This report measured and analyzed the competitiveness of the agribusiness sector in South Africa. Currently, the agribusiness sector in South Africa is in a declining phase in terms of its competitiveness status. The major reason for this trend is the reality that the South African competitive environment for agribusiness is currently less than optimal; rather, it is increasingly constrained.
Clearance Office: Office of Country and Regional Affairs (OCRA)
GAIN Report Number:
South Africa - Republic of
South Africa's Agribusiness Sector - Competitiveness on the
Agriculture in the Economy
How competitive is the South African agribusiness sector globally and how favorable is the competitive environment in
which it must operate? This report measured and analyzed the competitiveness of the agribusiness sector in South
Africa. Currently, the agribusiness sector in South Africa is in a declining phase in terms of its competitiveness status.
The major reason for this trend is the reality that the South African competitive environment for agribusiness is
currently less than optimal; rather, it is increasingly constrained.
The aim of this report is to evaluate the changing business environment facing the agribusiness sector in South Africa
and to measure the impact on the competitiveness status of the sector. The analysis is conducted through measures such
as the ?Relative Trade Advantage? method and the ?Porter Diamond? analysis. Using the Agribusiness Executive
Survey approach to mobilize the participation of executives and agribusiness leaders in South Africa, the analysis
showed that the business environment for this sector is constrained with a negative trend since 2004. The impact of this
situation is also confirmed by the Agribusiness Competitiveness Status index.
The agribusiness sector worldwide is changing profoundly, and changes appear to be accelerating. Volatile food and energy
prices, a major international financial crisis and a world economy in recession have contributed many new challenges to
agribusinesses around the world. In addition global trends in the agro-food sector are driven by consumer behavior, alternative
usages for food and new technologies.
Domestically, South Africa is emerging from a historically dualistic agricultural economy, induced by policy settings and
historical resource endowments, comprising a well-developed commercial sector and a subsistence-oriented sector in the previous
?homeland? areas. This historical dualism impacts dramatically on developments, policies and strategies of the South African
agribusiness sector. Furthermore, the new Marketing of Agricultural Products Act, No 47 of 1996 spelled out a set of rules that
differed quite significantly from earlier legislation. After being in a controlled marketing environment for more than 20 years, the
agribusiness sector in South Africa was dramatically affected by these changes in marketing legislation which promoted a free
market approach. Free trade agreements also reduced the import protection for the agribusinesses sector dramatically.
Competing under these conditions can be harsh, but given a global regulatory environment that entrenches the notions of
international competition (on both regional and global level), South African agribusiness have simply no choice but to
competitive or it will not remain sustainable. But, how competitive is the South African agribusiness sector globally and how
favorable is the competitive environment in which it must operate?
This report measured and analyzed the competitiveness of the agribusiness sector in South Africa, which operates in a dynamic
and involving competitive environment. Three instruments were used, namely, the Agribusiness Competitiveness Status index
(ACS), based on the Relative Trade Advantage (RTA) method; the Agribusiness Executive Survey (AES), based on the methods
used by the International Institute for Management Development (IMD) and the World Economic Forum (WEF) to prepare the
World Competitiveness Yearbook and the Global Competitiveness Report, respectively; and the trends in the Determinants of
Competitiveness index (ADC), based on the ?new? competitiveness theory as described by Michael Porter of the Harvard
2. DEFINING COMPETITIVENESS
Three levels of competing can be identified: Competitive survival ? the lowest level of competing - refers to the ability to adapt
passively or reactively to changes in the competitive environment. Competitive anticipation - refers to the ability to anticipate
and respond proactively to changes in the competitive environment by improving the qualities and activities of the business to
become more efficient and flexible. Competitive winning - the ability to defeat your competitors by influencing and even
?designing? the changes in the competitive environment through more efficient operation, innovation and better qualities than
With the above views in mind, competitiveness can then be defined as the ability of a sector, industry, or firm to compete
successfully in order to achieve sustainable profits and growth within the global environment while earning at least the
opportunity cost of returns on resources employed. To compete means to try to gain or win something by defeating other
3. THE COMPETITIVENESS STATUS OF THE SOUTH AFRICAN AGRIBUSINESS SECTOR
To measure how competitive the agribusiness sector in South Africa is, it is necessary to determine how successful the sector
sells its products over time in the local and global environment. The Relative Trade Advantage (RTA) method as originally
developed by Balassa (1977, 1989), extended by Volrath (1991), and used by many scholars in recent years [these include
Valentine & Krasnik, (2000), Esterhuizen & Van Rooyen (1999), Esterhuizen & Van Rooyen (2001), ISMEA, (1999), Pitts,
O?Connell & McCarthy, (2001), Ferto & Hubbard, (2001)], allows for the measurement of competitiveness under real world
conditions such as uneven economic ?playing fields?, distorted economies and different trade regimes and are therefore the most
suited for measuring competitiveness status.
