A Few Notes on South Africa’s Banana Market

South Africa produced 402 053 tonnes of bananas in 2016, which is an 8 percent production growth from 372 204 tonnes in 2000. While a notable improvement, this has not kept up with local demand as the country is now a net importer of bananas. South Africa was last a net exporter of bananas in 2014, according to data from Trade Map.

In 2017, South Africa imported 114 913 tonnes of bananas, which is a 50 percent increase from the previous year. This notable upsurge was underpinned by a steady domestic consumption and a decline in (domestic) banana production after the 2015-16 drought.

The leading suppliers were Mozambique, with a share of 82 percent, followed by a share of 9 percent from Swaziland, a share of 6 percent from Ecuador, and a share of 2 percent from Zimbabwe. The balance originated from other countries, which included Zambia, Nigeria and Philippines, amongst others.

This has, however, not gone unnoticed in the domestic banana industry. In December 2017, Farmers Weekly ran an article where Banana Growers’ Association of South Africa raised concerns that increasing banana imports could keep the industry under pressure and possibly lead to job losses.

Overall, the steady domestic banana consumption, and a marginal growth in local production – growing at an annual rate of a percentage point a year between 2000 and 2016 – suggest that imports could continue in the near term.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

Oh, Soybeans Dominating Agricultural Headlines Again

I know we are dealing with a lot on our home soil, and it is easy to lose track of developments beyond our shore. However, there are other interesting developments in the world of global trade, such as the souring US-China trade relations.

On this chapter, what caught my attention this past weekend was the Financial Times piece entitled “China holds fire on imposing US soybeans tariffs.”

Some have speculated that China’s response or retaliation to the US tariffs would hurt the US soybean sector the most – rightly so – since more than two-thirds of US soybean exports go to China.  In fact, in 2017, the US exported agricultural exports to the tune of $19.6 billion to China. Of that, $14 billion was soybeans.

China is the world’s leading importer of soybeans, commanding a share of 64 percent of global soybean imports totalling 151 million tonnes in 2017/18.

In the past five years, the US has been one of the key suppliers of soybeans to China accounting for a nearly 40 percent share of that market, according to data from Trade Map.

Brazil and Argentina were also amongst the key suppliers, hence the talk in the market points to a possible increase in South America’s share of the Chinese market at the expense of the US over the coming years.

Fortunately, soybean hasn’t got a hiding yet (though folks like CHS Hedging argue that soybean is next). China’s counter tariffs announced on Friday included agricultural products such as pork and pork products, horticultural products, wine, American ginseng, and denatured ethanol.

Be that as it may, the spectre of Chinese retaliation will worry the soybean markets for some time. At least, for small soybean producers such as South Africa, there will be a minimal impact in the short term.

Our (South Africa) immediate key risk in this part of the world is the weather. Luckily, good showers are forecast within the next few weeks, which is good not just for soybeans but for all summer crops.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

How Indebted is the South African Farming Sector?

The issue of farm debt has been part of the public discussion since the ‘land expropriation without compensation’ debate started. Rightly so – however that is not the focus of this blog entry. The purpose of this entry is to share two charts that show the long-term trend of South Africa’s agricultural debt, and the key providers thereof (see featured image and chart below).

As it currently stands, the unofficial estimate of South Africa’s farm debt is around R160 billion, as many media articles have highlighted. The official data only covers a period between 1980 and 2016, while the coming months should see the 2017 official figures being released.

Between 1980 and 2016, South Africa’s farm debt has been rising at an average rate of 2 percent per annum, reaching R144 billion in real terms in 2016 – a record level in a dataset. The notable uptick to the estimate of R160 billion is partially attributed to 2015-16 drought, which weighed on farmers’ incomes.

Debt 2.jpg

 

The key lenders to the South African agricultural sector are the Land and Agricultural Bank (Land Bank), commercial banks, agricultural cooperatives, private persons and other relatively small financial institutions such as merchant banks, insurance companies, trust companies, etc. The chart above shows the composition of the R144 billion debt in 2016.

