Overview of the vegetable industry of the Western Cape

Transcription

1 Overview of the vegetable industry of the Western Cape 1 Hoffmann W.H. and 2 Harrison K 1 Agricultural economist: Department of Agricultural economics, Stellenbosch University 2 Consultant: Indego Consulting 1. Introduction The Western Cape Province is the fourth largest province of South Africa in terms of land size. It is also accepted that agriculture is a significant contributor to economic activity and output for the Western Cape Province. The Western Cape is relatively unique in terms of agricultural production in that it is a typical Mediterranean climate area. This means that winter rainfall and hot dry summers is characteristic for the province. A relatively wide spectrum of commercial farming types is geographically located over the province with the acceptance of tropical fruits. The latter have also been introduced over recent years. The Western Cape Province contribute roughly 14% to the national GDP and is third behind Gauteng (34.7%) and Kwazulu-Natal (15.8%). But unlike the other provinces the relative contribution of agriculture to the GDP for the province is relatively high at 5.6%. The contribution of agriculture to national GDP is around 2.7% (Western Cape Government, 2014). It is obvious that agricultural output forms an integral component of the economic activities of the Western Cape Province. One of the areas of production of especially vegetables is the Philippi Horticultural Area (PHA) on what is known as The Cape Flats. The area is characterized by sandy soils, a relatively shallow water table, that may in winter lead to drainage problems and is often quite windy. The shallow water table, however, allow for the option to irrigate from boreholes to extract relatively high quality irrigation water. Farming in this area include mostly vegetable production, but also some dairy, poultry and horse farming activities. The total area under production is ha, according to a 2017 farmer survey. This area includes small scale, commercial and big commercial farms. The close proximity of the production area to a large market along with a relatively constant supply of high quality irrigation water benefits the producers. Contrasting to that and real threats to feasible production is; crime and crime related issues, encroachment of the PHA by informal settlements, uncertainty regarding the relay of the R300 and property developments. These challenges are all being dealt with in alternative reports and platforms. The main focus of this particular report is the feasibility of longer term vegetable production in the PHA. Feasibility is not only a function of production factors but also depend on the competitiveness of and industry as such. Therefore, the main aim of this report is to establish the importance of vegetable production and provide an oversight of the vegetable industry as such. This is carried out as a desktop exercise and draws on available reports and statistics. The method followed is roughly one of environmental scanning and will start of by an overview of South African agriculture, the Western Cape Province as related to South Africa, agriculture in the Western Cape and lastly draw on the relative contribution of the PHA. Throughout the whole exercise focus will be mostly on horticultural production and especially vegetable production. 3 Overview of Western Cape- relative to South African agriculture Figure 1 and 2, show the relative contribution of each province in South Africa to the total area (Figure 1) and to total population (Figure 2). The Western Cape Province make a higher contribution to population than to area, which means simply it is more densely populated than some of the other provinces, e.g. The Northern Cape.

2 Figure 1: The relative contribution of each province to South Africa in terms of area (Source: DEPARTMENT OF AGRICULTURE, FORESTRY AND FISHERIES, 2016, Abstract of Agricultural Statistics.) RELATIVE CONTRIBUTION TO SA POPULATION BY PROVINCE Western Cape Eastern Cape Northern Cape Free State KwaZulu-Natal North West Gauteng Mpumalanga Limpopo 10% 11% 8% 13% 24% 2% 5% 7% 20% Figure 2: The relative population of each province as percentage of total South African population Figure 3 shows the relative contribution of each province to the total farming area of South Africa. It is noticeable that again the Western Cape s contribution is relatively higher than its contribution to total area.