3.1 The Agribusiness Competitiveness Status Index:
Using the RTA methodology an Agribusiness Competitiveness Status index (ACS) for South Africa was developed. The ACS
from 1960 to 2008 is shown in Table 1 and illustrated in Figure 1. The ACS index has values at levels of less than one for most
of the period which means that the competitiveness status of the South African agribusiness sector can be classified as generally
marginal (not winning) in terms of global competitiveness [competitive (RTA > 1), marginal competitive (1 > RTA > -1), not
competitive (RTA < -1)]. There is also a definite negative trend in the ACS index from 1960 to 2008. This implies that
adjustments related to factors influencing the competitiveness status are needed to change the status to positive and turn the
negative trend around. It will, however, be important to identify the particular set of factors required to facilitate the upgrade.
However, the generalized classification of the agribusiness sector as having a marginally competitive status, disguises the varying
rates of competitiveness between the different value chains within this sector. In some value chains South Africa is indeed very
competitive; however, the aim of this report is to look at the agribusiness sector as a whole.
Table 1: The competitiveness status of the South African agribusiness sector
2008 2007 2006 2005 2004 1960-08 1980 - 08 1990 - 08 2004-08
The ACS index 0.12 0.00 0.25 0.53 0.39 - + + -
Notes: ?+? Positive trend; ?-?negative trend;
Competitive (RTA > 1), marginal competitive (1 > RTA > -1), not competitive
(RTA < -1).
Figure 1: The Agribusiness Competitiveness Status index (1960 ? 2008)
The trends in the competitiveness of the agribusiness sector in South Africa from 1960 to 2008 can be divided into four phases,
Phase 1 ? Government supported competitiveness. The first phase was during the 1960?s and early 1970?s. South Africa?s
agribusiness sector was relative competitive, with RTA values above one. This was mainly as a result of relatively low interest
rates and low inflation. Subsidies and high protection from government also contributed to making the agribusiness sector more
competitive during this period.
Phase 2 ? Constrained economic and political environment. The second phase was from the mid-seventies to the early-
nineties. Increasing political pressures by the international environment during the 1970s and the imposing of sanctions resulted
in a huge drop in competitiveness. Political uncertainty and instability was at the order of the day. Interest rates were also
relatively high. Also during this period the marketing of agricultural products were regulated by marketing boards. Note also the
negative impact of the drought years of 1973/74, 1978/79, 1983/84, 1984/85 and 1992/93 on the competitiveness of the
agribusiness sector in South Africa. The slight increase in the competitiveness of the agribusiness sector in South Africa from the
mid 1980?s to the early 1990?s can be attributed to the first phase of deregulation that was introduced.
Phase 3 ? ?Madiba Magic?. With the release of Nelson Mandela (Madiba) in 1990, economic sanctions were lifted, leading to
international business exposure, access to international supply chains and increased investments. By 1997 the agribusiness sector
was fully deregulated and operated in a free market environment. During this ?magical period? the competitiveness index for the
South African agribusiness sector increased from ?0.15 in 1992 to 0.53 in 2003. The period from 1992 also indicates the start of
the sharp and continuous decrease in the value of the Rand against the US$. Although the devaluation of the Rand played an
important role in making the prices of South African products more competitive, this was not the only reason for the
improvement in competitiveness. This increase in competitiveness can also be attributed to the improved business know-how of
South African agribusinesses; the elimination of non-competitive business; the delivery of quality products and an increase in
labor productivity in the agribusiness sector.
Phase 4 ? Constrained competitive environment. Currently, the agribusiness sector in South Africa is in a declining phase in
terms of competitiveness status. This negative trend in competitiveness started around 2004 after the definite positive trend in
competitiveness which started in 1992 and lasted until 2004. The main reason for this decline in competitiveness is the
increasingly constrained competitive environment in which the agribusiness sector operates. This constrained environment
include factors like the increase in the value of the Rand, drought, the increase in interest rates, high crime levels, lack of
infrastructure, lack of skilled labor and government?s failure to provide sufficient regulatory and support services to the
agribusiness sector in South Africa.
