By Mr T.T. Mboweni, Governor of the South African Reserve Bank, at the Annual Congress of Agriculture Western Cape, Goudini Spa, Worcester.1.    INTRODUCTIONMany economists and policy-makers in the 1950s regarded the agricultural sector as a relatively unimportant factor in economic development processes. These views were mainly based on the reading that agriculture’s share of gross domestic product invariably declines as the economy develops to higher stages. As a result, the resources and policies in many countries were focused on industrial development, which was seen as the key to sustainable growth. In many cases, this hampered overall economic performance because there were insufficient supplies of food and raw materials at affordable prices and the imports of these agricultural inputs affected the balance of payments of many such countries.From the 1960s many economists and policy-makers began to acknowledge that agricultural development was an important ingredient in the process of economic development. Increasingly they argued that agriculture creates employment opportunities, earns foreign exchange and provides food to the growing industrial and urban population. In South Africa we are also well aware of the importance of agriculture in our economy. 2.    AGRICULTURE AND THE SOUTH AFRICAN ECONOMYAs we all know very well, only about 13 per cent of South Africa’s land surface is suitable for cultivation. Arable resources are poor because rainfall is unreliable. The country is subject to severe recurrent droughts, which are sometimes followed by devastating floods. In view of the unreliability of our rainfall, irrigation is vital to our agricultural industry. A large variety of crops, such as sugar, citrus, vegetables and grain, are generally produced under irrigation. Agricultural activities in South Africa therefore range from intensive crop production and mixed farming in winter rainfall and high summer rainfall areas, to cattle ranching in the bushveld and sheep farming in the more arid regions. Crops are grown under irrigation on approximately 1 million hectares and nearly 10 million hectares are used for dryland crop production. Livestock is found in most parts of the country and about 85 per cent of domestic meat requirements are produced domestically. South Africa is self-sufficient in virtually all major agricultural products and has always been a net exporter of agricultural products. Agricultural production has more than doubled since 1960 because of the application of modern technology and improved farm management. Although this sector plays an important role in the creation of wealth in South Africa, its contribution to gross domestic product has declined from an average level of 12 per cent in the 1960s to about 5 per cent in the second half of the 1990s. The agricultural sector nevertheless has a strong impact on the growth performance of our economy. For example, in the good agricultural year of 1996 agriculture contributed 1 percentage point to the growth in gross domestic product. The agricultural sector not only has an important direct impact on the growth of the economy, but because of forward and backward linkages with other sectors it also affects the economy indirectly. In an article written by the Research Department of the South African Reserve Bank it was calculated that for every R1 million of agricultural production, an additional output of about R600 000 is generated in the rest of the economyhttp://www.resbank/Address/2000/26072000.html - 1 Pretorius, C.J. and Smal, M.M.: Notes on the macro-economic effects of the Drought, Research Department, South African Reserve Bank. 1992. 1).The forward linkages of the agricultural sector come from its delivery of a wide range of raw materials to the secondary sectors. The available indicators suggest that approximately 58 per cent of the value of agricultural production is delivered to secondary industries for further processing. By contrast, the delivery of agricultural production to processing industries amounts to about 8 per cent of the tota