trade since 1947, it is but one of imposition on markets remaining, is the single channel a bevy of agreements and decisions that make up the export of fruits, maize and oilseeds and the local Results of the Uruguay Round initialled in Marrakech in marketing for wheat and dried fruit. These industries April I 994. The WTO currently has 123 members are also engaged in debates regarding the way forward. representing more than 85% of world trade, while a further 31 countries are in the process of accession. These changes have de facto propelled South Africa from the "market management" camp it inhabited l11e fundamental principles upon which the during the Uruguay Round negotiations into the international trading rules were based in 1947 remain company of the group of agricultural exporters which and are reaffinned in the new agreement. l11ese championed market liberalisation during the Uruguay principles are: Round. This is evidenced by the 1995 Producer Subsidy Equivalents calculated by the OECD (Organisation for • The protection of domestic industries should, with Economic Co-operation and Development) and the only a few exceptions, be effected by tariffs and not Department of Agriculture. quantitative or other non-tariff measures;

This development and our new important relationships • tariffs should be bound against increases and in Southern African are leading South Africa to reassess member countries are urged to reduce this protection its stance and positioning in multilateral arenas which and limit levels to those listed in national schedules deal with agricultural and trade issues such as the WTO deposited with the WTO; (World Trade Organisation), UNCTAD and the FAO (Food and Agriculture Organisation). • most favoured nation (MFN) treatment means that tariffs and other measures should be applied in a Notwithstanding the short-tem1 advantages accruing to non-discriminatory manner among member exports from the recent moves in the exchange rate, the countries. Therefore, the best treatment ( e.g. low agricultural sector has not viewed the replacement of the tariffs) offered to the imports from any member, General Export Incentive Scheme (GEIS) with a menu should be accorded to all other members; and of supply side measures with great enthusiasm. Where industries received export incentive benefits under GEIS • the national treatment rule which prohibits a country in the past, the profitability of their exports will come from discriminating between imported and domestic under pressure with its removal. However, the products. agricultural sector should not only closely investigate the opportunities available in terms of the new supply Apart from maintaining the earlier principles of the side measures, but it should also ensure that the GA TT, the coverage and effectiveness of GA TT rules subsidisation of agricultural exports by its competitors is and procedures have been broadened and strengthened under constant surveillance. Furthennore it should in the Marrakech Agreements. An indication of the work together with the Government in a concerted effort continued political will to support the multilateral rules to improve market access. l11is combined effort should based WTO system, is the considerable increase in the provide long-term benefits and make up for the loss of last 18 months in the use of strengthened and more GEIS in a more sustainable way. effective dispute settlement procedures provided for by the WTO. THE TRADING ENVIRONMENT The greater availability of information relating to trade l11ere are a number of key factors in the international policy measures; the enhanced discipline resulting from environment which are shaping South Africa's countries' commitments to the WTO; and the agricultural trading relationship with the rest of the transparency provided by the review and dispute world. settlement procedures of tl1e WTO, are significant resources and instruments available to members to South Africa's political acceptance in the international ensure that trade (also in agriculture) takes place on community has been a primary detenninant of new fairer terms than in the past. Ensuring this, transparency market opportunities and the enhancement of our and compliance are currently a preoccupation of products in traditional markets. l11is factor alone has members in the different WTO bodies. provided the most important stimulus to the development of new government policies and the Another important feature of the Uruguay Round was broadening of private sector trading activity. the strong political commitment to include agriculture. The Uruguay Round Declaration included the following: The current international trading scene is frequently characterised as globalised, which is a reflection of "Contracting parties agree that there is an urgent need to shrinking virtual distances through teclmology and the bring more discipline and predictability to world growing interdependence of the economies of countries. agricultural trade by correcting and preventing

