Essay by Wandile Sihlobo and Gracelin Baskaran
Despite a vibrant agricultural sector, there are a standard list of challenges that South African agribusinesses commonly cite – land reform policy, droughts and infrastructure are amongst the most frequently cited. However, a growing challenge facing firms – particularly those in beef, wool, fruit and wine – is the need to identify new markets.
The need isn’t surprising given that South Africa’s agricultural sector is a highly export-orientated country, with exports accounting for roughly half of the production in value terms, about US$10,2 billion in 2020 (up 3% y/y).
Ensuring supply and demand is matched is critical for the agriculture sector. On the supply side, the planned expansion in various subsectors in the coming years will result in increased production. An example we have stated elsewhere is citrus farming; industry projections suggest that by 2030, South Africa’s output could increase by 76% from the 2021 expected harvest of 148.8 million of the standard 15kg cartons.
Creating demand will require exploring new markets. This means that South Africa should already be working on market access for the predicted citrus beyond the typical markets that the country is active in. The same is true, albeit to a lesser extent, for other fruits such as avocados, blueberries, deciduous fruits, livestock, wine industry, and barley producers.
A natural market to explore is the African continent, given that one of the objectives of the African Continental Free Trade Area is to improve regional trade. However, several challenges remain in actualizing this goal. This includes high transport and logistics costs, long border delays within the region caused by the excessive documentation needed for cross-border trade transactions, administrative bottlenecks and stipulated trade quotas aimed at curbing the quantity of traded goods, and other non-tariff barriers.
Instead, industry players have turned to a set of markets with a commonality – BRICS countries, the Middle East and Japan.
The BRICS countries are a core agricultural market, accounting for 12% or US$180 billion of global agriculture and agro-processing imports, according to data from Trade Map. Within this grouping of countries, China is the largest importer accounting for 68% of the total BRICS agriculture imports, followed by Russia (14%), India (10%), Brazil (5%) and South Africa (3%). The top imported products across the BRICS include wheat, wine, cheese, citrus, palm oil, bananas, rice, apples and pears, beef, coffee, chocolate, and milk.
While South Africa is a major producer of some of these products, its exports to the BRICS region are meagre. The BRIC(S) countries account for an average of 7% of South Africa’s total agriculture exports over the past ten years. Thus, there is substantial untapped potential.
The key markets that South African agricultural role-players are interested in within this grouping of countries are India and China. Together, they account for 36% of the world’s population. And they are both on track to have strong recoveries from the pandemic. While South Africa is forecasted to grow 3.6% in 2021, according to estimates from the South African Reserve Bank, China is forecasted to grow by 8.1%, India at 11.5%, according to estimates by the International Monetary Fund
Buoyed by strong economic growth prospects and home to over a third of the world’s population, China and India are countries that South African policymakers should engage with to support export-led growth at home and food security abroad. This mutually beneficial relationship should be anchored in increased tariff-free access for a wide range of agricultural products that are likely to experience growth in coming years.
Another country attracting strong interest is Japan, which is home to the world’s sixth-largest agriculture market, accounting for an average of US$60 billion agricultural imports a year. Japan’s challenges with meeting its demand for food is rooted in an ageing population. More than 70% of landowners are over 60 years old, and 10% of the land has been abandoned. Some agricultural operations are struggling due to a lack of labour, and it has become a challenge to pass farms to the next generation. Between 2005 and 2015, the number of farms decreased by 30%.
Given this decline in domestic agriculture production, Japan typically imports pork, maize, sausages, tobacco, beef, fish, wine, wheat, soybeans, cheese, coffee, bananas, nuts, and a range of vegetables, amongst other products. Some of these are products South Africa specializes in. At the moment, Japan remains a small market for South Africa, accounting for 2% of South Africa’s overall agricultural exports of the aforementioned US$10,2 billion a year. But with little indication that Japan’s ageing population or decline in farming will turn around, there is substantial potential for South Africa to increase its exports to Japan.
While Japan currently imports fruit juices, maize, beans, and citrus from South Africa, there is now growing interested in the wine industry, which could be paired with a broader fruit and beef industry to seek market access for a wider range of products.
And finally, within the Middle East, Saudi Arabia is an important player in the global agricultural trade. , being ranked the world’s 20th-largest importer of agricultural products in 2019, valued at US$20 billion, according to data from Trade Map. Covid-19 pandemic demonstrated the importance of agricultural imports. The country made an allocation of 2 billion riyals ($533 million) to fund the import of agricultural products including rice, sugar, soybeans and yellow corn early in the pandemic.
But South Africa accounted for less than 2% of Saudi Arabia’s imports. There is substantial scope to increase this, particularly given the desert nation’s growing dependence on grain imports, particularly barley and wheat. This came after the country gave up its goal of becoming food self-sufficient, given the water shortages in the desert.
Saudi Arabia’s demand for imports is closely aligned with South Africa’s supply for export; for example, some of Saudi Arabia’s top imported agricultural products include were meat, live sheep and goats, sugar cane, maize, citrus, palm oil, oilcake, vegetables and fruit juices. These are also products that South Africa is a major producer of and that South African producers are looking for new markets to sell it.
Given the continued growth of South Africa’s agriculture sector, which will support export-led growth for the larger economy, policymakers should support the private sector by strengthening trade relationships. Though there may be challenges around some countries pursuing a reciprocal trade agreement with South Africa while South Africa is pursuing a localization industrial and trade policy approach, it can still be a mutually beneficial relationship. South Africa has the food supply to ensure that these countries can meet their demand for food security.
Wandile Sihlobo is the Chief Economist of the Agricultural Business Chamber of South Africa (Agbiz) and the author of “Finding Common Ground: Land, Equity, and Agriculture.” He is also a Visiting Research Fellow at the Wits School of Governance, University of the Witwatersrand.
Gracelin Baskaran is a development economist and Senior Research Fellow at the University of Cape Town. She holds a PhD from the University of Cambridge.
Follow me on Twitter (@WandileSihlobo). E-mail: firstname.lastname@example.org