This downward trend in competitiveness is also in line with the findings of the WEF in their Global Competitiveness Report and
with the findings of the IMD in their World Competitiveness Yearbook. In both of these publications the competitive
environments of countries in which businesses much operate are measured and compared. In the WEF's Global Competitiveness
Index, South Africa dropped from 36th position in 2006/07 to 44th position in 2007/08 and is currently (2008/09) in the 45 th
position. The IMD's World Competitiveness Yearbook for 2007 showed a 12-place drop in South Africa's ranking, from 38th to
50th out of 55 countries. In 2008 South Africa drop another three places to 53, however, in 2009 South Africa gain 5 places and
is now 48th out of 57 countries.
3.2 South Africa?s share of world trade in agricultural products:
The definition proposed above for and the measurement of competitiveness is based on the ability to sustain trade. Figure 2 shows
South Africa?s imports and exports of agricultural products as percentage of world trade in agricultural products for the period
1960 to 2008. From the figure it is clear that South African imports of agricultural products as percentage of world imports have
stayed relatively constant over the past 50 years. This means that when ?playing in their own backward? the South African
agribusiness sector has stayed relatively competitive against other global competitors trying to gain local market share. However,
South African exports of agricultural products as percentage of world exports show a definite declining trend over the past 50
years. This means when ?playing in the markets of other countries? the South African agribusiness sector is losing its ability to
compete. A major reason for this scenario is the lack of support for global market development the agribusiness sector receives
from the South African government.
Figure 2: South Africa?s imports and exports of agricultural products as percentage of world trade in agricultural
products (1960 to 2008)
4. THE AGRIBUSINESS EXECUTIVE SURVEY
The aim of the AES is to determine the key success factors that establish a competitive advantage and the constraints that impact
negatively on the competitiveness of agribusinesses. Using the executive survey approach, Esterhuizen et al have in 2000, 2002,
and 2004 completed important studies in this regard. These investigations generated important new intelligence to inform the
government and other important stakeholders. In 2008, the Agricultural Business Chamber of South Africa did a follow up on
these studies to determine the current state of affairs regarding the competitiveness conditions in the agribusiness sector of South
Africa and to see if there is any change in the business environment since 2004.
In the application of this descriptive methodology, the basic requirements that have an influence on the competitiveness of the
agribusiness sector in South Africa such as infrastructure, primary education and macro economic stability as well as efficiency
enhancers like higher education, technology, and efficient financial markets together with innovation and sophistication factors
are described. The focus of this institutional analysis is at the firm level i.e. individual firms are requested to participate in the
data gathering process through questionnaires. Executive opinions are thus gathered. Whereas the hard data in the ACS index is
used to measure competitiveness status over a specific period, the survey data measure competitiveness as it is perceived. The
Executive Survey offers many unique measures and captures the informed judgments of business leaders and decision-makers in
the agribusiness sector on issues that influence their sector?s competitiveness.
4.1 Did the business environment changed since 2004?
In Table 2, the major constraints to the competitiveness success of agribusinesses in South Africa in 2008 are compared with that
of 2004. From this analysis some interesting facts are revealed regarding the factors influencing the competitiveness status of
agribusinesses in South Africa:
From Table 2 it is clear that the top three factors constraining the competitiveness success of agribusinesses in South
Africa are exactly the same in both years, namely: the cost of crime, trust in the political systems in South Africa and the
low skill level of personnel in the public sector.
Electricity supply is rated the number four constraint in 2008, reflecting the electricity shortages and electricity cost
problems in South Africa. In 2004 electricity suppliers was one of the enhancing factors to the competitiveness success
of the agribusiness sector in South Africa.
The lack of skilled labor in South Africa moved up five places which indicate that the impact of this factor on the
competitiveness of agribusinesses is becoming more severe.
The cost of finance and the cost of transport were two new factors entering the top fifteen most constraining factors,
mainly because of the constant increases in the interest rates in South Africa from 2006 to 2008 and the high oil prices in
2008 that resulted in an increase in the local fuel prices.
The Rand at a value of R7/US$ (when the 2008 survey was done) was not rated as one of the top fifteen factors currently
constraining the competitiveness success of agribusinesses in South Africa. In 2004 at a value of R6/US$, the Rand was
rated to having the fourth highest constraining impact on competitiveness.
