by Wandile Sihlobo | Apr 30, 2020 | Africa Focus
This essay first appeared on Business Day, April 28, 2020
Global food and agricultural supply chains are taking strain from disruptions caused by the Covid-19 pandemic. This is the case whether one looks at meat or grain supply chains.
First, the US, Brazil and Canada, which accounted for nearly a third of global meat and edible offal exports in 2019, have closed some of their meat processing plants over the past few days in response to the spread of Covid-19 among employees. In the US and Canada, the major closures are beef and pork processing plants, while in Brazil the closures are of poultry-related plants. Given these countries’ significant combined contribution to global meat exports of 28%, if the plant closures spread and they remain closed for a prolonged period there could be a global meat shortage and a potential uptick in prices.
Fortunately for SA, from a beef perspective, it is a net exporter. Hence the closures of certain plants in top exporting countries present minimal risks from a food security perspective. However, when it comes to pork SA remains a net importer of mainly ribs from Europe. These imports accounted for roughly 6% of domestic consumption in 2019. Similarly, about 20% of domestic poultry consumption is imported, mainly from Brazil, the US and EU, according to Trade Map data. This essentially means that if the disruptions to meat processors in the US and Brazil persist and spill over to the global market, SA will be affected, particularly when it comes to poultry imports.
Second, wheat continues to be plagued by the spectre of export limitations. In March Russia placed an export quota of 7-million tonnes of wheat in the three months to June to protect its domestic supply during the pandemic before the July harvest of its new crop. This quota has now been reached, and it is unclear if the country will issue a new quota for the remaining months leading to July.
Russia is the world’s leading wheat exporter, accounting for 19% of global wheat exports in the 2019/2020 season. On average, exports account for 45% of Russia’s wheat production of 77-million tonnes. With the International Grains Council forecasting a 9% year-on-year increase in Russia’s wheat production in 2020/2021, I doubt further wheat export restrictions will be announced post-July 2020. Nonetheless, the policy direction Russia takes will have implications for SA, which imports half of its annual wheat consumption, with Russia among the leading suppliers.
Third, looking further afield to the rest of Africa, there are rising concerns over food insecurity in 2020. These stem from unfavourable weather conditions, which has negatively affected agriculture in various countries and spreading locust swarms.
Zimbabwe suffered from drought and floods in 2019, and the production of staple crops fell more than half. Agriculture in Zimbabwe also started the 2020 production season on the back foot due to unfavourable weather. The International Grains Council forecasts the country’s 2019/2020 maize production at 800,000 tonnes, which is less than half of what it needs to satisfy annual consumption of 2-million tonnes. In East Africa, as locusts continue to spread Kenya, Somalia and Uganda could experience crop losses.
It is important that the disruptions to meat supply chains in the US, Brazil and Canada are monitored, but I don’t foresee an immediate threat to SA’s supplies. This is because of the country’s relatively lower dependence on imports of meat. In the case of wheat, Russia is a big enough wheat market to warrant policy attention. On the rest of the continent, the lingering challenge of food insecurity has only been accentuated by the Covid-19 pandemic.
To mitigate societal risk, food insecurity should be on the front burner when the continent mobilises resources from the public purse and multinational and developmental institutions.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Apr 24, 2020 | Africa Focus
The COVID-19 pandemic will exacerbate an already dire situation of food shortage in some African countries. Professor Mzukisi Qobo (Head of Wits School of Governance, University of Witwatersrand), Isaah Mhlanga (Chief Economist at Alexander Forbes) and I have an essay out this morning which discusses this matter. You can access it here.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Apr 23, 2020 | Agricultural Trade
We have previously warned of the restrictions placed by countries on agricultural commodity exports, specifically rice and wheat. The concern was that restrictions in the world’s larger supplier markets would inevitably result in drastic price increases of the aforementioned commodities, of which South Africa is a net importer of.
South Africa imports all of its rice and half of its wheat requirements. The restrictions on exports were announced in the Black Sea and Asia regions, although the world has large supplies of rice and wheat. The United States Department of Agriculture forecasts 2019/20 global wheat production at 764 million tonnes, up 4% y/y. And the 2019/20 rice production is estimated at 496 million tonnes, down by 1% y/y.
This past week, however, Romania, which is the world’s seventh-largest wheat exporter, retracted its statement on the ban of wheat exports. Over the past five years, Romania’s wheat exports averaged 5.6 million tonnes. While not directly a big supplier of wheat to South Africa, the easing of exports is a positive move towards boosting the global wheat supplies for export markets. The International Grains Council estimates that the world has 176 million tonnes of wheat for exports within the 2019/20 season, which is a 5% increase from the previous season.
Under circumstances of increased wheat production and supplies for exports, one would ordinarily assume that wheat prices would be somewhat lower than levels seen this time last year. But this is not the case.
Global wheat prices traded around US$238 per tonne (US HRW) on 22 April 2020, which is up 13% y/y. The increase can, in part, be attributed to the restrictions on exports announced by various countries over the past couple of weeks amid fears about the timeframe of the COVID-19 pandemic. If we could see similar statements as Romania or assurance that there won’t be an export restriction on wheat from major wheat-producing countries, there could be some ease in the global wheat market about supplies throughout the season.
