Drought-hit agriculture sector contracts at slower pace in third quarter

The agricultural sector contracted at the much slower rate in the third quarter, supporting an outlook for a relatively brighter 2017 summer growing season, following the crippling drought.

Food inflation has reached double digits because of the lag effect caused by lower production during the drought, compounded by a weaker rand earlier in the year.

White maize for December delivery peaked at R5,226/tonne before easing to current levels of R4,005/tonne. Yellow maize for December delivery peaked at R3,954/tonne before easing to R3,220/tonne.

Agriculture contracted 0.3% in the three months to September, marking the seventh consecutive quarter of decline, according to Statistics SA’s data.

"These results come as no surprise as the sector continues to suffer the effects of the 2015-16 El Niño induced drought," said Wandile Sihlobo, head of economic and agribusiness intelligence at the Agricultural Business Chamber. "Overall, the significant shock came from summer crops, particularly grains and oilseeds."

The agency attributed a 0.3% decline in agriculture to a decrease in the production of horticultural products. But with forecasts of above-average rainfall in the new production season, farmers intend to plant more to replenish the depleted grain stocks.

Producers plan to ramp up the acreage planted to maize by 26.5% to 2.46-million hectares in the 2017 production year, which would probably alleviate food inflation.

Dawie Maree, head of information and marketing at FNB Business and Agriculture, said input costs were likely to ease in 2017, depending on the strength of the rand, which would affect the cost of imported goods such as fertilisers.

"Fertiliser and fuel are the major inputs in crop production, particularly grains, and accounts for about 35% and 11% [respectively] of total variable costs," Maree said.

Other important inputs for summer grain producers included electricity and water tariffs, and labour, said Maree.