by Wandile Sihlobo | Nov 26, 2019 | Agricultural Production
South Africa’s Crop Estimates Committee has lowered its estimates for the country’s 2019/20 wheat production by 5% from October 2019 to 1.6 million tonnes. This equates to a 16% decline from the 2018/19 season.
We are not surprised at all by this development as we stated in the previous blog post that Western Cape’s winter wheat crop, which has largely been harvested, wasn’t in good shape as initially anticipated. The decline in South Africa’s overall wheat harvest estimate is underpinned by lower yields in this particular province. The Northern Cape, Free State, Eastern Cape and North West aren’t in particularly in good shape either.
With South Africa being a net importer of wheat, this downward revision of production prospects might not have notable implications on wheat prices. The domestic wheat prices are largely influenced by international wheat market conditions (aside from local currency movements).
Currently, there are large wheat supplies in the global market. In its November 2019 update, the United States Department of Agriculture estimated the 2019/20 global wheat production at 766 million tonnes, which is 5% higher than the previous season. As a consequence of this, the stocks could increase by 4% y/y to 288 million tonnes.
This will essentially keep global wheat prices at relatively lower levels, which is beneficial for consumers in importing countries such as South Africa. (We currently forecast South Africa’s 2019/20 wheat imports at 1.6 million tonnes, up 14% y/y because of the aforementioned poor harvest this year).
With that said, the relatively weaker domestic currency has somewhat provided support to South Africa’s wheat prices which currently trade at R4 370 per tonne, up 4% y/y. All else being equal, we could see a sideways movement of South African wheat prices around its current levels over the next couple of months.
Written for Agbiz.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Nov 25, 2019 | Agricultural Production
Over the past few months, South Africa’s Crop Estimates Committee (CEC) has consistently slashed down its estimate of 2019/20 winter wheat harvest from the view painted at the start of the season. The current estimate is now at 1.7 million tonnes (from 1.9 million tonnes at the start of the season), and likely to be revised down further when the CEC releases this month’s update tomorrow (November 26).
The downward revision could stem from the Western Cape, who’s harvest is nearly completed and the yields disappointed in various regions of the province. This is because of drier weather conditions between the end of August to September and later rainfall over the past couple of weeks when the crop had already matured. The late rains have not only caused damage in some areas but have also negatively affected grading levels of the crop.
These developments, however, have not been clearly reflected in South African wheat prices and are unlikely to in the foreseeable future. South Africa is a net importer of wheat and therefore its price levels are influenced by international wheat market conditions.
Currently, there are large wheat supplies in the global market. In its November 2019 update, the United States Department of Agriculture estimated 2019/20 global wheat production at 766 million tonnes, which is 5% higher than the previous season. As a consequence of this, the stocks could increase by 4% y/y to 288 million tonnes.
This will essentially keep global wheat prices at relatively lower levels, which is beneficial for consumers in importing countries such as South Africa. Unfortunately, the same cannot be said for farmers. (We currently forecast South Africa’s 2019/20 wheat imports at 1.6 million tonnes, up 14% y/y).
Written for Agbiz.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Nov 21, 2019 | Agricultural Production
After weeks of dryness which caused delays in crop planting, most regions of South Africa have finally received a reprieve as rains continue over summer rainfall areas of the country.
The rains have enabled farmers to get on with planting activities. As of November 18, Mpumalanga had planted roughly 80% of its intended maize hectares for the 2019/20 production season. In the same day, KwaZulu-Natal had planted about 40%, and eastern Free State approximately 35% of the area. The Eastern Cape is still at initial stages of planting.
While this is encouraging, it is way off the optimal maize planting window which closed on 15 November 2019. The consequence of which is potential frost later in the season. In such an event, maize yields would be negatively affected.
The western regions of South Africa, specifically North West and western Free State, still have sufficient time to plant maize as the optimal window runs from 15 November to 15 December. These areas too have received a bit of moisture which enabled some farmers to begin planting, albeit still at preliminary stages.