The commercial banks held a lion share of 62 percent, followed by the Land Bank with a share of 27 percent, agricultural cooperatives with a share of 7 percent, the rest was private persons and other financial institutions. The 2017 and 2018 figures will more likely resemble a similar picture as the shares haven’t changed much over the recent past.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

A Few Remarks on the Recently Signed African Continental Free Trade Agreement

By Tinashe Kapuya* and Wandile Sihlobo

The recently signed African Continental Free Trade Agreement (CFTA) is one of the world’s largest free trade blocs and there are a number of reasons to be excited about this development.

From a demand perspective, the continent‘s market will grow to over 2 billion people by 2030. Meanwhile, from a supply side perspective, the agricultural and agribusiness sector is expected to grow to US$1 trillion by the same period, a projection that had already excluded the impact of the consolidation of the continent’s market.

Moreover, the fundamental reason why private sector participants ought to be excited in the wake of the CFTA, over and above the projected growth of the supply and demand side of the food and fibre sector is what they call “regulatory convergence”.

If under a worst-case scenario, Africa fails to capitalize on the growth of its own market growth for one reason or the other, we can draw optimism from the harmonization of trade and investment rules. That alone provides a sufficient basis for the continent’s food and fibre sector to be growth-ready, as and when market conditions and factors permit for the industry to capitalize on.

It may sound counter-intuitive for one to be excited by the state of readiness of an outcome, rather than the outcome itself. But such a level of ambition becomes plausible if you have a situation where the infrastructure, institutions and systems are not sufficient to provide the initial conditions for growth to take place.

At this stage, it is the pre-conditions that matter the most, rather than prematurely induced trade growth – which in all likelihood, will lead to inequitable growth. Perhaps, for now, Africa needs to make every effort to negotiate and strengthen its own “rules”.

At least this part of the debate speaks to a broader global trend of plurilateral trade agreements, which are based on “rules”. Many experts have argued that part of the reason why Africa’s ambition has not matched that of other advanced nations of the world is due to its reluctance to negotiate third generation issues such as trade in services.

South Africa’s Minister of Trade and Industry Dr Rob Davies had noted that the continent is simply not ready to start opening up markets – especially on the new generation agenda – because the extent of their impacts on the smaller economies is yet to be fully understood. While that fear is well placed, the CFTA should lay the groundwork for a work programme that will begin to explore those new generation issues with respect to rules.

The irony of the CFTA is that it comes into fruition at a time when the continent is still facing some fundamental challenges among its own Regional Economic Communities (RECs) which include the East African Community (EAC), the Southern African Development Community (SADC) and the Common Market for Eastern Southern Africa (COMESA). Some of the issues – such as rules of origin – will be resolved contemporaneously as countries negotiate the CFTA.

*Tinashe Kapuya (Ph.D.) is a trade economist. You can follow him on Twitter at @TinasheKapuya. Wandile Sihlobo is an agricultural economist.  

African Markets Might Look to South Africa for Additional Maize Supplies

Despite South Africa having over 4.0 million tonnes of maize available for exports in the 2017/18 marketing year following a record harvest, actual exports could only amount to 2.4 million tonnes. This was due to a weak demand for white maize in its traditional markets on the continent because it coincided with large domestic supplies in these markets.

South Africa could again have a good crop of about 12.2 million tonnes in the current production season, albeit lower than last season’s harvest of 16.8 million tonnes. This expected harvest is well above our annual consumption of 10.5 million tonnes and, coupled with the carryover stock, will boost supplies in the 2018/19 marketing year.

Regional demand could be slightly different in the 2018/19 marketing year which starts on 01 May 2018. This is shown in media reports from Zimbabwe, Zambia and Mozambique, which highlight the possibility of lower harvests owing to erratic weather conditions during the production season.

The most recent reports from the Mozambican government suggested that more than 3 000 hectares of maize plantings have been affected by disease and pest infestations.  In Zimbabwe, nearly 150 000 hecatres of maize have been affected by fall armyworms.

While reports of crop damage point to an increased possibility of a decline in maize production, at this point it is unclear as to what exactly the 2017/18 maize production will be in many southern African countries.

Overall, if the 2017/18 maize production decline significantly, the African markets will invariably look to South Africa for additional maize supplies. Luckily, the large stocks from the previous season and expected good harvest will be available to assist.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

The Good Story of South African Apples

I have been writing a bit about grains, oilseeds and other crops, but I haven’t quite touched on apples. So, to kick off what I hope will be continuous conversation about apples, I will briefly reflect on their growth and key underpinning factors thereafter.