This is a message that was widely shared in the G20 Extraordinary Agriculture Ministers Meeting, earlier this week, noting a need to “guard against any unjustified restrictive measures that could lead to excessive food price volatility in international markets and threaten the food security and nutrition of large proportions of the world population.”
In the case of South Africa, 2019/20 wheat imports could increase by 33% y/y to 1.8 million tonnes. This is 13% higher than the five-year average import volume, exacerbated by the decline in domestic wheat production on the back of unfavourable weather conditions in parts of the Western Cape in late 2019. As of 17 April 2020, South Africa had imported 804 335 tonnes of wheat, which equates to 45% of the volume the country intends to bring into its shores within the 2019/20 season. The leading suppliers so far are Germany, Lithuania, Poland, Latvia, Ukraine and Russia.
There is no doubt that over the coming weeks and months, there could be supply chain disruptions because of the pandemic. However, the hope is that trade policy in key producing counties doesn’t add to an already challenging environment for importing countries. We are counting on various countries upholding the G20 message.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Apr 23, 2020 | General Comments
Since the beginning of the lockdown, the good folks at Statistics South Africa have been measuring price changes for essential goods that appear in the Consumer Price Index and temporarily publishing inflation data weekly for a smaller range of goods.
Taking a closer look at products within the Food and Non-Alcoholic Beverages category of the basket, the products that experienced the biggest price rises between 2 and 16 April were milk, eggs and cheese, increasing by 2,9%, hot beverages (up 2,7%), and oils and fats (up 2,3%).
I will expand on food price inflation dynamics when the time allows. Generally, I haven’t moved from the view I expressed in March 2020 here.
You can access the recent Statistics South Africa data here.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Apr 21, 2020 | General Comments
The actual impact of the COVID-19 pandemic on South African businesses remains unknown until critical variables to measure it can be identified, including the duration of the pandemic and its intensity in terms of infection rates. So far, the pandemic has highlighted the need to obtain accurate information as close as possible to real time.
Hence, the good folks at Statistics South Africa have set out to determine the impact on businesses and the economy at large by conducting an experimental study. They have just released their first report and you can download it here.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Apr 16, 2020 | Agricultural Trade
This essay first appeared on Business Day, April 14, 2020
The potential rise in oil prices and weak demand for SA’s agricultural exports from most regions are two additional challenges for the agricultural sector that are spinning off the COVID-19 pandemic.
Global oil prices came under pressure at the beginning of March after a dispute between Saudi Arabia and Russia, which led to both countries increasing their oil production. Brent crude prices fell 60% before staging a 29% recovery to end at $24 per barrel last week. The collapse in oil prices was beneficial to oil and petroleum product importing countries such as SA, as it offset the effect of a drastic weakening of their domestic currencies over the same period.
However, the tide has now turned. The Opec crude oil cartel agreed to reduce oil production by 9.7-million barrels a day in May and June, which roughly equates to 10% of global supply. Moreover, there is a commitment to continue oil reductions until April 2022. This means the decline we saw in oil prices could soon be reversed.
This could manifest in domestic fuel prices from May, a month when the summer grain harvest will be commencing and the citrus harvest will be in full swing. Meanwhile, the winter grain planting season will be in its early stages. All these processes require more fuel consumption at a time when prices are likely to be increasing. Fuel accounts for 11% of SA’s grain production costs, so an increase in fuel prices would be a notable drawback.
What’s more, the agribusinesses involved in the logistics chain could also be hit. About 80% of SA’s grain and a substantial volume of other agricultural products are transported by road.
Second, the spectre of slowing demand for SA’s agricultural exports is no longer confined to the European and Asian markets, which on their own are crucial markets accounting for 50% of SA’s agricultural exports of R142bn in 2019. The African market, which generally accounts for 40% of SA’s agricultural exports, could also experience slowing demand in 2020. This might be the case notwithstanding the potential food shortage in various countries in the rest of Africa this year.
While the rate of confirmed COVID-19 cases is low on the continent, other than in SA, there are various key contributing factors to slowing demand. Chief among them is the relative weakness of currencies across the region amid the pandemic, which could lead to rising food prices. Another is supply chain disruptions as various countries implement strict border closures to curb the COVID-19 pandemic.
In the event that lower demand for SA’s agricultural products becomes a reality in some markets, the effect could be felt across various agricultural industries. The aforementioned regions constitute about 90% of SA’s agricultural export markets, which means any glitches in trade activity could have a notable effect. Having said this, the evidence available so far remains encouraging that exports will continue with limited glitches, which have mostly been on the side of SA’s ports and roadblocks.
Essentially, while the SA agricultural and agribusiness sector is not as hard hit by the COVID-19 pandemic as other sectors of the economy, there are still a number of challenges that could weigh on profitability.
With regard to potential rising fuel prices in the near term, it would be advisable for agribusinesses and farmers to hedge their fuel prices for use during the harvest and post-harvest periods. However, trade could remain challenging, especially if one considers the potential fall in consumer buying power in SA’s traditional markets.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Apr 14, 2020 | Agricultural Labour Market
I’ve published an essay — Agriculture After the Pandemic — on Project Syndicate, the World’s Opinion Page. You can access it here.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
