by Wandile Sihlobo | Aug 30, 2018 | General Comments
September 3 is an important date for the global wheat market – thanks to Russia. The country’s agricultural ministry will be meeting with grain exporters to discuss the market situation and export plans for the 2018/19 season. The outcome of this meeting will be important, as the government indicated a possibility of curbing wheat exports once they reach 25 million tonnes. This is a way of ensuring that there are sufficient domestic supplies given that Russia’s 2018/19 wheat production is expected to decline by 21 percent from last season to 67 million tonnes. This is on the back of unfavourable weather conditions and a reduction in area planted.
At the moment, the US Department of Agriculture forecasts Russia’s 2018/19 wheat exports at 35 million tonnes. So, a possible 10 million tonnes decline in global wheat trade is quite significant, particularly this year in which global supplies are already strained due to unfavourable weather conditions in the EU and the Black Sea regions, and parts of China and India. As I noted in my previous blogs, this season’s global wheat production could amount to 716 million tonnes, which is 6 percent lower than the 2017/18 season. This is according to data from the International Grains Council.
To provide context, Russia was the world’s leading wheat exporter in 2017, with a volume of 33 million tonnes. This accounted for a sizeable 19 percent of global wheat exports that year.
Of direct consequence to us is the fact that South Africa is a net importer of wheat, with Russia being our key supplier. In the 2017/18 marketing year, which closes at the end of September 2018, imports could amount to 1.90 million tonnes. About 99 percent of this has already landed on our shores, with Russia accounting for more than a third of this volume.
The 2018/19 marketing year could see a decline in imports to possibly 1.6 million tonnes due to an expected recovery in domestic production. As I pointed out on Business Day this morning, South Africa’s wheat production is set to recover by 18 percent from the 2017/18 season to 1.8 million tonnes.
If the Russian government decides to cap exports at 25 million tonnes on September 3, net importers such as South Africa will feel the pinch through global price transmissions. Let’s hope the meeting won’t end this way.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Aug 27, 2018 | General Comments
Zimbabwe is increasingly consuming more wheaten products. Over the past five years, the country’s wheat consumption has increased, on average, by 3 percent a year to an estimated 320 000 tonnes in 2018. This has largely been driven by a growing bread demand. Estimates from the United States Department of Agriculture shows that Zimbabwean bakeries produce roughly 850 000 loaves a day.
With local production having slumped since 2000, the country relies on imports to meet domestic requirements. This has amounted to an average 305 000 tonnes a year over the past five years of which South Africa supplied 34 percent. Trailing behind was Russia with an average share of 17 percent over the past five years. The other notable wheat suppliers to Zimbabwe are Poland, Mozambique, Australia, Lithuania and Ukraine, amongst others.
This year could present more of the same, as Zimbabwe’s wheat production prospects are quite dim again, with the harvest estimated at 20 000 tonnes, which is unchanged from last year. This is a result of limited expansion in area planted, combined with expectations of lower yields.
The lower domestic wheat production volumes will subsequently lead to a 7 percent annual increase in Zimbabwe’s 2018 wheat imports to 320 000 tonnes. The key suppliers are likely to be similar to the aforementioned countries.
This is contrary to the view shared by the government last year that there were efforts underway to revive this industry after a decade-long declining trend.
According to the United States Department of Agriculture, some of the key production constraints in Zimbabwe are the high cost of production coupled with relatively low capital returns. Hence, some farmers have a made a switch to other more profitable crops.
To be fair, this is also true for South Africa, which has seen a steady decline in wheat area plantings over the recent past (this is a topic for another day – we are talking about Zimbabwe tonight).
The dismal performance in production is limited to Zimbabwe for now. Other regional wheat-producing countries such as South Africa and Zambia could recover from 2017 levels.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Aug 26, 2018 | General Comments
South African farmers planted 28 800 hectares of sorghum in the 2017/18 production season – the smallest area on record in a dataset starting from 1936/37. This is a disappointing picture, given that sorghum was once seen as key to the development of the biofuel industry in South Africa and, in turn, job creation in rural areas.
In 2014, sorghum was one of the promising crops in South Africa’s agriculture, boosted by the hope of the development of the biofuel industry, job creation and a new market for farmers, particularly black smallholder farmers. Mabele Fuels and Industrial Development Corporation (IDC) were the first organisations to embrace this initiative. Mabele Fuels was to build a processing plant in Bothaville, with a potential to create roughly 16 700 jobs and a market for farmers in that area. In a similar vein, the IDC was going to create jobs and a much-needed market opportunity for smallholder farmers in the Eastern Cape province.
These plants were going to utilise roughly 500 000 tons of sorghum a year, which is treble the volume that South Africa was producing then. The government was the key player in the processes, with an aim to create jobs, boost the economy, create a market for smallholder farmers and revive the South African sorghum industry. Unfortunately, the government incentives fell short and the process did not materialise.
In fact, by early 2016, it was clear that the biofuel industry was a lost dream and farmers were opting for other opportunities, such as accessing new export markets. This was somehow a difficult task as South Africa is not an established exporter of sorghum. In fact, South Africa’s sorghum exports are concentrated in southern Africa, with key markets being Botswana and Swaziland.