Now, all this doesn’t take away the concerns about possible mid-summer drought or below-normal rainfall from the end of January 2020 as recently highlighted by the South African Weather Service.[1] One of the things that farmers can potentially do is to ensure lower planting density in maize so that soil moisture can be conserved somewhat. Also, this helps in saving whatever little seed is left for the next season.
Also, important to note is that South Africa’s 2019/20 maize plantings might not amount to 2.5 million hectares (up 10% y/y) that farmers initially intended to plant. The reasons for this view include the erratic weather conditions, but also financial constraints.
We are hearing a lot of discussions amongst commercial and developing farmers about difficulties of accessing capital for this season. This is a result of both the drought-induced poor harvests from previous seasons which weighed on farmers finances and also levels of risk that financial institutions are seeing on the back of unpredictable weather for the months ahead.
Overall this is a tough time for South African agriculture. Over the next three months, the weather will be an important factor to monitor. Also, January 29, 2020, is a crucial date to inform us about the size of hectares that farmers would have actually planted, not only for maize but all summer crops.
[1] South African Weather Service “Seasonal Climate Watch” November 4, 2019.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Nov 21, 2019 | Food Security
Since the news that South Africa could be hit by yet another drought, a frequent topic of discussion has been its possible implications on South Africa’s food price inflation. This comes at a time when South Africa’s food price inflation has generally been subdued, having averaged 2.9% y/y in the first nine months of this year.
This is because of relatively lower meat, milk, eggs and cheese prices, amongst other products, which managed to overshadow the price increases of grain-related products over this period. The lower consumer demand has also played a part in this inflation development as consumer food price movements have not necessarily moved in conjunction with producer price inflation as has been the case in the past.
Although this year’s drought is a concern, current indications such as soil moisture, near-term weather forecasts and meat market dynamics, suggest that it might not be as intense as the 2015-16 drought, where South Africa’s food price inflation was at double-digit highs for some time. There are three major reasons for this.
First, over the past two weeks, there has been a general improvement in South Africa’s soil moisture content and that has allowed farmers to commence with summer crop plantings, specifically in Mpumalanga, Limpopo, KwaZulu-Natal, the eastern Free State and the Eastern Cape. Estimates from various farming groups and our conversations with farmers suggest that about a third of the expected maize hectares have now been planted, mainly in Mpumalanga and the eastern Free State. This, however, is way behind the optimal maize planting window for these provinces which is typically from 15 October to 15 November 2019. There is a risk of frost later in the season from planting beyond this date which impacts yields. Be that as it may, the plantings spurred by improved soil moisture might benefit from potential maize price increases in the near term.
Second, the near-term weather forecasts from wxmaps.org, a George Mason University-based weather forecast, show prospects of 16 and 60 millimetres of rainfall this week over the summer rainfall areas of South Africa. This is with the exception of the Eastern Cape which is expected to remain dry and warm throughout the week. This would generally further improve soil moisture and subsequently crop-growing conditions in areas that have started planting. As with the previous point, this would keep maize prices hovering around its current levels. On 14 November 2019, yellow and white maize prices traded around R2 637 per tonne and R2 692 per tonne, which is up by 8% y/y and 12% y/y, respectively.
Third, meat, which accounts for more than a third of South Africa’s food price inflation basket, could remain subdued in the near term. The possible marginal upticks will mainly be because of base effects. Last week, we highlighted another case of foot-and-mouth disease in the Molemole district of Limpopo. The consequence of this is likely to be a temporary ban on South Africa’s meat exports. Mozambique, Zimbabwe and eSwatini are some of the countries that have already placed a ban on South African livestock and its products imports. This could result in a slight increase in domestic meat supply and thereby keeping meat prices at fairly lower levels in the near term. This bodes well for consumer price inflation, but the same cannot be said for farmers.
Overall, I had initially estimated South Africa’s food price inflation for 2020 at 4.9% y/y and I will revisit this estimate at the end of January 2020 when there is concrete evidence about the actual summer crop area planted and weather outlook for the rest of the 2019/20 production season.
The main upside risk for food price inflation in 2020 is the weather. The outlook suggests that South Africa could receive below normal rainfall from the end of January 2020. This includes all regions, and is, therefore, a concern even for the western and central regions of South Africa, which in the near term could receive above-normal rainfall between November 2019 and January 2020, according to the South African Weather Service.