South Africa produces on average about 850 000 tonnes of apples a year. This has grown significantly from levels of just under 650 000 tonnes in the early 2000’s. According to the United States Department of Agriculture, South Africa is ranked the fourth largest apple producer in the Southern Hemisphere.

Similar to other deciduous fruits, some of the key drivers behind this have partially been the expansion in the area planted and technological innovation, which in turn was supported by an uptick in both domestic and global demand.

While the 2017/18 production could decline by 6 percent from the previous season owing to drier weather conditions in the Western Cape – a key producing province accounting for over 80 percent of the crop – the long-term outlook is positive.

As the saying goes ‘an apple a day keeps a doctor away’, South African apples sure have been keeping doctors away in many countries over the past few years.

In the past six seasons, South Africa exported on average about 44 percent of its apple production. In 2016, South Africa was the sixth world’s largest exporter of apples with a share of 6 percent, according to data from Trade Map.

The leading buyers included the United Kingdom, Malaysia, Nigeria, Bangladesh, United Arab Emirates, Russia and Kenya amongst others.  


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

Broad-Based Support Helps Black Farmers Deliver More

The dark clouds of policy uncertainty and climate change are a form that does not put a smile on farmers’ faces. However, there are some silver linings along the journey of South African agricultural sector that are worth highlighting.

While going through my old photos recently, one shot taken four years ago caught my attention. In it, I was posing with the then Grain SA vice-chairman, Victor Mongoato, looking over the maize fields on the outskirts of Matatiele in the Eastern Cape province. I had been on a visit to a group of thriving black farmers.

Back then, black farmers in the area were producing 6 000 tonnes of maize in an area of roughly 1 200 hectares and they had just commenced training with an organised agriculture group. By the 2016/17 production season, the area planted to maize had increased to 4 000 hectares and the harvest was roughly 28 000 tonnes, according to data from Matatiele Grainco.

These numbers show that the improvement in production was not only because of an increase area planted, but also better farming practices as the yields improved from an average of 5 tonnes per hectares in the 2014/15 production season to around 7 tonnes per hectare in 2016/17. From a national perspective this harvest may seem insignificant, but it is almost a third of the Eastern Cape’s commercial maize and the yield is higher than the national average.

A number of these farmers benefited from the support of organised agriculture groups and private investors such as Grain SA, Grain Farmer Development Association and Masisizane Fund, amongst others. Grain SA has been actively involved in the province through its Farmer Development Program, which focuses on training and skills development. The Masisizane Fund invested about R46 million in farming areas around Matatiele in 2016. In fact, over the past four years, the Masisizane Fund invested about R100 million in farming areas of Alfred Nzo and Harry Gwala municipalities.

The Grain Farmer Development Association has also been assisting emerging farmers with finance to rehabilitate and prepare farm land for grain production purposes across the Eastern Cape province. The aforementioned improvement in maize yields is a result of the combined effort of these initiatives.

I have previously reported on the emergence of new black agricultural firms in the Eastern Cape province. The most notable ones are the Matatiele Grainco which focuses on agricultural mechanisation and transportation of grain across the Eastern Cape and Kwa-Zulu Natal provinces. Another of these is Afgrain, also a black-owned food group which focuses on farmer development and value chain activities in the Eastern Cape.

The grain farming experience in the Eastern Cape is used an example from my own background, but such developments are not limited to grain farming. Other entities such as wool growers in communal areas are also making good strides with increasing quality and volumes delivered to the market. There is also great work being done in the citrus and many other industries.

The common theme is that these successful examples are underpinned by support from both organised agriculture and government.

These initiatives are refreshing, and I hope that we can reflect on during our transformation and economic development debates within the agricultural sector. Importantly, we must strive to find ways to enhance these new developments and replicate them in other areas.

I must highlight however that it is not all rosy in the farming areas of Matatiele as farmers face a number of challenges that hinder agricultural production.

These include, among others, poor infrastructure (roads and silos) across agricultural-production zones, as well as the issue of communal land tenure which limits their ability to access additional finance from commercial financial institutions that typically require collateral for larger loans.

While most of these challenges can be addressed through policy interventions, organised agriculture can also assist by increasing its presence in many parts of the country, especially in imparting knowledge and sharing skills.

* Written for and first published in Business Day on 15 March 2018.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za