Fellow agricultural economist Tinashe Kapuya and I wrote a research piece in early 2015 that aimed to identify potential new markets for South Africa’s sorghum industry. We found Cameroon, Sudan, and Ethiopia as the only attractive markets on the continent, having a potential for growth and low import tariffs.
Globally, Japan and Mexico were identified as the large markets, with zero-rated tariffs for South African sorghum exports.
The key question that emerged from our article was whether South Africa would be competitive enough in these markets, in other words, be able to produce the required volumes at lower costs than its competitors. This was left unanswered and some farmers were still keen to explore these opportunities until progress was disrupted by the 2015/16 drought.
Given the failure of the biofuel initiative, the development of higher yielding seed varieties and expansion of export markets could be the way of reviving the South African sorghum industry. Globally, there is a stable demand for sorghum, but for South Africa to participate in such an environment, the country would need to increase volumes and be able to sell at competitive prices. This calls for more research and creative ideas to save the sorghum industry in South Africa.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Aug 24, 2018 | General Comments
I know I shouldn’t be writing about breakfast cereals – oats – on a Friday evening, but I just saw an email enquiring about a piece I wrote in January 2017 and thought it would be good to jot down a few sentences about this crop.
Unlike winter wheat production, which is set to recover from last year’s levels, South Africa’s oats production could remain unchanged from last year, at 55 000 tonnes. For context, however, the expected production is just 2 percent lower than levels seen in 2016, according to data from the United States Department of Agriculture. I had initially thought there would be a slight recovery back to levels of 2016 due to improved weather conditions in parts of the Western Cape – a province that produces over 90 percent of South Africa’s oats.
With South Africa’s annual oats consumption estimated at 75 000 tonnes, the country could remain a net importer. The United States Department of Agriculture forecasts South Africa’s 2018 oats imports at 20 000 tonnes, which is 20 percent lower than the previous year. This is largely on the back on an expected decline in local consumption, with some consumers opting for maize products due to price competitiveness.
In 2017, South Africa imported 24 429 tonnes of oats. Of this total, 99 percent was from Australia, with the small volume from Brazil, Ukraine and Uruguay, amongst others, according to data from Trade Map. These countries are likely to remain key suppliers this year again. Perhaps, Finland could also be back in the picture, as it used to supply over two-thirds of imports in the past.
In closing, I should mention that global oats production is not in good shape. The 2018/19 production is set to decline by 3 percent from last year to 23 million tonnes, according to data from the International Grains Council. This is due to expected lower yields in the EU region, Canada and Russia.
Let me stop here, with the hope that you will enjoy some oat meal tomorrow morning to boost local consumption.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Aug 23, 2018 | General Comments
The International Grains Council has just released its monthly update report that placed South Africa’s 2018/19 wheat production at 1.8 million tonnes, up by 6 percent from last month and 20 percent higher than the previous season. This is largely on the back of improved weather conditions in the Western Cape and other winter wheat producing areas in the country.
This monthly upward revision was somewhat surprising to me, I had thought that the council will keep its estimate unchanged at 1.7 million tonnes given the fact that the recovery in the Western Cape is not widespread. The Swartland and Overberg regions are in good shape with the crop nearing pollination, but the southern Cape is in bad shape. There are already reports of crop damage, but the scale of it is unclear at this point.
Other winter wheat producing provinces like Northern Cape, Free State and Limpopo, amongst others should have a fairly good season and soil moisture has been largely replenished by summer rainfall. The irrigation areas will also benefit from improved dam levels.
The local Crop Estimate Committee will release its forecasts on Tuesday afternoon. It will be interesting to see how their view contrasts with the International Grains Council.
Overall, I believe that the 2018/19 winter wheat production season will be far better than the 2017/18 season which was characterised by drought and led to lower production of 1.5 million tonnes. This meant that South Africa would import the second highest volume on record in the marketing year that ends in September 2018 – that’s about 1.9 million tonnes. So far, Russia, Germany, Romania, Argentina, Latvia, Ukraine, Romania and Lithuania are amongst the leading suppliers.
If the aforementioned production materialises, then South Africa’s 2018/19 marketing year which commences on 01 October 2018 could see a decline in imports to average levels of 1.6 million tonnes. But wait – I will release my final call on 2018/19 wheat import estimates after the official production estimates – which will be Tuesday next week.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Aug 21, 2018 | General Comments
At this time of the year in the agricultural markets, the harvest prospects for the northern hemisphere and weather forecasts for the southern hemisphere are typically discussed, as the 2018-19 planting season is fast approaching for the latter.
But this time around the typical discussion has been eclipsed by the uncertainty in the global trade environment caused by the trade dispute between the US and China.
One of the commodities that has dominated the headlines is soya beans, following the introduction of retaliatory tariffs by China. This is important because the US and China are key players in the market. In 2017 the US was the world’s second-largest exporter of soya beans after Brazil, accounting for 37% of global soya bean exports, according to data from Trade Map. The major destination of these exports was China. In fact, over the past five years about two-thirds of US soya bean exports were absorbed by China.