With that said, the food price inflation outlook is much better than during the 2015-16 drought years. Also, worth noting is that the global agricultural environment is likely to have minimal impact on South Africa’s food price inflation in the medium term. The main product that South Africa is exposed to the most is wheat, and there are large supplies of it in the world, keeping prices at comfortable levels. This is beneficial to the South African consumer.
Written for Agbiz.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Nov 18, 2019 | Agricultural Production
Essay by Wandile Sihlobo and Gracelin Baskaran[1]
The South African agricultural sector is experiencing a déjà vu moment. The 2018/19 production season was grim, marred by drought for summer crops and foot-and-mouth disease. This time, it’s again the livestock’s turn as we recently learned of another biosecurity case. To mitigate the adverse economic impact, the government and private sector must join forces to stimulate the sector, rather than let it tumble downwards.
The Department of Agriculture, Land Reform and Rural Development recently reported clinical signs of Foot and Mouth Disease in a herd of cattle on a farm in the Molemole District of Limpopo. Events like this can trigger an import ban of South African livestock products – crippling the market in a way that affects much more than the Molemole District.
For example, the last ban had far-reaching ripple effects, extending to sectors such as wool, which, on average, contributes US$ 308 million to the South African economy in exports revenue. The last Food and Mouth Disease outbreak triggered China, which imports 71% of South Africa’s wool, had a multi-month ban in place.
Without intervention, the current outbreak can have significant implications. Currently, South Africa’s beef sector contributes about US$ 140 million in the export revenues. At the time of writing, only Zimbabwe – a relatively small export destination – has implemented a ban on South African livestock products. However, if the ban is extended by other countries, it would have a heavy impact on trade balances, which have hardly recovered from an outbreak earlier this year.
Given the scale of potential adverse economic effects, it is in the best interest of the government and private sector to step up veterinary extension services to ensure that the outbreak does not grow. In the medium term, improving the traceability of livestock and revival of the dipping system in the former homelands would create stronger preventative mechanisms.
Similarly, intervention is needed to support climate-resilient agriculture infrastructure and technology. The South African Weather Service currently forecasts lower than average rainfall between November 2019 and January 2020 in South Africa’s eastern regions, specifically parts of Limpopo, Mpumalanga and KwaZulu-Natal. To exacerbate the dryness, temperatures also set to be higher than normal during this time frame. This has already contributed to reduced farming activity, due to delayed planting by many farmers in the region.
While it is difficult to quantify the exact impact these climatic changes will have on production and food prices, it is likely that the 2019/20 summer crop production will be lower than initially forecasted 7% y/y growth.
This comes on the back of lower than expected production during the 2018/19 season, also due to droughts. Maize, sunflower seed and soybeans production declined by 11% y/y, 21% y/y and 24% y/y, respectively. Fortunately, the country was buffered by high maize production during the 2017/208 season, which allowed South Africa to remain a net exporter. However, with consecutively weak production seasons, the buffer will be minimized in the 2020/21 marketing year.
Ultimately, sustained declined agricultural production has adverse impacts for both the government and private sector. In the immediate future, the government should revive the Section 7 Committee within the National Agricultural Marketing Council as an ongoing functioning body, rather than on an ad hoc basis. The Section 7 committee is a joint effort between the government and various farmer group organizations and is critical for assessing the impacts of natural disasters. It should play an integral role in the constant updating of response mechanisms.
In the medium to long term, investing in climate-resilient infrastructure, seed varieties that require reduced water intake, enhanced extension services support to enable farmers to develop practices to better handle climatic changes, amongst other mechanisms, is key to reducing the impact of exogenous shocks.
There’s no doubt it’s a difficult season for the agriculture sector. However, joint public-private efforts are central to addressing the challenges imposed by cattle disease and climatic changes and support the sector.
