South Africa Officially Opened Its Market to Imports of American Eggs

Although the 2017 avian influenza outbreak largely affected egg layers, for some reason, I did not really pay close attention to the South African eggs supplies. I only started thinking about this matter on Friday, when I noticed a report from the United States Department of Agriculture, indicating that South Africa has officially opened its market to imports of American shell eggs (HS code 040721).

This is an interesting development considering that South Africa is usually self-sufficient in eggs. Looking at the data covering the past 17-years, the largest eggs imports were in 2013, amounting to 66 tonnes. About 98 percent of this originated from Lesotho, according to data from Trade Map. In fact, Lesotho has consistently been the key supplier of eggs to South Africa in the years that the country has imported (which is 4-years in a 17-year data series).

This year, however, started on a bad footing due to reduced domestic eggs supplies on the back of 2017 avian influenza, which negatively affected the domestic layer flock. The country had to import in order to supplement domestic supplies. Data from the United States Department of Agriculture shows that between January and May 2018, South Africa imported 50 tonnes of eggs. About 99 percent of this came from Brazil.

The total eggs imports for 2018 are estimated at 75 tonnes. With the US having recently been granted access to the South Africa eggs market, the country will potentially benefit from the 25 tonnes that are yet to be imported. There will, of course, be tough competition from Brazil and Lesotho.

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Land Reform Policy Itself a Stumbling Block to Successful Redistribution in South Africa

THE WEEKEND ESSAY: By Wandile Sihlobo and Professor Johann Kirsten

One key observation from the political discourse over land reform is that beyond the broad objective of what it seeks to achieve, the more specific problems around how to execute its implementation are misrepresented, poorly framed and therefore misunderstood.

In May we argued that land reform has not been as slow as portrayed in many political messages and that the problems that have since emerged out of land reform implementation are largely to do with a lack of focus on agrarian support. This is a conclusion we reached after having carefully analysed the implementation of land reform policy in post-democratic South Africa.

To further this argument, we want to illustrate that some of the limitations in ensuring the success in establishing commercial black farmers are due to unintended consequences in the implementation of the land reform policy itself.

A case in point is the Pro-active Land Acquisition Strategy (PLAS), which was introduced in 2006 for the State to acquire farm land for land reform purposes. To date, it is estimated that a total of between 2.1-million ha and 4.3-million ha, depending on the data source within the Department of Rural Development and Land Reform (DRDLR), has been acquired by the state. It seems, however, that these farms are not being transferred to beneficiaries.

According to the State Land Lease and Disposal Policy, the acquired land would be leased to a beneficiary for a period of between 5 and 30 years, followed by the option to transfer ownership. In reality, however, the beneficiaries only received short-term leases ranging from a year to 5-years. This was clearly reflected in a  research paper released early 2017 by Ruth Hall and Thembela Kepe, albeit having focused on a couple of municipalities in the Eastern Cape province.

This makes sustainable farming almost impossible, as articulated by Bongani (not his real name), a potential beneficiary we met at the end of May 2018 in the Eastern Cape province. Bongani aimed to start commercially farming in mid-2005, but that dream was deferred when he discovered after a 3-year waiting period that his application forms to access land were never processed. They were misplaced by the DRDLR during the processing stages. He was told, after numerous follow-ups, that this happened during the demarcation of municipalities, which is strange considering that land reform is not a competence of local government.

Bongani then reapplied in 2009 but still to no avail. He is currently farming on communal land around Maclear town. Nonetheless, we asked him to narrate the application process that he followed in late 2009 and he described the stages as follows:

  • Identify a farm in your area of interest;
  • Submit an application through the DRDLR district office;
  • The application then goes to the beneficiary screening committee;
  • It is then transferred to the provincial land committee; and then
  • If successful, it goes to the national land committee which is chaired by Deputy Minister of DRDLR.

We have skipped some of the details, but just to give you an idea, the process entails a roughly 3 to 4-year waiting period. The obvious risk with this process is that applicants can concurrently express interest in a specific piece of land or farm. This complicates the application process.