3 Figure 3: The relative contribution of each province to South Africa in terms of farming area (Source: DEPARTMENT OF AGRICULTURE, FORESTRY AND FISHERIES, 2016, Abstract of Agricultural Statistics.) Figure 4: The relative contribution in number of farm units per province The number of farm units for the Western Cape is relatively high compared to the area and farming area contributions. This is mostly due to a relatively large component of the Western Cape being farm

4 intensively and higher value crops are produced. In terms of relative economic contribution, the Western Cape does better on per area contribution as well as relative contribution to population. The rest of South Africa is however overshadowed by Gauteng, which is in economic terms the real powerhouse of South Africa. Figure 6 show the relative contribution of each province to national GDP. Figure 6: The percentage contribution of each province to national GDP (Source: Western Cape Government WESTERN CAPE PROVINCIAL PROFILE. Report: WCPP2014) Figure 7: The value of output of the main Agricultural sub-sectors From Figure 7 it is evident that production of horticultural crop is increasing, like all other produce, it is noticeable that over time the total horticultural output is less volatile than field crops. The value of animal production has increased more, which a normal trend where people move into higher income

5 groups. There is a natural shift in consumption way from starch (rice, maize, potatoes) to proteins (fish, meat, dairy, eggs). 4 Overview of vegetables compared to other agricultural products Figure 8 show the value of potatoes compared to all other vegetable types over the past 15 years. Figure 9 show the value of selected vegetables and potatoes over the past 15 years. It is important to note that potatoes, unions and tomatoes form most of the value produced, or output for the vegetable industry. It seems that the price for potatoes is relatively more volatile that for some of the other vegetables. This is however a year on year value movement and does not clearly reflect who the price risk involved with producing limited shelf life fresh products such as cabbage, salad, beetroot and broccoli. Figure 8: Comparative value of potatoes to all other vegetables Figures 11, 12 and 13 show the producer price indices for various groups of agricultural outputs. Figure 11 compare horticultural products to field crops and livestock crops. It shows that the price index for field crops is more volatile, but consistently higher than that of livestock products and horticultural crops (which has the lowest index value). Within the broader group of horticulture, fruit has the highest index value, as shown by Figure 12. This means that vegetables, compared to fruit, is keeping the price index for horticultural products lower. Figure 13 shows the producer price index for various selected vegetables on the major South African fresh produce markets. Its shows that the price index at producer level is high for selected products, including; mushrooms, sweet potatoes, cucumbers, cabbage and lettuce. That of other crops are relatively low, including: carrots, unions and pumpkins. In general, the prices are relatively volatile over all crops. It is however fair to say that vegetable producers are key role players in keeping the producer price of food relatively low.

6 Figure 9: The value of selected vegetables and potatoes over the past 15 years

7 Figure 10: Price trends for selected vegetables in the main fresh produce markets

8 Figure 11: Producer price indices for agricultural products Figure 12: Producer price indices for horticultural products

9 Figure 13: Producer price indices for selected vegetables on the major South African fresh produce markets

10 5 Philippi Horticultural Area: economic overview The Philippi Horticultural Area (PHA) is historically a vegetable production area situated on what, is popularly known, as the Cape Flats. Indicated in Figure 14, is the geographical location of the PHA. Farming originated in the mid 1800 s when a number of German families settled there and started farming. Over time, the area developed into one of the most important vegetable producing areas for the wider Cape Town market. Figure 14: Map of Cape Flats, indicating the Philippi Horticultural Area (Source: Socio-Economic Contribution & Potential of the Philippi Horticultural Area, Presentation to Government Stakeholders, Indego Consulting) The PHA is a relatively unique vegetable production area. A number of specific factors in a unique combination support the PHA. These factors include: first the proximity of the market. According to various role-players in the retail industry including the Big five super markets the PHA is seen as a valuable source of fresh produce. The fact that the PHA is close to the Epping fresh market also play a role in controlling the price of fresh produce. The area can produce in small time windows during the year when other producing areas are not harvesting. That is due to the second unique feature and that is climate. The fact that the PHA is relatively close to False Bay means that the South Easter (which is the predominant wind during the warm summer months causes a cool breeze on most days that makes

11 the production of heat sensitive crops possible. These include lettuce and cabbage. Figure 15 show the difference in temperature between Philippi and some of the competing production areas. The principle advantage that the PHA has is during the warmest summer months of December until March, when the PHA is clearly below the average temperatures of the competing areas. This means that specific crops will only be grown successfully in the PHA during these months. It is also normal for lettuce prices to be relatively high over the Christmas New Year period. Figure 15: The monthly temperature between major vegetable producing areas in the Cape Town area. The total area that is allocated to farming is Just over 1200 ha and the portion used for, mainly vegetable production is just less than 1100ha. A survey, by Indego Consulting, by the end of 2017 indicates just over 1000 ha to have official irrigation rights. Figure 16 show the most common land use types by crop for the PHA producers. The inter-cropping systems allow for roughly three to four crop cycles per annum. Crop cycles also vary from roughly days for lettuce and up to 150 days for crops like carrots and cabbage.