Written for and first appeared on Daily Maverick on 12 November 2019
[1] Wandile Sihlobo is chief economist of the Agricultural Business Chamber of South Africa. Gracelin Baskaran is a development economist, has consulted for the private sector, governments and multilateral development banks, and is completing a PhD at the University of Cambridge.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Nov 15, 2019 | Agricultural Production
SA’s political leaders often mention agriculture as one of the sectors that will boost our economic fortunes and create jobs in rural areas. For a long time, this has been stated without a clear practical execution plan.
The National Development Plan (NDP) is one of the few documents that comes close to providing a framework for achieving this ambition. This is through its identification, in chapter six, of agricultural subsectors that should be a key focus for development — mainly horticulture — and the processes to be followed to unlock the value of agricultural production. There is a need for irrigation systems, market linkages and increased investment.
There is now an opportunity to transform the NDP view into an implementable plan through the government’s sectoral master plans, which are now being drafted. In the past week trade, industry & competition minister Ebrahim Patel released a poultry master plan. This has been met with enthusiasm by some private sector participants and various stakeholders and is an important signal of broad-based support for what the government is suggesting.
The positive collaborative view needs to extend further than only one subsector. Poultry is a perfect example to illustrate this point due to its linkages to other subsectors, such as the maize and soya bean industries. A holistic approach in the form of a comprehensive set of broad-based measures in the agricultural economy is critical for the country. Developing this set of measures requires the government and the private sector to be fully engaged at the drafting stages of the agricultural master plan, underlined by a common vision about its final outcome.
In its recent economic policy paper “A Contribution Towards a Growth Agenda for the SA Economy”, the Treasury rightly notes that “innovative joint ventures have been shown to boost agricultural production and promote agrarian transformation and should, therefore, be supported”.
I concur with this view after having spent a great deal of my time interacting extensively with farmers and agribusinesses across the country. The sentiments expressed in the Treasury policy paper align with the sentiment I get from my various engagements with agriculturalists.
Some commercial farmers are increasingly realising that they cannot stand on the side in the face of rising unemployment and inequality in the rural areas, as it might indirectly affect their businesses. But some have expressed frustration that there is no clear and practical path about how to contribute to the vision of building the SA rural economy hand in hand with the government.
The agricultural master plan that is being developed should respond to this “gap” by identifying priority subsectors, rules of engagement, priority regions for development and available incentives, among other matters.
Some of the aspects that could be included in the thought process is what the Treasury already started to hint at, highlighting that agricultural development requires “creating an enabling environment for investment, including financing solutions for farmers; adequate and affordable agricultural insurance; improved extension services for smallholder and emerging farmers; enhanced trade promotion, market access, and access to water for irrigated agriculture; as well as investment in establishing innovative market linkages for smallholders”.
The agricultural master plan should then provide a practical framework for operationalising some of these ideas.
Admittedly, government resources, specifically financial, are limited. It is clear that against this reality the government will not be able to single-handedly drive rural development. This is where private sector participation should come in, either on partnership approaches or any form of investment. Last week I attended an Eastern Cape agricultural conference organised by co-op Humkoop, which showcased various agricultural development initiatives that are taking shape in the province, partially driven by private sector investments, the government and the community.
Other provinces also have such initiatives, and these approaches should be reflected in the thinking for the agricultural master plan. Most importantly, other line departments such as human settlements, water & sanitation and trade, industry & competition, should align their agriculture-related work to what the department of agriculture, land reform & rural development is envisaging or planning. There needs to be better coherence and coordination at the national and provincial level.
Written for and first published in Business Day on 12 November 2019.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Nov 11, 2019 | Agricultural Trade
Essay by Wandile Sihlobo and Tinashe Kapuya[1]
South Africa’s trade policy is underpinned by an export-led growth strategy. This means that the country essentially looks to grow its economy by deepening and expanding its export markets.
Such efforts can be seen through South Africa’s participation in trade negotiations which seek to increase market access with traditional trading partners such as the European Union (EU) and penetrate new markets in Africa through the African Continental Free Trade Agreement (AfCFTA).
The focus on these two key regions comes as no surprise since they represent a significant portion of South Africa’s export revenue, specifically in the case of the agricultural sector. More than two-thirds of South Africa’s agricultural exports are concentrated within the African continent and the European Union (EU).