Post-application, beneficiaries also need to have a fundable business plan to be eligible for government’s post-transfer support. The business plan also has to follow a tedious screening process akin to the aforementioned one, and to further compound the process, the opinion of farmers such as Bongani is that the some of the officials at the DRDLR offices tend to lack agricultural proficiency to expedite applications. This, of course, is a risk because it could lead to some errors and delays in dispensing agricultural support services.

After this convoluted process, if one gets to successfully access the farm, they are then placed on probation for about 5-years to assess if they can farm successfully. This is largely where the problem arises because at this juncture beneficiaries have no title deeds to use as collateral.

Therefore, the running of the business, which includes all input costs largely depend on one source – the post-settlement support system – so its effectiveness has a huge bearing on the programmes’ success. At the same time, this reality creates a permanent dependency on the state resources without real economic empowerment taking place. The highlighted challenges of bureaucracy and human capital have not helped the situation.

Post-settlement support was initially vested in different Government Departments. The Department of Rural Development and Land Reform was initially responsible to deliver the land in question, after which beneficiaries could approach the Department of Water and Sanitation to obtain water rights, the Department of Agriculture, Forestry and Fisheries to obtain agricultural inputs and the Department of Trade and industry to obtain implements.

This fragmented approach resulted in a misalignment between the land and associated services, which often set the beneficiaries up for failure. Instead of improving alignment between the different government departments responsible for the various support services, the Department of Rural Development and Land Reform ventured into the sphere of post-settlement support (typically the mandate of DAFF and the provincial departments of agriculture) through the creation of the Recapitalisation and Development Programme (RADP) in 2009, which recapitalises poorly performing land reform projects. However, this is more like merely papering over the cracks rather than identifying the root causes of failing projects and spreading the budget responsible for land acquisition very thin.

Bongani’s story is not very unique, it partially illuminates the grassroots frustrations of many aspiring black commercial farmers. Similar case studies, albeit having use rights to the land, were highlighted in the aforementioned research paper by Ruth Hall and Thembela Kepe.

The bureaucratic approaches that deferred Bongani’s dream of being a successful black commercial farmer could have somewhat been avoided had the market-assisted land reform programme prior to 2006 been expedited with the proficiency that the matter deserves. The market-assisted approach entailed the transfer of title deeds to beneficiaries which would have solved the problem of access to finance. We have previously explained how we this process would be carried out, but it is worth restating, briefly, to add a bit of context.

  • A beneficiary expresses interest in land purchase for farming
  • He/she identifies a farm for sale and agrees with the owner on a price
  • An application for land reform grant and a mortgage (at preferential interest rates) is lodged and own cash contribution is provided.
  • A grant and bond are registered (all funded from one source – such as the state-owned agricultural bank); the transaction is completed; the title deed is registered and post-settlement support is also made available immediately.
  • Mentorship and support by neighbouring farmers and agribusiness firms kick in.

With such a programme implemented at a faster pace, it is hard to imagine that aspiring black commercial farmers like Bongani would be experiencing the current challenges as they do today.

Having listened to Bongani’s story and reflecting on the statistics of available and arable land for agricultural purposes in some parts of the country, and also the one he had identified in mid-2005, it becomes clear that the failure of Bongani’s access to a farm is not so much a matter of the scarcity of land, but rather, a duplication of duties between DRDLR and DAFF, accompanied by bureaucratic inefficiencies and human capital challenges of the State system itself.

Overall, this story can be interpreted in various ways. Some may read this as a reluctance of the government to transfer land and efficiently provide post-settlement support to ensure the success of black commercial farmers, while others can describe this as a failure of the government to re-invent its state mechanism to deliver on a promise whose effort and resource requirements they clearly seem to have under-estimated.

We’ve decided to narrate Bongani’s story, with the hope of re-directing the land reform debate to some of the more immediate issues that remain unaddressed at the grassroots level, which have led to the failure of the policy.

New land reform policy proposals should seek to address the prevailing challenges of some aspiring black commercial farmers first before more radical measures can be initiated. If the systemic issues are not resolved, it is difficult to imagine how the policy suggestions of land expropriation without compensation will yield a different outcome from the failures we have observed from past policy propositions. In fact, we anticipate that expropriation without compensation will worsen the aforementioned challenges or exacerbate the problem. Of course, only time will tell.

