Measuring Total Factor Productivity in the South African Agricultural Sector Using a Growth Accounting Framework

In this study, we measure the total factor productivity (TFP) in the South African agricultural sector using annual time series data from 1980 to 2019. First, a Cobb-Douglas production function is estimated recursively to determine the time-varying factor contributions of labour, capital and land to agricultural output. Second, a growth accounting framework is used to measure TFP growth, which is then converted to a measure for TFP. The results show that TFP growth recorded an average growth of 2.2 percent between 1980 and 1989, followed by a decline to 0.04 percent between 1990 and 1999, a period characterised by major policy reforms and economic structural changes in the agricultural sector, such as the removal of agricultural subsidies and the introduction of competition with the deregulation of markets in 1996. A recovery in TFP with a growth rate of 2.3 percent was recorded between 2000 and 2009, attributed to the precipitation of new technology and skills improvement underpinned by export growth fuelled by foreign-demand induced agricultural production growth in industries like fruits, wine, cotton and grains. The TFP growth was slow between 2010 and 2019 compared to the previous period, attributed to stagnation in policy reforms and rising incidence of drought, labour challenges and increasing cost of production. The study recommends a carefully designed policy mix of land and water reform, complemented by a comprehensive farmer support programme that addresses skills, markets, drought-resistant varieties and affordable production loans to enhance TFP.