The retaliatory tariffs hence caused much discomfort in the US farming community. In an article in the New York Times on August 2, an Ohio farmer, Christopher Gibbs, was quoted as saying: “I am a soybean farmer hurt by Trump’s trade war. I can’t take it.” It is understandable that Gibbs feels this way, given how critical a market China is to the US.
The trade war uncertainty is partially reflected in global soya bean prices, which have declined from levels earlier in 2018. Soya beans are trading at about $350 a ton. For context, however, the decline is not significant yet; it is still only about 5% year on year. The expected improvement in global soya bean production to 367Mt has added pressure to the market.
Over the past few weeks some industry analysts have argued that China might remain a key buyer of US soya beans despite the trade dispute because of its growing consumption and the world supply structure. However, the communication from the Chinese authorities in the week of 17 August 2018 painted a different picture, suggesting the country will be able to cover demand for animal feed and vegetable oil without relying on US soya imports. China claims it will use supplies from South America and alternative oilseeds.
This is good news for South American farmers, which are expecting large soya bean harvests in 2018-19. Soya bean production in Brazil and Argentina is estimated at 121Mt and 57Mt, respectively, according to data from the US department of agriculture.
Coping mechanisms
The International Grains Council also noted that China has expanded the use of low-protein animal feed formulas, which could potentially reduce its soya bean imports by 5Mt in the 2018-19 season.
Moreover, China’s imports of canola and sunflower meal are expected to increase this season and potentially substitute 6Mt of soya bean meal. A number of agencies and analysts have revised their forecasts for China’s soya bean imports downward since the introduction of retaliatory tariffs.
China National Grain and Oils Information Centre placed its 2018-19 import estimate at 94Mt last week, 9% lower than the estimates presented earlier in 2018. This is not because of a decline in domestic consumption but rather a function of its trade war coping mechanisms.
Fortunately, SA soya bean farmers are in a better position than Gibbs, the Ohio farmer. Local prices have declined marginally, mainly due to an expected record soya bean harvest of 1.6Mt. The silver lining on this trade war cloud is that SA feed manufacturers, and consequently the livestock sector, will benefit from lower global soya bean prices. Keep in mind that SA remains a net importer of soya bean meal, with 2018 imports estimated at just less than 500,000 tons.
Written for and first published on Business Day on 16 August 2018.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Aug 20, 2018 | General Comments
On August 17, Lusaka Times reported that South Africa has placed a ban on the importation of Zambian honey. This is after South African authorities found honey contaminated with a disease called American Foulbrood in one of the consignments from Zambia.
The Zambian High Commission in Pretoria expressed disappointment on this action. This is understandable considering that South Africa is the biggest export market for Zambian honey, accounting for nearly a third in the past three years.
Aside from the Zambian issues, I was encouraged to learn that South African authorities are keeping a close eye on these food safety matters.
Regular readers of this blog might remember that a few weeks back I expressed concerns about honey adulteration issues – which simply means a production of fake honey using sugar or other ingredients. At the time I suspected that the issue would be linked to foreign products, only to find out that South Africans were also contributing to this issue. While on a honey value-chain outreach program in Howick, KwaZulu-Natal, beekeepers in the region told me that adulteration is not only an issue in imported products, but has been happening in the country for some time.
This, of course, could be confusing for consumers — if the adulterated honey is labelled as ‘pure honey’, what does a consumer do? (I asked the beekeepers). The best indicator at the moment is ‘price’ — I know this is not the best barometer. Anyways — on average, a 500-gram bottle of pure South African honey retails for about R65. The adulterated honey often sells at a far lower price than this. In addition to that, consumers could look to trust larger brands which have a reputation to protect, or look at artisanal products where they know the beekeeper.
This pricing issue is not only an indicator for consumers but also has implications for the sustainability of the industry — most importantly the potential new entrants. The pure honey value-chain is labour intensive, which increases input costs. Then, competition with lower priced ‘adulterated honey’ would squeeze real beekeepers and also lessen the potential for new entrants.
The other issue that was raised by farmers in Howick was ‘mixed labelling’ – where one bottle contains honey from more than three countries, with no specifications of the amount from each country, and a lack of compliance with any legal requirements.
As I argued in June 2018, this should not be taken lightly, especially given the recent upsurge of ‘natural honey’ imports into South Africa, which increased from 476 tonnes in 2001 to 4 206 tonnes in 2017. This according to data from Trade Map. This is mainly due to a steady domestic demand, coupled with a decline in domestic honey production, currently estimated at about 2 000 tonnes against the consumption of 5 000 tonnes per annum according to industry experts’ estimates. But, it is worth highlighting that on average, 76% of South Africa’s ‘natural honey’ imports came from China in the past 17 years.
I mention this because the Chinese honey has in the past dominated the headlines, but not in a good way. In 2014, food24.com ran an article which highlighted that Chinese farmers were caught producing counterfeit honey. Europe had similar experiences with imported honey and the challenge grew to such as extent that in 2014, European lawmakers ranked honey in the 6th spot on the list of 10 top products that are most at risk of food fraud.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za