Growth of the agricultural sector critical to ensure uninterrupted supply of food to the FMCG sector
Growth of the agricultural sector critical to ensure uninterrupted supply of food to the FMCG sector
Serena Ho, Partner (Audit), BDO South Africa
The growth of the agricultural sector will always be critical not only for national food security in SA but to ensure uninterrupted supply of manufactured food products to the Fast-Moving Consumer Goods (FMCG) sector. The agricultural sector, which contributed about 2.8% to GDP in 2024, is also a crucial source of full-time and seasonal employment, provides raw materials for other sectors such as manufacturing and continues to be an important driver for economic growth.
For the FMCG sector, an efficient supply chain of food products and fresh produce strengthens retailers’ competitiveness, while giving consumers a wider choice of products to choose from.
There is therefore a direct link between food production and the FMCG sector. For example, the impact of any disruptions in the food production cycle, from the farm to processing, has significant ripple effect throughout the supply chain, and will ultimately affect availability of food in the retail shops, as well as price.
To ensure resilience of the food supply chain in the FMCG sector, it makes it even more imperative that support be given to both large and small-scale farmers to expand production. In SA’s case, farmers are facing several challenges that are affecting both production and their viability.
While rising input and production costs have always been a concern for farmers, probably now one of the single largest threat is the impact of climate change, which is being felt through unusual weather patterns characterised by unseasonal flooding and prolonged droughts. Droughts reduce the availability and quality of water which is necessary to ensure productivity on the farms. Recent droughts in SA have resulted in significant direct and indirect financial and economic impacts for farmers.
It has therefore become even more critical to provide incentives to encourage rainwater harvest and provide infrastructure for water storage management to improve water availability in times of drought. We know from global warming that water will increasingly become a scarce resource globally, and this calls for farmers and the country to make efficient use of water and build resilience.
Given that SA enjoys so much sunshine, it makes it a practical investment proposition for farmers to invest in solar powered irrigation systems. This is where incentives such as the tax breaks once given by SARS where companies could claim a 125% renewable energy tax incentive, become important for farmers.
We need to reconsider more such incentives to help in reducing input costs for farmers. Furthermore, government should consider providing better finance structures to farmers to invest in tech/solar powered systems. Small-scale farmers also need help; for example, concessionary and affordable funding to invest in water infrastructure, expand production, and also to enhance knowledge and educate them on techniques like crop rotation, ensuring minimal soil disturbance and make less use of synthetic fertilisers and pesticides.
Further downstream, we need to attract investment in processing of agricultural produce. This can be achieved by designating more special industrial development zones to encourage companies to set up factories in these zones to allow manufacturers to process produce from farmers. These zoned areas enjoy favourable tax deductions, making them even more favourable to investors.
Digital solutions will be key to enhance food production because that is the way the world is going. While currently IT hardware costs may be costly for farmers, they nevertheless need to widen their digital knowledge, particularly on how to interpret data and be able to use it efficiently. They can also invest in drones to monitor crop growth, spraying and harvesting among other benefits of using such technology.
Concluding, SA’s agricultural sector has potential for further growth, given that the country has an abundant supply of arable land that can be developed into farmlands and contribute to stimulating economic growth.
But we need to get the basics right; from the right incentives and financial support, to addressing concerns such as deteriorating infrastructure, particularly the road network, and dealing with crime and farm murders.
The development of export markets for the agricultural sector is also important, particularly in response to recent tariffs imposed by the US. While market diversification takes time, still we’ve to start now to mitigate the impact of US tariffs on SA’s agricultural products. If we get these things right, the agricultural sector will strengthen its competitiveness and its role and contribution to economic growth, while ensuring the supply of food and raw materials to manufacturers supplying the FMCG sector.