Wandile Sihlobo is head of agribusiness research at the Agricultural Business Chamber of South Africa (Agbiz) and Professor Johann Kirsten is the Director of the Bureau for Economic Research (BER) at Stellenbosch University.

Written for and first published on Business Day on 11 June 2018. 

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US Farms Don’t Need a Trade War at this Time

A lot has been said about the US-China trade dispute and its potential impact on American farming communities and the country’s agricultural economy. Yesterday, my good friend, Michael ‘Mike’ McDougall at ED&F Man Capital Markets in New York, introduced an interesting perspective to the debate – ageing American farmers. Without clouding his views, here is Mike undiluted:

Farms in the United States are feeling the pressure financially from the trade war. Lower prices and China cutting off the buying of US soybeans are hitting farms after they have already seen their revenue drop since their peak in 2013.

Farms, in general, are indeed, feeling pressure from demographics. Taking Iowa State for example, 60 percent of Iowa farmland is owned by people 65 years or older, and 35 percent of farmland is owned by people 75 or older. The latest 2017 census isn’t available, but data from 2012 show that the average age of the American farmer was 58.3 years.

This isn’t because young people in rural America don’t want to farm, it’s because, if it isn’t already your family business, the entry costs are much too high. Iowa is an example, but a similar situation exists throughout the farming sector.

Now elderly farmers have the added pressure of the trade war to put up with and smaller farms might not have the capital to weather this storm.

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African Governments Must Effectively Implement the Trade Agreements

By Mmatlou Kalaba and Wandile Sihlobo

One of the most prolific messages from the Nelson Mandela centenary lecture presented by Professor Patrick Lumumba was that Tata Madiba would have asked why do African countries consume what they don’t produce, and produce what they don’t consume. He further made a point about coffee, cocoa, tea and other raw commodities that are exported by African countries, and then import expensive, high-value finished products derived from the same inputs they exported.

Although the point of Professor Lumumba is valid and exposes lack of processing capacity, there are countries such as South Africa, Mauritius and Kenya, amongst others that have a fair amount of capacity. The main problem is that trade of some of those inputs does not end up on the continent due to infrastructure challenges and some trade impediments.

In a way, it seems that the continent is already attempting to address this challenge by increasing intra-Africa trade. Case in point is the recently signed Africa Continental Free Trade Agreement (AfCFTA) in Rwanda which seeks improve intra-Africa trade beyond the current rate of 20%. So, the plan to address Professor Lumumba’s criticism is underway, but we doubt if it is adequate.

One of the main problems on the African continent is the implementation of grand plans like AfCFTA. A most recent example of such grand plans is the Tripartite Free Trade Agreement (TFTA) including 26 countries from eastern, southern and few northern African regions which were launched at the African Union Summit that was held in June of 2015 in Egypt. This agreement has similar objectives of freeing trade amongst its members, but a lot more complex, bigger and cumbersome considering that AfCFTA has almost twice the number of countries.

Disappointingly, there has been limited movements in terms of implementations of the TFTA more than two years down the line. Products from the African countries still face higher tariffs and other forms of trade barriers – which again minimizes intra-Africa trade. An example is South African apples which still faces a tariff of about 20% in Egypt (coincidentally, the very same place that hosted the launch of the TFTA), but zero in the European Union.

This is not only limited to South Africa but other African countries as well. Egypt has been participating in the Common Market for Eastern and Southern Africa (COMESA) free trade agreement since the year 2000, yet it still imposes up to 18% tariffs on the apples from fellow members. This is against the spirit of intra-Africa trade, and thus encourages African apple producers to look outside the continent for export market – a point that Professor Lumumba lamented on.

The aforementioned example also applies to other products and countries. To address this, African governments need to show the political will to effectively implement the trade agreements. Strong leadership needs to be exercised particularly by the influential and leading economies, such as South Africa and Nigeria.

In the same week of the Mandela centenary lecture, we saw heads of State of South Africa and Nigeria encouraging each other to sign the AfCFTA. While that gesture is commendable, the two should not end with the signing but rather show even stronger enthusiasm towards implementation.