The factors occupying positions eight to thirteen in 2008, namely HIV/AIDS (7), South Africa?s labor policy (5), the
cost of quality technology (13), quality of unskilled labor (14), South Africa?s Land reform policy (9) and administrative
regulations (6), were also present in the top fifteen most constraining factors of 2004 (position in 2004 are shown in
In fact, ten of the top fifteen constraining factors in 2008 are exactly the same as in 2004. More worrying is the fact that
the five factors that are pushed out (strong Rand, difficulty to start a new business, the situation in Zimbabwe, South
Africa?s BEE policy and the impact of the tax system on investment and risk taking) are replaced by three cost factors
(cost of transport, cost of finance and the overall cost of doing business in South Africa) and two ?lack of capacity?
factors, namely electricity supply and the lack of sufficient scientific research institutions. These factors will have a
direct influence on the ability of agribusiness in South Africa to continue to sell their products at competitive prices and
the future sustainability of any competitive edge.
It is also important to note that the average score for the top fifteen constraining factors in 2008 is much lower than the
average score in 2004. This indicates that the constraining impact of these factors on the competitiveness success of
agribusinesses in South Africa became more severe.
These findings are much in line with the Global Competitiveness Report published by the WEF in 2008. In explaining South
Africa?s drop in global competitiveness rankings, the five most problematic factors for doing business in South Africa were
indentified to be: crime and theft, inefficient government bureaucracy, inadequately educated workforce, restrictive labor
regulations and inadequate supply of infrastructure.
Table 2: The major constraints to the competitiveness success of agribusinesses in South Africa for 2008 and 2004
Factors Score Factors Score
1) Cost of crime 1.57 1) Cost of crime 1.80
2) Trust in the political systems 1.66 2) Competence of personnel in the public 1.80
3) Competence of personnel in the public sector 1.70 3) Trust in the political systems 1.87
4) Electricity supply in South Africa 1.71 4) Strong Rand (R6/US$) 2.55
5) Availability of skilled labor 2.15 5) South Africa?s labor policy 2.60
6) Cost of transport 2.20 6) Administrative regulations 2.72
7) The cost of finance 2.51 7) Aids 2.85
8) Aids 2.59 8) Difficulty to start a new business 2.93
9) South Africa?s labor policy 2.64 9) South Africa?s Land reform policy 2.97
10) The cost of quality technology 2.64 10) Availability of skilled labor 3.00
11) Quality of unskilled labor 2.75 11) The impact of the tax system on 3.05
investment and risk taking
12) South Africa?s Land reform policy 2.78 12) Developments in Zimbabwe 3.33
13) Administrative regulations 2.80 13) The cost of quality technology 3.39
14) The lack of sufficient scientific research 2.92 14) Quality of unskilled labor 3.42
institutions in the agribusiness sector
15) The overall cost of doing business in South 2.95 15) South Africa?s BEE policy 3.45
1 = major constraint 7 = major enhancement
In Table 3, the major enhancements to the competitiveness success of agribusinesses in South Africa in 2008 are compared with
that of 2004. The following points describe some of the major findings of the analysis:
The top six enhancing factor to the competitiveness success of agribusinesses in South Africa are exactly the same in
both years, namely: intense competition in the local market, availability of unskilled labor, the production of affordable
high quality products, continuous innovation, investment in human resources and unique products, services and
Agribusinesses are positive about South Africa?s macro economic policy.
By analyzing the factors enhancing the competitiveness of agribusinesses in South Africa, it seems that it is the micro-
economic environment and the strategies followed by agribusinesses that enable them to achieve sustainable
Ten of the top fifteen enhancing factors in 2008 are exactly the same as in 2004. However, the average score of the top
fifteen enhancing factors in 2008 is lower than in 2004. This means that the positive impact of these factors on the
competitiveness success of agribusinesses in South Africa is becoming less.
Table 3: The major enhancements to the competitiveness success of agribusinesses in South Africa for 2008 and 2004
Factors Score Factors Score
1) Intense competition in the local market 5.76 1) Availability of unskilled labor 6.50
2) Availability of unskilled labor 5.56 2) Production of affordable high quality 5.85
3) Production of affordable high quality products 5.47 3) Intense competition in the local market 5.61
4) Continuous innovation 5.33 4) Continuous innovation 5.55
5) Investment in human resources 5.19 5) Investment in human resources 5.38
6) Unique products, services and processes 4.98 6) Unique products, services and processes 5.35
7) The availability of water for industrial purposes 4.76 7) Bargaining power of customers 5.30
8) Stringent regulatory standards in the industry 4.71 8) Strategy to employ quality technology 5.12
9) Production of environmental friendly products 4.71 9) Internet service providers 5.12
10) Availability of local suppliers of primary inputs 4.68 10) Quality of technology in South Africa 5.10
11) Strategy to employ quality technology 4.53 11) Availability of credit 5.08
12) Quality of local suppliers of primary inputs 4.53 12) Production of environmental friendly 5.05
13) The efficient flow of information from the 4.46 13) Biotechnology 5.03
customer to the business
14) Supply chain relationship with primary 4.44 14) Availability of local suppliers of 5.03
suppliers primary inputs
15) South Africa?s macro economic policy 4.40 15) Stringent regulatory standards in the 5.02
1 = major constraint 7 = major enhancement
5. DETERMINANTS OF COMPETITIVENESS
In the ADC index the methodology of Porter (1990) is used to discover the determinants of competitiveness in the agribusiness
sector of South Africa. According to Porter, there are six broad criteria or attributes that shape the environment in which firms
compete and promote the creation of competitive advantage, namely:
Factor conditions - the nation?s position in factors of production, such as skilled labor or infrastructure, necessary to
compete in a given industry.