12 Figure 16: Land use by producers in the PHA

13 The yields for vegetables vary over time and also between crops. The typical yield expectations are presented in Annexure 1, to illustrate variance in vegetable crop yields. The normal yields and also the marketing window that producers aim for would allow for a general assumption of a turn-over of roughly R per ha per annum. That is taking into consideration more than one crop cycle but also allowing for different market prices. That means that the total turnover for the Philippi Horticultural Area is roughly R /annum. There are however, opportunity during the marketing year for higher than usual profit margins, depending on time windows and total supply to the various markets. This could in other words be a relatively conservative estimation. Figure 17 show the total value of agricultural business in the PHA. This figure includes input supply, processing and packing, cold storage and general agribusiness, and not only production. Considering the crops produced in Philippi, as shown in Figure 16, and comparing that to the producer price indices, shown in Figure 13, it is to some extent positive that, except for carrots, most of the crops are in a positive price trend, from a producers perspective. Figure 17 confirm the upwards trend in value of agriculture in the PHA. The growth in terms of year on year ranges between 4% (2009) and 10% (2011). This is roughly within the normal inflation rate for South Africa and does not indicate real growth. An important aspect of agriculture is that of employment. The PHA is geographically located not only in close proximity to major markets, but to an abundant supply of labour. The survey indicated the total amount of full time and seasonal labourers employed in the PHA and is presented in Table 1. It is important to note that these labourers are only those directly employed in primary production. The agricultural activities in the PHA also employ workers in value adding activities such as packaging, cooling, transport and input supply. Figure 18 shows a schematic presentation of a typical supply chain system for fresh produce. It shows that primary production will subsequently employ a number of labourers (possibly relatively skilled labour) in the downstream side as well as input supply. Input suppliers to farming include: planting material (seed or seedlings), fertilizer companies, plant protection companies, energy suppliers, mechanization suppliers, packing material, information suppliers, water services and irrigation equipment suppliers. Table 1: Employment figures for the PHA

14 Figure 17: The typical supply chain system for fresh produce from the PHA

15 6 Wider economic importance: Economic multipliers The idea or concept of multipliers is defined as the nature and extent of the impact/effect of an autonomous change in a specific economic quantity (i.e. exports) on other economic quantity or quantities, for instance production or employment. Definition of the multipliers concept by (Samuelson 1970) is as follows: The multiplier is the number of which the change in investment must be multiplied in order to present us with the resulting change in income. The standard sector impact multiplier can be defined as the total impact on a certain macroeconomic variable, which occurs throughout the economy if a specific sector production change by R1 million. These multipliers thus work on sector level and is in essence not designed to measure the impact on a specific geographical area. A number of existing multipliers will however be used to measure the theoretical impact against the available data. This is needed because not all the producers filled out and participated in the survey and the data, thus do not include all the farmers. The following multipliers will be used: Labour Multipliers = Total Employment (Numbers)/Direct Production Capital Multipliers = Capital Formation/Direct Production The function for sector j has the following format: ej = a + bxj where: ej = employment in sector j (labour); a = constant; b = employment-output ratio of sector j; and Xj = real output of sector j. The Social Accounting Matrices form the basis for calculating the multipliers including standard multipliers. It s important to note that the Social Accounting Matrix (SAM) is a specific and special extension/application of Input-Output analysis (Mosaka, 2015). 6.1 Labour Table 2: Example of the Multipliers as indicated by the SAM modelling

