Optimising Agricultural Value Chains in Southern Africa After COVID-19

Recommendations

Agricultural value chains in the SADC region should be geared towards creating opportunities both for small-scale subsistence farming and large-scale, export-geared commercial farming, thus constituting a ‘dual approach’ to agricultural development in the region.
Governments and the business sector should form public–private sector partnerships to develop resilient infrastructure for the agricultural sector, including the adoption of climate smart technologies.
Various activities in SADC agro-value chains should be digitalised to ensure more effective interactions between farmers, input suppliers, transport and logistics service providers, financiers and other value chain partners.
Priority should be given at government level to concluding outstanding issues relating to the implementation of the African Continental Free Trade Area (AfCFTA) which would then constitute the springboard for higher volumes of agricultural trade, thus improving trade revenues, food security and employment in the agricultural sector across the continent.

Executive summary

COVID-19 has affected global value chains (GVCs) by interrupting transport and logistics, supply and production dynamics, and demand and consumption patterns. These effects have also been felt in the Southern African Development Community (SADC) across agricultural value chains, impacting regional food security, intraregional trade and economic growth. Although agriculture has been less severely affected by COVID-19 than other sectors, the pandemic has nevertheless exposed challenges in SADC agro value chains and highlighted areas for improvement. This policy briefing explores these challenges and the impact of COVID-19, and how SADC can optimise agro-value chains in driving stronger regional integration and growth. Key challenges include a lack of heterogeneity in member countries’ agricultural activities, which hampers intraregional trade, a strong dependence on subsistence farming, which lacks commercial and export potential, and widespread food insecurity. Priorities going forward include enhancing food security in the SADC region, making more productive use of the small-scale farming sector and using the African Continental Free Trade Area as a lever for agricultural and regional development.

Introduction

COVID-19 has affected GVCs by interrupting activity in three areas: transport and logistics, supply and production dynamics, and demand and consumption patterns.¹These effects have also been felt in the SADC region across agricultural value chains, which comprise producers (farmers), suppliers (industries), distributors (transport and logistics) and consumers in the region. Agro-value chains are central to SADC food security systems, intra-regional integration, trade and cooperation, and economic growth.²

While the agricultural sector in the SADC region has been minimally affected by COVID-19, the pandemic has shed light on some of the challenges that SADC agro-value chains face and accentuated them

The disruption to export and import activity has effectively reduced trade flows and increased trade deficits

While the agricultural sector (in contrast to other sectors) in the SADC region has been minimally affected by COVID-19,³the pandemic has nevertheless shed light on some of the challenges that SADC agro-value chains face and also accentuated them. Job creation has declined significantly in the agricultural sector due to social distancing regulations.⁴Furthermore, informal, small and medium-sized enterprises (SMEs) have had to contend with shifting demand patterns, interrupted sales channels and limited access to inputs and services.⁵South African SMEs were already struggling before the pandemic, with 80% of small business owners saying (in a 2019 survey) that they would need funding. By May 2020, it was estimated that SMEs would see their revenue decline by 60% during the pandemic.⁶

The disruption to export and import activity has effectively reduced trade flows and increased trade deficits. For instance, the closure of borders reduced informal cross-border transactions, which account for 30–40% of intra-SADC trade.⁷The pandemic has highlighted the globalised nature of trade and the importance of the SADC region integrating into global value chains in order to improve countries’ development prospects.⁸However, the pandemic has also presented unique opportunities for ‘building back better’ and developing inclusive agro-value chains in the region.

This policy briefing explores the short- and long-term effects of COVID-19 on SADC agro-value chains, first depicting the state of agriculture in the region and then highlighting the challenges presented by the effects of the pandemic. It also discusses some of the opportunities available to policymakers to develop sustainable agro-value chains in the region.

Agriculture in SADC: Recent trends

Agriculture is a major economic activity for most SADC member countries. It provides employment, trade opportunities, food and income to around 70% of the region’s population and the performance of the sector is closely linked to economic development, food security and stability.⁹However, agriculture’s contribution to gross domestic product (GDP) varies widely across SADC member countries. In countries such as Botswana, South Africa, Mauritius and Zambia, agriculture’s share of GDP is less than 3%, whereas it is more than 26% in countries such as Madagascar, Mozambique and Malawi (Table 1).¹⁰

In 2018, the region was severely affected by the El Niño-induced drought.¹¹However, SADC then set off on a recovery path with South Africa, for instance, expected to deliver its second-largest grain harvest in the 2019/2020 season.¹²The regional average contribution of agriculture to GDP is around 13%.¹³As such, agriculture, including agro-processing and agricultural value chains, has been earmarked as one of three potential growth areas, alongside ‘natural resource-led growth including minerals beneficiation and processing, also linking into value chains, both regional and global, and enhanced participation in domestic, regional and global value chains’,¹⁴under the SADC Industrialization Strategy and Roadmap 2015–2063. This roadmap places a specific focus on agro-processing and regional collaboration through the implementation of a comprehensive regional agricultural policy (RAP) and the development of an agricultural information management system (AIM) which is designed to improve coordination at both the national and regional levels. These initiatives highlight the importance of agriculturally geared economic activity to drive socioeconomic development.

