WANDILE SIHLOBO, ECONOMIST: INDUSTRY SERVICES, GRAIN SA
In January 2007, the South African Cabinet adopted the National Industrial Policy framework (NIPF) into an Industrial Policy Action Plan (IPAP). One of the primary objectives of the NIPF was the need to facilitate diversification beyond our current reliance on traditional commodities and non-tradable services.
The first IPAP was approved in August 2007. Some of the highlighted sections on the 2007/2008 IPAP were directed more to improving energy-efficiency standards in response to the national electricity shortage at that time.
Attraction of substantial investments in the business process service with more concomitant on job creation was also on the priority list. The IPAP is led by the Minister of Trade and Industry, Mr Rob Davis, and serves for a three years rolling period, updated annually and it gives a ten year outlook on the desired economic outcomes.
This article will specifically look at what IPAP means for grain and oilseed producers, with more emphasis on the new IPAP (2013/2014 - 2015/2016), which ends in 2016. IPAP 2013 focuses more on promoting labour-absorbing industrialisation, broadening participation and raising competitiveness. On the agricultural related sectors, more emphasis is put on agro-processing and biofuel.
The main characteristic of the agro-processing sector is its strong up and downstream approach. The upstream approach basically covers the agricultural processors to primary (farming) agriculture across a wide variety of farming models and products. While the downstream approach covers the agro-processing outputs which are intermediate products to which further value is added and through the final consumer (wholesale, retail chain, restaurants and pubs).
Agro-processing is closely linked to the South African economic performance through job creation and its contribution to the GDP, and important export markets. The Department of Trade and Industry (the dti) (2013) noted that the South African domestic economy is expected to grow faster than those of many major developed economies in the next five to ten years. Hence there is a need to ensure that the local producers are well positioned to benefit from growth in domestic food and beverages demand.
The dti (2013) also noted a slow growth of exports from the horticulture and aquaculture sectors to the US and the European Union. However, more opportunities are expected in Asia and sub-Saharan Africa. The high technology development and increasing cost of road transport have created a great opportunity for the small-scale processing of agricultural produce.
Some of the developments that have started are the soybean processing sub-sectors and maize milling. This creates a market for the local producers. These plants (soybean processing and maize milling) are basically aiming to reduce the cost of basic food products such as maize meal in rural areas.
The main constraint that most South African producers face is competition from imports, especially in industries such as the soybean crushing industry, poultry, meat and processed food sub-sectors. Increased import penetration, electricity and water costs, road transport, fertiliser and seed costs has put more burdens on the producers.
Key action programmes
Development of a small-scale milling industry
The development of a small-scale milling industry will help the small-scale millers on getting into the South African market. These projects are expected to be more competitive in the rural areas, where high transport costs and logistics costs normally puts more pressure on basic food prices. This programme creates a great opportunity for new producers, especially those located in remote areas.
Development of the Soybean Action Plan promoting market linkages between primary agricultural producers and processors
This programme is aimed at facilitating development of business and strategic unions between existing and new soybean producers and processors to reduce the increasing manufacturing capacity of the sector and to reduce dependency on oilcake imports. This is a great opportunity for South African soybean producers as the dti (2013) forecasted a substantial increase in the animal feed and human consumption demand over the next five to ten years and there is a significant potential to increase the local production of soybean (commercial and smallholder producers).
The dti (2013) is planning to create a market that will be conducive for new soybean producers. This initiative is to rebalance the production of maize, wheat, sunflower and soybean agricultural markets.
Many countries (like USA and Brazil) have a bigger capacity or increased production of biofuel. However, South Africa is observed to be showing slow progress. To a large extent this slow progress has been because of it being a new sector in the country and because of the complex regulatory barriers.
One of the major factors that have also been a barrier to the biofuel industry in South Africa is the issue of “food-versus-fuel”, without taking into consideration the capacity to produce biofuel from crops that are not directly part of the food chain or where there is a great surplus in production.
Biofuel production also has the potential to create a substantial number of jobs through the linkages to agriculture, manufacturing and distribution. However, their potential to increase food prices, particularly for stable food, forms the reason behind regulatory barriers.
The biofuel production has a potential to result in a great market opportunity for the farmers. Much progress has been made with ensuring successful implementation of biofuel plants. To point out a specific one, it would be the collaboration between the Departments of Energy, Economic Development, Rural Development and Land Reform, National Treasury and the dti which has resulted in the development of an investorfriendly regulatory environment for the biofuels sector.
Industrial Policy Action Plan 2013/2014 - 2015/ 2016: Available: http://www.thedti.gov.za/news2013/ipap_2013-2016.pdf