Amidst the challenges in South African agriculture, the sector has been experiencing more than a decade of positive net farm income growth – 32%, in real terms, since 2006. This trend is expected to continue in the medium term, according to Jacques Taylor, Managing Director: John Deere Financial, Sub-Saharan Africa.
As a price taker, farmers are at the mercy of increasing costs (key concerns include electricity and labour). This cost squeeze has prompted many farmers to look at ways they can improve efficiencies. The biggest effect has been a move towards mechanisation.
This worldwide trend clearly shows the strong correlation between economic growth and mechanisation: Countries that have achieved unprecedented economic growth over the past three decades have succeeded in solving their food problems and have also moved to higher levels of mechanisation in agriculture.
This move towards increasing mechanisation on farms across Africa is vital for necessary food production increases as the population of the southern African region expands.
The greatest driver in advancing agriculture and economic growth on the continent is improving tenure security, according to a recent World Bank report. Clear and equitable land and natural resource rights are key in creating a stable environment for investments of all kinds.
The number of middle-class Africans is estimated at 350 million out of a total population of approximately 875 million. Africa’s middle class has tripled over the last 30 years and continues to grow. More specifically, South Africa’s black middle class has grown from 1,7 million people in 2004 to an estimated 4,2 million in 2012. As African economies grow, the wealth is trickling down and Africa now has the fastest growing middle class in the world.
This explosion is good news for agriculture. People with sufficient spending power choose what they eat, and will increasingly choose high quality animal protein whilst reducing their consumption of staples, such as cereals, roots and tubers.
The rate of return on foreign investment in Africa is higher than in any other developing region. Among the 50 global economies with the biggest improvements to do business in since 2005, the largest share – one-third of them – are in sub-Saharan Africa, according to the World Bank.
‘Stimulating agricultural advancement on the continent will require innovative solutions that challenge past pre-conceptions. The opportunities that exist need to be capitalised on now. John Deere Financial is in a position to support agribusiness and farmers alike, in endeavouring to enhance agriculture, to feed the world, and to secure our future,’ Taylor concluded.
John Deere Financial is supported by Absa Bank – a member of the Barclays Group – an authorised financial services provider and registered credit provider.