Despite greater attention being given at the national and regional levels to developing the agricultural value chains across SADC member countries, the region faces some well-documented challenges in their pursuit of such an objective.

Agriculture, including agro-processing and agricultural value chains, has been earmarked as one of three potential growth areas, alongside ‘natural resource-led growth including minerals beneficiation and processing, also linking into value chains, both regional and global, and enhanced participation in domestic, regional and global value chains’

First, SADC economies tend to be at similar levels of agricultural development and produce similar products, such as grains (maize, wheat and sorghum), nuts and vegetables, among others – except for South Africa which also produces wine and citrus fruits.¹⁵

Second, the agricultural sector in Africa has been experiencing ‘sustained neglect’, which has effectively transformed the continent from a key exporter of agricultural products in the 1960s to a net importer today.¹⁶

Third, half the total population of the SADC region is employed in the agricultural sector, but the region’s focus remains predominantly on subsistence farming, rather than on large-scale commercial production for export purposes.¹⁷However, both subsistence farming and export-orientated farming are valuable in their own way: the former has

The agricultural sector in Africa has been experiencing ‘sustained neglect’, which has effectively transformed the continent from a key exporter of agricultural products in the 1960s to a net importer today

significant socioeconomic benefits and the latter contributes to economic development through export earnings. Therefore, neither should be neglected. In fact, it is important for SADC countries to take a dual approach to improving agro-value chains in the region – improving both subsistence farming and export-orientated production.

Fourth, there is growing uncertainty surrounding food production. Climate change has already complicated the issues of crop choice and optimal geographical locations for crop production.¹⁸For example, in 2018, the impact of the escalating climate crisis on southern Africa became clear when over 41 million people in 13 of the 16 SADC countries were estimated to be food insecure.¹⁹Unfortunately, this is a continuing trend: in 2020 Zimbabwe experienced a 57% drop in maize production due to poor rainfall and the economic meltdown in the country, while eSwatini, Mozambique and Lesotho were among several countries affected by dry spells.²⁰

There is growing uncertainty surrounding food production. Climate change has already complicated the issues of crop choice and optimal geographical locations for crop production

Even before COVID-19, agriculture and agro-value chains in Africa had been facing the challenges mentioned above.²¹The predominance of small-scale subsistence farming had already been putting pressure on governments and private-sector entities in the SADC region to create a more enabling environment for farmers to expand their operations.

The latter would include developing transport infrastructure to and from remote farming areas and incentivising agricultural suppliers and industries to move closer to these farms to afford them easier access to inputs. This is because boosting agricultural productivity is not enough to reduce poverty or develop SADC agro-value chains. Effective and efficient trade within the region as well as with other, international markets is also important.²²Developing resilience in agricultural production and adopting climate-smart technologies are further keys to developing and maintaining SADC agro-value chains.

Effects of COVID-19 and associated lockdowns on SADC agro-value chains

SADC’s agro-value chains experienced relatively few disruptions from the COVID-19 pandemic because agriculture was generally declared an essential industry sector.²³This has helped maintain relatively resilient agro-value chains in the region as transport routes and ports have remained open. For example, notwithstanding the COVID-19 pandemic, Namibia has recorded a 42.7% growth rate in its agricultural sector.²⁴Using available data from South Africa as a proxy for agricultural trade throughout SADC in 2020, a general trend was evident. Table 2 below shows South Africa’s exports to the SADC region from January to July 2020.

Table 2 shows that there was a drop in agricultural exports in the months of April and May 2020, which was around the time that lockdowns were being introduced by governments, but these drops were not significant and exports had recovered by around June. Similarly, Table 3 below shows that imports from the SADC region into South Africa have not been affected by the pandemic, specifically the closure of borders and national lockdown measures.

The real impact of COVID-19 has largely been in how it has exacerbated the (aforementioned) existing challenges²⁵occurring in SADC agro-value chains ‒ evidenced in particular in the actions taken by governments to limit the impact of the pandemic. These are discussed below.

