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World Bank Document Public Disclosure Authorized DISCUSSIONPAPER SouthAfrican Agriculture: Public Disclosure Authorized Structure,Performance and Options for the Future Public Disclosure Authorized Public Disclosure Authorized THE WORLDBANK INFORMALDISCUSSION PAPERS SOUTHERNAFRICA ON ASPECTSOF THE DEPARTMENT ECONOMYOF SOUTHAFRICA PREVIOUSWORLD BANK PAPERS ON SOUTHAFRICA Previouslypublished in the World Bankseries of informaldiscussion papers on SouthAfrica: Levy,B. January1992. "HowCan SouthAfrican Manufacturing Efficiently Create Employment?An Analysisof the Impactof Tradeand IndustrialPolicy". Kahn,B., Abdel,S. and Walton,M. May 1992."South Africa: Macroeconomic Issues for the Transition". Fallon,P. October1992. "An Analysisof Employmentand WageBehavior in SouthAfrica". SouthemAfrica Department,May 1993. "An EconomicPerspective of SouthAfrica". Belli, R, Finger,F., BallivianA., August1993. "SouthAfrica: A Reviewof Trade Policies". Riley,T., November1993. "Characteristicsof and ConstraintsFacing Black Businesses in SouthAfrica: Survey Results'. SouthemAfrica Department,November 1993. "SouthAfrica: Paths to EconomicGrowth" (Digest). In addition,a numberof technicaland seminarpapers prepared by WorldBank staff and SouthAfrican counterparts in key sectorshave been discussedin the country. OREWORD lbis discussionpaper is the sixth is a series of Informalstudies on differentaspects of the SouthAfrican economyprepared by staff membersof the World Bank and SouthAfrican associates. The studieshave been discussed with a wide range of South Africans and have benefited from South African ideas and inputs. The Bank's study program aims to support the ongoing effort by South Africans across the institutionalspectrum to understandthe weaknessesand potentialof their economy, and identifyoptions that may be availablein a post-apartheidera. These options focus on creatingequitable and sustainable economicgrowth and improvingthe distributionof assets and income. The purpose of this report is to analyzethe performanceof SouthAfrica's agriculturesector and to outline the strategicoptions for improvingthe overallstructure and performanceof the sector, especiallyin terms of incomegrowth, job creation and increasedequity. Ibis report concentratesmainly on the large farm sector, because of its dominancein terms of area and output and because of the lack of informationon agriculture in the homelands. The conclusionsthat emergefrom the analysisin this report depictthe agriculturalsector in SouthAfrica as one that is dominatedby large-scaleproducers and has been able to producelarge volumesof output- achievingnational food self-sufficiencyfor most commodities. ITis achievementhas, however, come at a considerablefinancial and efficiency cost. The sector has been, and to some extent continues to be, characterizedby significantpolicy distortionsthat have resulted in less-than-optimallevels of efficiency in many parts of the sector, e.g., averagefarm size is too large, ownershipof rural assets, most notably land, are highly skewed, manyfarmers tend to use too much capital equipmentand too little labor. This performance,combined with the active suppressionof black farming, means that the agriculturalsector has underperformedin terms of its contributionto national income,exports, and employmentcreation. The combinationof problemswithin the agriculural sector and the need for a redistributionof land and support services in the name of greater social justice, make a compelling argument in favor of a restructuring of the rural economy. Such a restructuring would encouragegreater efficiency in the agricultra sector as a whole and would actively support the market-basedredistribution of land and necessarysupport services to those injured under apartheid. SouthernAfrica Department The World Bank February 1994 copynigt c 1994 The World Bank 1818 'H" Street,N.W. Washington,D.C. 20433, U.S.A. The vwi epressed us dt paper are hose of the authorsand should not be atribated to dw World Bank, to afiiaed orgd anions, or to membersof is Boardof ExecumiveDirectors or the countriesthy represent. ACKNOWLEDGEMENTS This report was prepared by a team led by Robert E. Christansen Cask Manager)and Rogier van den Brink. Especially extensive and valuable cotribudons were made by J. van Zyl, N. Vink, M. Mbongwa, H. Binswanger.Numerous other peoplemade contributions, including:C. Blignautand the staff at the Departmentof Agricultre, D. Cooper, M. de Klerk, G. Donovan, P. Fallon, B. Njobe, K. Treu, J. van Rooyen,L. Sibisi and the staff at the DBSA, to name only a few. Particularly usefulbackground reports were prepared by M. Roth,H. Dolny and K. Wiebe, and the Oxford Food Studies Group. Without the help and guidanceof these people and many others, this report would not have been