Demand conditions - the nature of home-market demand for the industry?s products or service.
Relating and supporting industries - the presence or absence in the nation of supplier industries and other related
industries that are internationally competitive.
Firm strategy, structure and rivalry ? the way companies are created, organized and managed, as well as the nature of
Government attitude and policy - government plays a vital role. Government can influence each of the above
determinants, either positively or negatively, through policy and operational capacity.
The role of chance - chance factors/events are occurrences largely beyond the power of firms (and often the national
government). Such events can nullify sources of competitive advantage and create new ones. Agriculture operating in an
?open? global environment, such as South Africa with it?s free market policies and limited government protection and
subsidies, is highly prone to such influences.
5.1 An increasingly constrained environment
The agribusiness sector in South Africa is generally marginally competitive and is currently in a declining phase in terms of
competitiveness status. This trend is also illustrated in Figure 3 - the main determinants (Porter ? Diamond) of competitiveness
for the agribusiness sector in South Africa. In 2004, supporting industries and firm strategy, structure and rivalry were the key
factors that provided the agribusiness sector in South Africa a global competitive edge. Two determinants had a moderate impact
on competitiveness, namely factor conditions and demand conditions and two determinants had a negative impact on
competitiveness, namely chance factors and government policies and support. If Porter?s six determinants of competitiveness
represent a ?6-cylinder engine? it can be argued that the agribusiness sector in South Africa ran on three and a half cylinders in
In 2008, the agribusiness sector?s competitive advantage lies with one determinant only, namely: firm strategy, structure and
rivalry (unchanged since 2004). Supporting industries and demand conditions moved to have a moderate impact on
agribusinesses in South Africa?s ability to compete. Three determinants, namely factor conditions, chance factors and
government policy and support, are now rated to have negative impacts on agribusinesses in South Africa?s ability to compete.
Looking again at the ?6-cylinder engine?, the South African agribusiness sector is currently only running on two and three
quarters of a cylinder- almost one cylinder less than in 2004. The competitive environment for agribusinesses has deteriorated
considerably over the past four years.
Figure 3: Trends in the impact of the determinants of competitiveness on the agribusiness sector in South Africa
Notes: 1 = Constraint 2 = Moderate 3 = Enhancement
In Figure 4 the trends in the impact of specific factors on the competitiveness of the agribusiness sector in South Africa are
Seven factors shows a decreasing trend from 2004 to 2008 in their ability to enhance the competitiveness of the agribusiness
sector in South Africa (none of the factors shows a positive trend). The cost of doing business, labor, infrastructure, capital,
technology, scientific research institutions and electricity suppliers, all had a moderate positive impact on the competitiveness of
the agribusiness sector in 2004. In 2008, the impact of these factors all shifted to having a constraining impact on the
competitiveness of the agribusiness sector. The biggest shift happened with electricity power supplies. In 2004, it was one of the
factors that give the agribusiness sector in South Africa a competitive edge globally, and currently it has a constraining impact on
Figure 4: Trends in the impact of specific factors on the competitiveness of the agribusiness sector in South Africa
Notes: 1 = Constraint 2 = Moderate 3 = Enhancement
6. CONCLUSION-OPERATING IN A CONSTRAINED COMPETITIVENESS ENVIRONMENT
The above describes the reality of operating in a highly competitive agribusiness world. It also points to the reality that the South
African competitive environment for agribusiness is currently not optimal. Rather, it is increasingly constrained. The competitive
environment is shown as currently less supportive than in 2004, explaining the negative trend in the competitiveness of the
agribusiness sector in South Africa since 2004.