More recently, Asia and the Far East (particularly India and China) have become a key growth frontier that present South Africa with new opportunities to expand its exports. Overall, Asia has accounted for a quarter of South Africa’s agricultural exports, with indications that South Africa can potentially increase its market presence substantially in the future.
In Asia and the Far East, India and China are especially interesting because they account for 36% of the world’s population, whose economic sizes are US$3.2 trillion and US$15.5 trillion respectively. With India and China headlining the growth potential in Asia and the Far East, this regional overall, is significant enough to warrant more attention, especially given that there is currently no preferential market access for South Africa’s agricultural sector in this region. South Africa is having to compete with the likes of Australia and Chile, who have secured trade agreements that have afforded them a significant competitive advantage which could end up threatening South Africa’s market share and future growth.
India
India’s agricultural imports have nearly doubled over the past decade – from US$11.2 billion in 2009 to US$21.2 billion in 2018 – but is currently not on the list of Asian countries that import a reasonably large value of agricultural products from South Africa. Yet, if one looks into Asia’s leading agricultural products importers, India is ranked the second importer after China.
The products that underpinned this tremendous growth in India’s agricultural and food imports included palm oil, soybean oil, sunflower seeds, coconuts, cashew nuts, cotton, sugar, apples, dates, greasy wool, whiskies, coffee, and grapes.
South Africa, although a key producer and exporter of some of the aforementioned products (namely greasy wool, sugar, apples and grapes), doesn’t feature even on the top 40 countries supplying agricultural products to India. In 2018, South Africa was ranked the 46th largest supplier of agricultural products to India by value, accounting for a mere 0.3% of the US$21.2 billion worth of India’s agricultural imports. The key agricultural products that South Africa exported to India were pears, dog and cat food, greasy wool, oranges, apples, maize seed for sowing, cotton, and mandarins amongst other products.
South Africa – together with its Southern African Customs Union (SACU) partners have been negotiating a preferential trade agreement (PTA) since the mid-2000s. However, 15 years of on and off negotiations have not amounted to a favourable outcome. India is known for its highly protectionist policies, especially in agriculture, and exceptionally complex and high technical barriers to trade. Negotiations for opening up India’s market have inevitably come with difficult conditions, especially given their substantially larger tariff book. However, given the market size and potential of India, it is important that further considerations be made to allow South African agriculture to capture its export market opportunities.
China
In the case of China, its agricultural imports increased from US$70.7 billion dollars in 2009 to US$129.7 billion in 2018, and South Africa is also down on the list of the supplying countries, at number 32. South Africa’s agricultural exports account for 0.5% in China’s agricultural imports. The key agricultural products that China imports include soybeans, cotton, malt, beef, palm oil, wool, wine, strawberries, pork, citrus and barley.
South Africa’s presence within the Chinese market is mainly wool, citrus, nuts, sugar, wine, beef and grapes. But within these products, South Africa’s share remains negligible, with the exception of wool.
What has constrained South Africa’s growth in these markets over the past few years is not only the fact that the products in demand are not produced in South Africa, but rather trade barriers. In part, this is because of the way China facilitates agricultural trade agreement – mainly focusing on one product line at a time – which ultimately slows trade.
Strategic Approach to the Far East and Asia
If India and China – as Asia’s leading agricultural importers – are to be areas of focus for South Africa’s export-led growth in agriculture, then a new way of engagement will be essential to softening the current barriers to trade. Most importantly, all three countries are members of BRICS – a platform which should help improve economic activity across its member countries.
South Africa should also encourage Foreign Direct Investment in agriculture, specifically for potentially new production areas such as Eastern Cape, KwaZulu Natal and Limpopo, who still have large tracts of underutilised land. Having Chinese and Indian national as partners to agricultural development might be one of the ways of easing trade and way of doing business amongst these countries.
A number of instruments can be devised, but one thing for certain is that China and India should be key to South Africa’s agricultural sector as places for export-led growth. The growing population and income provide a good base for the demand of higher value agricultural products which South Africa intends to focus on in its development agenda.
[1] Sihlobo and Kapuya are agricultural economists.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za