16 This means that when applied to the PHA for instance the case of labour multipliers will result in: Total output from production: R (Conservative calculation) R (Weighted amount according to survey) For every R 1 million 4.65 jobs are created in the vegetable industry and thus it creates in the PHA: On the conservative production value: 440 X 4.65 = 2046 jobs. (This is less that the actual labour according to survey, but is calculated on a conservative figure.) On the survey amounts: 581 X 4.65 = 2701 jobs (this very close to the actual survey, but does not include value adding labour ect.) 6.2 Capital formation On capital formation the multiplier is That would mean that for the two sets the amounts would be: Conservative: 440 X 1.94 = R853.6 Million Survey: 581 X 1.94 = R Million This means that the value invested in capital, excluding the actual land value is almost twice that of production output. 7 Conclusion The Philippi Horticultural Area (PHA) is a unique geographical area on the Cape Flats that is renowned for vegetable production. A variety of specialized vegetable are produced in this area, which includes lettuce and cabbage. These crops can be difficult to produce because of sensitivity to elements such as soil and weather. In this regard the PHA is especially well situated as the daily maximum temperatures in the summer is much lower than that of other vegetable producing areas. This also allow the producers to exploit certain time windows in the market that makes vegetables more lucrative for those time pockets. In general the PHA produce a variety of vegetables, seedlings, dairy, chickens and pork, but is best known for vegetable production. The total cultivated area is 1100 ha roughly and employ 2700 workers and a turnover or R , relatively conservatively calculated. It is thus obvious that the PHA is an important contributor to livelihoods within a relatively poor and socially challenged larger community.

17 References: DEPARTMENT OF AGRICULTURE, FORESTRY AND FISHERIES, 2016, Abstract of Agricultural Statistics Johnson G.I., Weinberger K. and Wu M-H The Vegetable Industry in Tropical Asia: Thailand Mosaka Economic Consultants CC, Trading as Conningarth Economists Sectoral Multipliers: Study area National and Western Cape. Western Cape Government WESTERN CAPE PROVINCIAL PROFILE. Report: WCPP2014. Compiled by the Agricultural Economic Services: Marketing and Agribusiness. Date of compilation: August 2014.

18 Annexure 1: EXPECTED YIELDS There can be very marked differences between yields of different plantings of a vegetable crop, depending on the cultivar selected, and on the environmental conditions prevailing during the growth of the crop. Even larger differences in yield between crops can be ascribed to the cultural practices applied, and to the relative expertise of the individual growers. Certain farmers consistently achieve good yields of good quality, while others produce poor crops. This difference in the ability of growers is of particular importance with horticultural crops, which are grown intensively. Whether the causes of yield differences are environmental or managerial, a grower inexperienced in a particular vegetable crop needs to have some indication of potential yield as an aid when making decisions about growing the crop. Expected yields from commercial plantings of some vegetable crops can be listed under three headings: The conservative yield The "conservative" yield is that obtained from a relatively poor crop, and is frequently not economical to produce, unless particularly high prices are realised. The likely yield The "likely" yield is that achieved from the majority of plantings by the average grower. The target yield The "target" figures are those that a good grower could realistically achieve in practice. These are not considered to be the potential yields of the prospective crops. For example, the target figure for dwarf green beans is given as 10 to 15 tons per hectare. Yields of over 20 tons per hectare have been achieved by some growers, even from large plantings, and certain trial plots have yielded the equivalent of about 30 tons per hectare. Similarly, carrots could yield in excess of 70 tons per hectare, cabbage over 110 tons per hectare and tomatoes more than 100 tons per hectare, from specific commercial plantings. However, such yields are exceptional. Yields that a commercial grower may expect from the main vegetable crops grown, divided according to the above categories, are suggested in the following table. Table 8. Commercial yields of vegetable crops. Crop Yield in tons per hectare Conservative Likely Target Artichoke, globe Asparagus 1,5 2,5 4 Bean, broad Bean, dwarf, green Bean, lima Bean, runner, green

19 Crop Yield in tons per hectare Conservative Likely Target Beetroot Broccoli Brussels sprouts Butternut Cabbage Carrot, large Carrot, baby Cauliflower Celery Chilli, green Chilli, dry 1,5 2,5 4 Cucumber Egg-fruit Garlic Gem squash Hubbard squash Lettuce Marrow, bush, large Marrow, baby Melon, musk Melon, sweet Melon, water Onion, large Paprika, dry 1,5 2,5 4-5 Parsley Parsnip Pea, green, in pods Pea, edible podded Pepper, sweet, bell

20 Crop Yield in tons per hectare Conservative Likely Target Potato, dryland or hot areas Potato, irrigation Pumpkin, boer Spinach, true Sweet-corn Sweet potato Swiss chard Tomato