The Liberation of the South African Agricultural Sector

By Amy Grundling 

Market intervention schemes providing support to farmers were implemented internationally for decades. State support grew stronger in the 1930’s with the aim to mitigate the negative effect of the economical great depression. The interventions were enabled by the Marketing Act which was one of the most controversial pieces of economic legislation in the history of South African agriculture. It was first enacted in 1937 (Act 27 of 1937) and amended in 1968.

During the late 1990’s South Africa went through radical political and economical reform. The Marketing Act of 1968 did not comply to the new social, political and economical needs of the new democratic South Africa. The new Marketing of Agricultural Products Act, Act 47 of 1996 was therefore developed. 

The Marketing of Agricultural Products Act of 1996 (MAP), which replaced the Agricultural Marketing Act of 1968, liberalized the South African agriculture sector. The Agricultural Marketing Act of 1968 gave the government total control over the domestic and trade market. Partial reforms accrued during the 1980's and early 1990's, but it was only in 1994-97 when radical reform took place after South Africa’s firs democratic elections.

Before the radical reform took place in the agricultural sector, the Marketing Act (1968) enabled the Minster of Agriculture to promulgate marketing schemes which was administered by control boards. The control boards had varies power such as: implementing fixed prices, marketing quotas, fixed transport tariffs, levies on products, registering produces, traders and processors and legally being the sole buyer or seller. These controlled agricultural schemes created problems in South Africa’s economy and food security. Examples of these problems were the limited market access of previously disadvantaged people, the negative impact on other sectors such as the transport industry, the increase of input cost, destroying surplus yields to control prices and eliminating competitive pressure.

These market limitations caused the South African agricultural sector to lose their competitive advantage. Therefore, it was not only the domestic market that was negatively influenced but also the export market. These were the driving forces for the radical reform that took place in 1994. The new Marketing of Agricultural Products Act (1996) reduced state intervention in marketing and product prices in the agricultural sector.

The new Act abolished all the schemes of the 1968 Act and appointed the National Agriculture Marketing Council (NAMC) in the place of the control boards.  The role of the NAMC is to advise the Minister of Agriculture in the decision-making process. The first council comprised of 10 members was established on 6 January 1997. The liberalization of the agriculture sector created a free market system that is driven by supply and demand to dictate the market prices.

The Uruguay Round Agreement of Agriculture (URAA), required the South African government to decrease government support. The aim of the URAA was to enable World Trade Organization (WTO) members to trade without causing fluctuations in market prices and failure of export earnings. Through the MAP Act direct controls over imports were replaced by tariffs, which were set according to the bound rated of the URAA and eliminating government control over exports.

The withdrawal of support from the commercial farmers pressured the agricultural sector, while deregulation of input and services. According to the Organisation for Economic Coperation and Development (OECD) report, which was published in 2006, this effected the large changes in the market, which included:

1. the shift of production out of grain to livestock in marginal production areas;
2. increased intensive in the agricultural sector such as the horticultural sector;
3. commercializing grain silos due to a greater participation in risk management by farmers;
4. strengthening of the role of organised future markets such as SAFEX;
5. the acceleration of the development of the agriculture value chain, specific in the processing sectors and foreign trade.

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However, the limited state support agreed in the URAA and MAP Act creates an unequal playing field due to WTO countries that do to follow the agreement. Today, many of the WTO countries’ farmers still receives subsidies from their governments. This causes an unequal playing field between these countries. For example, European farmers are paid per liter milk and conservation subsidies by the European Union. This caused them to sell their products at a lower market price as the South African farmers.  These agreements make it more difficult to obtain protection against unfair trade practices.

The South African government needs to re-evaluate the position of our agricultural sector. It is important for government support in a free market system to ensure that trade agreements and policies benefit South Africa’s agricultural sector and not limiting it.