The real impact of COVID-19 has largely been in how it has exacerbated the existing challenges occurring in SADC agro-value chains

SADC agro-value chains: Opportunities amid the challenges

First, the most devastating socioeconomic consequence of COVID-19, as far as SADC agro-value chains are concerned, has been the difficulty faced by many in acquiring access to food, resulting in rising levels of hunger. The Synthesis Report on the state of food and nutrition security and vulnerability in Southern Africa 2020 showed that about 44.8 million people in southern Africa, living in both urban and rural areas, are food insecure. Data shows that food insecurity increased by about 10% between 2019 and 2020.²⁶In addition, the closure of schools due to COVID-19 has negatively affected food and nutrition security among children of school-going age, with an estimated 20.5 million schoolchildren not having access to meals and nutrition services normally provided by schools.²⁷

The Synthesis Report on the state of food and nutrition security and vulnerability in Southern Africa 2020 showed that about 44.8 million people in southern Africa, living in both urban and rural areas, are food insecure

Second, international agricultural production has increased. Similarly, SADC has recorded an 8% increase in maize production. However, the SADC region has seen disruptions in the transportation of agricultural produce, such as grain – prompted by COVID-19-related restrictions and border closures ‒ and its subsequent distribution to countries with food deficits.²⁸

Third, the introduction of national lockdowns aimed at helping to mitigate the spread of COVID-19 has resulted in rising unemployment and the hardship that goes with it as the majority of people living in southern Africa ‘live hand to mouth’.²⁹The implications for domestic markets and industries have been severe as travel restrictions have meant that some businesses, particularly SMEs and those in the informal sector, have had to lay off workers because they could not pay them, while other businesses have closed permanently. For instance, the shutting down of Beitbridge, the largest inland border in southern Africa between South Africa and Zimbabwe, curtailed intraregional trade and the movement of over 25,000 people per day.³⁰Based on earlier data (Tables 1‒3), the impact was particularly acute between April and May 2020.

Fourth, COVID-19 resulted in delays in the negotiation and implementation of the African Continental Free Trade Area (AfCFTA), which was to have taken off in mid-2020. The FTA eventually took effect in January 2021, although a number of countries still need to ratify the agreement in order to benefit from its tariff-free trade provision.³¹The successful implementation of the AfCFTA has the potential to significantly strengthen regional integration efforts.³²It will also enable SADC agricultural value chains to offer protection to small-scale farmers, local markets and emerging industries through the elimination of tariffs on 90% of goods produced and a guarantee of free movement across the continent, which is vital for cooperation and consolidation of resources among member states.

The successful implementation of the AfCFTA has the potential to significantly strengthen regional integration efforts. It will also enable SADC agricultural value chains to offer protection to small-scale farmers, local markets and emerging industries

Fifth, the spread of COVID-19 has seen the heightened adoption of digital services across value chains globally. This has included a greater uptake of automation technologies, consumer-oriented platforms for food delivery, business-to-business e-commerce applications, and videoconferencing, among others.³³These services have had the effect of restructuring global value chain activities. SADC countries need to adapt to these changes, while also considering what is technically feasible in a regional context in view of the fact that technology utilisation varies in large-scale commercial farming and small-scale subsistence farming, respectively.³⁴With the adoption of technologies such as smartphone apps, videoconferencing and business e-commerce applications, there is great potential to extend agricultural value chain opportunities to smallholder farmers – those who have previously been precluded from participating in, and benefiting from, value chains.³⁵

Conclusions and the way forward

SADC agricultural value chains face a number of challenges, chief among them being climate change, low levels of agricultural infrastructure development, poverty and food insecurity, the predominance of subsistence farming over export-oriented agriculture and, more recently, delays in the implementation of the AfCFTA. Although the agricultural sector in SADC has largely been spared the negative fallout from COVID-19 compared to other sectors, the latter has still exacerbated existing challenges facing the sector.

There are, however, opportunities for SADC to build more robust and inclusive agricultural value chains. Importantly, small-scale subsistence farming needs to be supported along with export-orientated commercial farming, with the help of appropriate interventions. There is also scope for SADC member governments and private businesses to form partnerships in developing resilient infrastructure, using climate-smart technologies that will take regional agriculture into the future and ensure that it is a sustainable driver of development. Another future-proofing technique would be to digitalise the SADC agro-value chains to improve communication between, and optimise the performance, of farmers, input suppliers, transport and logistics service providers, financiers and other value chain participants. The long-awaited AfCFTA, in turn, has the potential to be a catalyst for augmented agricultural production across the continent and to afford small farmers the opportunity to play a meaningful role in Africa’s agricultural development.

Acknowledgement

SAIIA gratefully acknowledges the support of SIDA for this publication.

Optimising Agricultural Value Chains in Southern Africa After COVID-19

COVID-19 has affected global value chains (GVCs) by interrupting transport and logistics, supply and production dynamics, and demand and consumption patterns.

Recommendations

Executive summary

Introduction

Agriculture in SADC: Recent trends

Effects of COVID-19 and associated lockdowns on SADC agro-value chains

SADC agro-value chains: Opportunities amid the challenges

Conclusions and the way forward

Acknowledgement

5 May 2021

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