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Industrial Development
 

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Agro Processing Sector

Food processing involves the transformation of agricultural produce into a different physical or chemical state. It encompasses technical and mechanical processes that range from packaging to the transformation of raw material into final products.

The food-processing sector is the largest manufacturing sector in employment terms, with 183 502 employees (2011), and contributes a significant 3,1% of manufacturing value add as percentage of gross domestic product.

The sector has been identified in the Industrial Policy Action Plan (IPAP) as having potential to actualise macro-economic objectives as pronounced in the New Growth Path (NGP).

A key characteristic of agro-processing is its strong up- and downstream linkages. Upstream, the sector links to primary agriculture across a variety of farming models and products. Downstream, agro-processing outputs are both intermediate products to which further value is added and final goods that are marketed through wholesale and retail chains, as well as through a diverse array of restaurants, pubs, shebeens and fast-food franchises making it critical for employment creation and poverty eradication.

The Department of Trade and Industry (the dti) has over the last three years funded the food-processing sector to the value of R736 million in incentives. The Enterprise Investment Programme (EIP) incentive has disbursed funds of R636 million and facilitated investments of R3.7 billion in the sector and contributed to the retention of 14 000 jobs, while creating 7 000 new ones. The Co-operative Incentive Scheme has disbursed more than R100 million in support of agro-processing. Over and above, two major projects in food-processing benefited from the 12I Tax incentive to the value of R1.1 billion.

Key opportunities

The agriculture and agro-processing value chain represents an important source of labour-intensive growth. In addition, this value chain is central to Government's rural development and smallholder farmer development objectives.

The agro-processing sector's economic performance is closely related to the overall rate of economic growth in South Africa and key exports markets. South Africa's domestic economy is expected to grow faster than those of the major developed economies and it will be important to ensure that local producers are appropriately positioned to benefit from growth in domestic demand for food, beverages and furniture.

Export-focused sub-sectors such as horticulture and aquaculture are likely to experience stagnant or slow growth in traditional export markets such as European Union and the United States of America. Substantially more attractive opportunities are likely to be found in Asia and sub-Saharan Africa, where the combination of positive growth rates and rapid urbanisation is creating significant opportunities for the export of middle-income consumer products. The Middle East and China represent important new markets for upper-income consumer products such as confectionery, fruit juices, indigenous teas, fruits and wine.