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200 202 Agrekon, Vol 35, No 2 (December 1996) Swart Agrekon, Vol 35, No 4 (December 1996) Anderson a trade protocol which is due to lead to free trade in itself. The liberalisation of our marketing has brought goods and services in the region, underlines its primary with it the necessity to reassess our alliances, and make ON GETTING AGRICULTURAL GROWTH IN SUB-SAHARAN AND commitment to the region. full use of international trading opportunities. SOUTH AFRICA The emerging vision of freer trade in Southern Africa In our present eagerness to forge a new relationship with will bring with it both opportunity to our North and the EU, we should not lose sight of the opportunities J.R. Anderson greater competition in the agricultural market place in presented by the rest of the world, including growing OED, World Bank, Washington, D.C. South Africa. It can be expected that comparative markets of the East and in Africa. advantages will result in some shifts in production and In this paper basic considerations underpinning agricultural supply are revisited. Some conditions are easier said than trade in the region. REFERENCES achieved, but little growth is likely to be feasible unless nearly all are adequately catered for, including the policy and institutional environments, with particular emphasis on the effective provision of public-sector services, from CONCLUSION TRADE AND DEVELOPMENT REPORT (1996). infrastructure to knowledge and information. United Nations Conference on Trade and Development, Much has changed in South Africa - in its relations with Geneva : UNCTAD/fDR/16 - 18 September 1996. the rest of the world and in the trading environment INTRODUCTION country examination, unsurprisingly, it was found that the high incidences of discrimination against agriculture This is a first and for me most welcome opportunity to were strongly related to low-growth achievements. share some thoughts with this Association about African Much of this taxation was through overvalued exchange agricultural development. For lack of country-specific rates. As we ponder such policy perspectives, it is knowledge, most of these thoughts will be at a generic evident that many countries still have far to go in continental level, a theme on which I have had occasion correcting such impediments to progress. to reflect from time to time (e.g., Anderson I 992, Crosson and Anderson 1995), but I believe there will be Hans Binswanger addressed this Conference some years much of direct relevance to South Africa itself as it faces ago, explaining what he calls our "painful lessons" new and urgent challenges in this domain. (Binswanger 1994), and I thought it would also be helpful to remind us of Hans' painful lessons when Reference to China has been made at several points in we're thinking about growth challenges. For brevity, I this Conference and, in the same spirit, it is useful to do will not belabor these points, probably well known to so again. China has been something of a success story, analysts in South Africa before Hans visited. The averaging nearly five percent output growtl1 per annum consequences of urban bias in so much of African over the period 1965-9. Fan and Pardey ( 1996), in a development, and the problems of dealing with both recent econometric investigation of the sources of food scarcity at one end of the spectrunl and the growt11, have decomposed the growth picture into the "compensation" policy for the rural elites at the other massive (some 46 percent) contribution of conventional end, were not exactly new, and similarly for the inputs, such as land, labor and capital. Most notably, the misguided land policies that have often bugged increasing use of fertilizer has played a major role development, the neglect of women fanners in far too (nearly one-half of the 46 percent) in the growt11 of many cases and a general lack of appreciation by the Chinese agriculture, as it has in many parts of the world, planners at many levels of the positive effects in poverty including Sub-Saharan Africa (Heisey and Mwangi reduction that can be achieved through agricultural 1996). Perhaps of greater novelty and interest to this growth. Agricultural growth is still very much on the Association may be the considerable effect ascribed to policy agenda. some of the institutional developments. The major economic reforms of the late 1970s and early 80s in AGRICULTURAL SUPPLY BASICS China (Perkins and Yusuf 1984) were identified as explaining 18 percent of the total growth over this Now, to get back briefly to some basic economics, period. An even more remarkable result has been the 20 would like momentarily to remind us of some of what percent of the growth attributed to the Chinese we learned as undergraduates about the nature of investment in agricultural research. Needless to say, the agricultural supply response. First, what happens to selected variables did not explain everything, and there individual crop supplies? We can get high levels of is a residual of some 16 percent of growth attributable to response to changing prices in the short run but what we other factors. are really doing is just shifting around fann-area allocations and variable factors of production. Short-run SOME POLICY REQUIREMENTS individual own-price supply response can be quite elastic, even more than 0.5 in one-year supply response ll1e Chinese experience serves as a convenient backdrop (there is a large literature, distilled by many authors, to our discussion because we need to reflect on at least including Johnson ( 1950), Binswanger (1990) and the several factors measured in the China study when Dillon and Anderson (1990)). Naturally the situation is we begin to contemplate what might be useful in an more complex with long-cycle crops, such as tree crops, African agricultural policy context (e.g., McNamara and of course we all know the special problems with 1985, Jaeger 1992, Cleaver 1993, Piesse et al. 1996, livestock supply response in the short nm, where we get Tolley, Thomas, Nash & Snyder 1996). Accordingly, quite the "perverse" short-run effects as people make some key findings of studies pertinent to the theme are livestock investment decisions based on their price briefly reviewed. I also want to make brief mention of a expectations. World Bank study directed by Anne Krueger in the mid- 80s (Krueger, Schiff & Valdes, 1988, 1991, Schiff & What we're really concerned with when we're talking Valdes 1992, 1996). By way of an excessively cryptic about getting growth out of the sector, however, is much overview of a many-volume study, the main finding is more the matter of aggregate agricultural supply, and we the high level of (mostly indirect) taxation in the need to highlight that we can really only get this through agricultural sector, severe in many cases, often running a program of investment, and achievement of to effective rates of the order of 50 percent. In the cross- productivity growth in particular, with migration playing

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