Christo Van der Rheede is the CEO at Agri SA. Picture: Supplied
By Christo van der Rheede
The past three years have proved just how connected our world really is. When the pandemic hit, globalisation became far more real to most of us than it had been, as an often-discussed concept, previously.
As global trade routes, supply chains and human movement slowed or halted completely, we increasingly realised how many facets of our lives are integrated by trade and how broader global concerns can quickly and significantly disrupt our local status quo.
When Russia invaded the Ukraine, again, we were reminded of this interconnectedness. For consumers, the price of cooking oil soared. For the agriculture sector, it was the price of numerous inputs like fertiliser and fuel. In today’s world, distant events can very quickly have proximate consequences.
While our economy continues to deal with the lagging effects of the shocks of the last three years, another potential and severe disruption is possible over the near- to medium-term. The African Growth and Opportunity Act (Agoa), essentially a market access trade agreement between the US and qualifying African countries, is set to be renewed in 2025.
This renewal is approaching at a time when South Africa’s relationship with the US has unfortunately become strained – introducing the possibility of South Africa no longer being part of the agreement or even more immediate action on our current membership.
Agoa is beneficial for a number of South Africa’s sectors, and this includes agriculture. Where farmers can benefit from larger markets with no barriers to access and have the ability to produce on a larger scale, they can benefit from economies of scale and more employment in the sector as a result of higher production.
According to the US International Trade Commission’s most recent report on Agoa ‘Programme Usage, Trends and Sectoral Highlights’: “South Africa alone accounted for 54.2%, or $2.7 billion (R52bn) of (non-crude oil) imports under Agoa and GSP (Generalised Scheme of Preferences) in 2021.”
At the time of writing, the overall (including all sectors’ exports) value of the Agoa market is worth approximately R52bn. Not an insubstantial figure for our economy.
While the fate of Agoa renewal will impact numerous sectors of our economy, the agreement has very significant implications for the agricultural sector in South Africa, which is also a key employer. Under the agreement, we export numerous agricultural commodities to the US. These exports also earn foreign exchange, which assists our balance of payments, in addition to supporting domestic production and employment.
Having duty free access to the US market makes us more competitive. The same report by the International Trade Commission stated that: “In South Africa, citrus exporters are aware of Agoa and consider it important because the duty savings helps them remain competitive in the US market despite shipping costs.”
It also noted that were South Africa to no longer be part of the agreement, 33% of production in one local citrus region, and an even higher percentage of revenue, would be at risk.
While the report singles out citrus, it is by no means the only commodity which benefits from the agreement. Numerous others, including processed fruits and vegetables, tree nuts and wine, also benefit from Agoa.
A risk to revenue and the production scale for any industry translates to a risk to jobs. The International Trade Commission’s report reviewed three academic studies – all of which found that losing the preferences afforded by Agoa had a negative consequence for employment. One of the studies looked at the potential impact of the loss of Agoa on the South African wine industry, finding that it would cause job losses not only in wine production but also in the wine tourism industry.
While our trade with other markets has diversified over the last decade, the United States remains a significant partner and destination for our sector’s goods. With the impact of load shedding, a deterioration in the Rand driving input prices, continued deteriorating infrastructure, rising interest rates and crime to contend with, no sector of the economy can afford to lose a market or have its products become less competitive.
What is needed is urgent and decisive action on the part of government, in line with the country’s economic and social interest, to prevent the potentially impacted commodities from suffering harm as well as the loss of jobs in those industries.
South Africa’s agricultural sector simply cannot afford to witness, yet again, how quickly a seemingly international challenge can become domestic – especially when the challenge, unlike those over the previous three years, is wholly avoidable.
Christo Van der Rheede is the CEO at Agri SA.
BUSINESS REPORT
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