completed. Despite the ontibutions of others, responsibility for the contents of this report and any remainingerrors is the team's alone. ABBREVIATIONSAND CO ld AMS Aggregate Measureof Support BTr Board on Tariffs and Trade DFB DeciduousFruit Board EEC European EconomicCommission GDP Gross DomesticProduct LSU LivestockUnit SAAU South African AgriculturalUnion SACGA SouthernAfrican Cane GrowersAssociadon SADC SouthernAfrican DevelopmentCommunity SAM Social AccountingMatrix SARB South Africa Reserve Bank SASMAL South Afican Sugar Millers AssociationLimited SECOSAF Secretariatof the EconomicCommunity of SouthermAfrica TFP Total Factor Productivity TABLE OP CONTENTS Eee ilveSunuary ........................................... i Chapterl: RoleofAgricultureIntheNaaroeconomy ...................... 1 Introduction ........................................... 1 MaceoonomicPerformance .................................. 2 Agriculture'sConbution to the Economy ............................... 9 Chapter 2: Sucture, Resource Endowment, and Performance oftheAgriadulaSector ............................ 21 Stucture .................................. 22 RsourceEndowment ............ ...................... 28 Performance .................................. 35 Chapter 3: Evolution of the Contemporary Agrian Structre ..... .........44 hitroduction ............................................ 44 Faming in 19th Cent South Africa ........... ...................... 45 The Siuaion at the Tumnof the Cen yfbr theAfrican Farmer ..... ........... 46 AgrarianDevelopment1910-1947............. ......................47 1910-1947:ProtectionofWhizeAgriculture ............................. 51 1948:Apartheid andthe RuralAfrican Household ........................ 53 Conclusions............................................. 60 Chapter4: MarkedngandPridng ................................. 61 ntroduction .61 Overviewof Mijor MMrketrkgSchms . 62 Role of Farner Cooperaives ........................................ 65 Pefbrmance of the Vadous Marketing Schemes ........................... 65 Concentrationin the Marketingand Premig Stmcre ..................... 80 MarketingStuctures in the Homelands .......... ...................... 81 MarketingMargins ............................................ 85 Self-Sufficiencyand Exports . ...................................... 86 Conclusions ................................................. 89 ChapterS: Eficiency ofAgricultural Production ....................... 91 Introduction ............................................. 91 PriceEfficiency ............................................ 94 ScaleEfficiency ............................................ 112 TechnicalEfficiency ........................................... 122 Efficiency ssues in the Homelands ............ ...................... 129 Chapter6: Famm ...........................P ri a biatt 132 Declining Farm Revenues.133 Increasing Farm Costs .135 Cost-priceSqueee .136 Financial Indicatorsof Profitability .138 Debt Burden and Farm Lending Policies .142 Financial Assistanceto Farmers.146 Chapter7: Direction for theFuture .150 Overview.150 Efficiencyand Equity Issues in Agriculture. 153 Options for Rura Restructuring .154 Conclusion.157 Referen s .. 158 Anne 1.171 Annex2 .176 Annex3 .188 TABLES.FIGURES. AND TEXT BOX 1.1 GrowthRates in Real GDPand otherReal Indicators .................... 4 1.2 TotalFactor Productivity Growth Before and After 1973: SouthAfrica andOther Countries .. 5 5... 1.3 SelectedSectoral Multipliers (direct and indirecteffect) According to the ProductionStructures for the Years1978, 1981 and 1985 . .11 1.4 Compositionof GDPsince 1911,by sector(%) ......... ............. 12 1.5 Employment,Economically Active Population .. 14 1.6 The Growthin BudgetedExpenditure, 1979-1989 ..................... 18 2.1 LandUse and Population.................................... 24 2.2 Crop ProductionPotential and Present Cultivationof White-OwnedFarmland ... 30 2.3 ArableLand and PopulationDensity by Region ...................... 32 2.4 WaterResources ............... ................. 33 2.5 Real Growthin Agriculture- 1950to 1990 ......................... 35 2.6 Compositionof AgriculturalGross Value .. .......... 37 2.7 GrossValue of AgriculturalProduction in the Homelandsof SouthAfrica.. 41 2.8 AbsoluteValue of Commercialand SubsistenceAgricultural Production in the Homelandsand its Contributionas a Percentageof GDP, 1985 ... 42 2.9 tAigrantand CommuterEarnings Comparedwith AgriculturalEarnings, 1985 ... 43 3.1 AfricanPopulations on VariousClasses of Lands, 1916 ....... .......... 48 3.2 LandAreas by LandTenure Systems in the Unionof SouthAfrica ... ....... 49 3.3 Land QuotasDelimited by the 1936Act ............ ............... 49 3.4 Allotmentof AgriculturalHoldings During 1916
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