Structural Transformation in Agriculture and Agro-Processing Value Chains

The linked growth between agriculture and agro-processing is central to industrialisation. However, the failure to industrialise in these sectors has contributed to services dominating the contribution to GDP in South Africa. Agricultural production remains concentrated on low value and less-labour intensive field crops, and although there has been growth in value-added processed food products, these markets remain dominated by a few large, lead firms. This paper assesses the nature and extent of structural transformation and the potential for growth across three value chain studies - fruit, sugar and dairy. The paper shows that there are key differences between sectors, for achieving structural transformation. At the upstream agricultural level, the substantial growth in exports of fresh fruit illustrates developed capabilities and scope for the application of more sophisticated technologies through investments in production, cold chain facilities and logistics. At the downstream food processing level, growth in value-added sugar confectionery products is constrained by the ongoing state support skewed in favour of upstream cane growers and millers. In the dairy sector, despite opportunities for entry in niche value-added markets, high levels of concentration and market power of MNCs limit growth and participation of smaller players. Central to agriculture and agro-processing value chains is the role of supermarkets as key routes to market and how their onerous requirements limit participation and growth of SMEs