DUAL ECONOMY: SA’s agriculture is growing, but is it working

South Africa's agricultural sector presents a paradox that should concern both policymakers and investors: the industry has doubled in size over the past two decades, yet employment growth remains stagnant and smallholder farmers remain excluded from mainstream opportunity. This disconnect reveals a fundamental structural problem in how the country's farm economy is organized—one that threatens long-term food security, rural stability, and inclusive economic growth.

The sector's growth has been real and measurable. Large-scale commercial farming operations, particularly in grains, viticulture, and horticulture, have expanded production capacity and export revenues substantially. International competitiveness has improved, and South Africa remains a significant agricultural exporter to African and global markets. By conventional metrics—output, revenue, market share—the sector appears healthy.

## Why has agricultural growth failed to create meaningful employment?

The answer lies in mechanization and capital intensity. Modern commercial farms require fewer workers per hectare than they did 20 years ago. Automation, precision farming technologies, and consolidation into larger operations have boosted productivity per worker but eliminated entry points for laborers. Meanwhile, smallholder and emerging black farmers—who could theoretically absorb rural labor and build generational wealth—remain marginalized, undercapitalized, and cut off from supply chains, credit, and markets. The sector's growth has benefited a narrow tier of established commercial operators, not the broader rural population seeking livelihoods.

This creates what economists call a "dual economy": a high-performing export-oriented tier alongside a subsistence-level informal tier, with few bridges between them. Rural unemployment remains chronically high, agricultural wages stagnate, and land reform, despite policy intent, has not translated into thriving smallholder enterprises at scale.

## What structural changes are needed to unlock inclusive growth?

Three levers are critical: **targeted credit access** for emerging farmers to purchase inputs and equipment; **supply-chain integration** that connects smallholders to retail, export, and processing buyers; and **skills development** in climate-smart farming, business management, and market literacy. Without deliberate intervention, market forces alone will not close this gap. Leading examples exist—smallholder-to-exporter partnerships in East Africa, government-backed aggregation models in countries like Ethiopia—but South Africa has not scaled these approaches.

Investors should recognize that inclusive agricultural growth is not charity; it's risk mitigation and market expansion. A thriving smallholder sector strengthens rural incomes, supports domestic food demand, reduces import dependency, and creates stable supply chains. Conversely, perpetuating the dual economy deepens inequality, fuels rural-urban migration pressure, and leaves the country vulnerable to commodity price shocks affecting only a handful of large producers.

The data is clear: growth without inclusion is unsustainable. South Africa's farm sector must evolve from a model optimized for shareholder returns to one that also measures success by job creation, land restitution outcomes, and smallholder prosperity. This requires strategic public investment in extension services, cooperative infrastructure, and market linkages—not just hopes that the private sector will voluntarily share opportunity.

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