This will start with both countries reducing tariffs in accordance with the agreements they signed, and further encouraging other countries to do the same. This can extend to reducing border delays, and other bureaucratic requirements. If these steps are addressed, there could be a positive boost to intra-Africa trade. In the long term, these countries would also take a lead in addressing infrastructure impediments, building human capacity and thus improving overall services and trade for individuals, as well as the whole continent.

Dr Kalaba is a Trade Economist with the University of Pretoria and the Bureau for Food and Agricultural Policy. Twitter: @Mmmatlou_Kalaba. Sihlobo is an agricultural economist with the Agricultural Business Chamber of South Africa.

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Eastern Cape’s Agricultural Economic Possibilities

Tonight (July 25) I am flying back from East London to Johannesburg after a day visit. The Eastern Cape Department of Rural Development and Agrarian Reform helped organise a session to explore a couple of ideas and initiatives that could drive agricultural growth and employment in the province.

I was asked to open the session with a few reflections on South Africa’s agricultural economy and highlight the role that the Eastern Cape province can potentially play going forward (I will upload the slides later). I discussed a number of things, but at the core, my message somewhat mimicked a view I shared on this blog a few weeks back.

I will restate it briefly for context. South Africa has about 847 000 people working in the agricultural sector (the Eastern Cape province accounts for 11 percent share). About two-thirds of South Africa’s agricultural jobs are in the field crop and horticultural industries. The employment in these subsectors has slightly increased over the recent past, particularly horticulture. Meanwhile, other subsectors saw a marginal decline. This somewhat tells us that if we are to see an increase in agricultural employment, horticulture will have to be a priority (the rise of technology is not an immediate threat to jobs in this subsector due to its nature of production and harvesting – it’s labour intensive).

Fortunately, there is an old but relevant document to guide us on this front: chapter six of the National Development Plan (NDP). I know some people have become a bit despondent about the NDP’s ambitious goal of creating close to 1-million jobs in agriculture by 2030.

This is partly because the political rhetoric has placed little emphasis on the prerequisites for those jobs to materialise, but the situation can still be turned around if the right enablers are put in place.

Among these are the need to bring underutilised land in communal areas and land reform farms into commercial production, expand irrigation systems, and identify and support agricultural expansion in areas that have a high potential for growth and employment. This will require investment and strong and efficient institutions.

Given that there is a need to focus on communal land, the Eastern Cape, KwaZulu-Natal and Limpopo would potentially be focus areas for expansion and growth in the South African agricultural sector. These are also provinces with the highest unemployment.

South African policymakers should revisit the NDP with a clear intent to create strategies that will enable job creation. Regarding the feasibility of the 1-million jobs target aside, I think there is room for expansion, provided the aforementioned prerequisites are put in place. Again, the key subsector to focus on is horticulture, which is labour-intensive and there is a growing demand for horticultural products on the global market.

The upskilling of the agricultural labour force to align it with the changing technological environment, increasing investment, research and development and financial support to developing farmers, are key to improving the prospects of the sector.

In closing, I mentioned five major aspects that could constrain growth in the province’s agricultural sector — (1) uncertainty regarding land reform, especially communal tenure, (2) climate change, (3) lack of biosecurity measures, (4) water rights regulations and  (5) infrastructure.

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Large Grain Supplies Help Bring Some Relief to Consumers

I got someone to do a bit of a ‘facelift’ in this blog so it could look a bit cooler and modern, so I stayed offline to allow them to do the design stuff with minimal interruptions. The process, however, seems to be taking a bit longer than I anticipated. And, there are important things going on in the agricultural sector that needs to be discussed.

I usually use this space to present an update of domestic and regional food and agricultural production conditions. Earlier in 2018 I shared the positive outlook for SA’s summer and winter crop production.

As farmers wind up the summer crop harvest process and winter crop planting approaches completion in the country, I think it’s appropriate to present an update again. This time around I have good and bad news.

Starting with the good news, the major summer crop supplies such as maize and soya beans are in good shape thanks to good summer rainfall. To illustrate this, SA’s maize supplies could reach 16.7-million tonnes, well above the local demand of 10.8-million tonnes, according to data from the national supply and demand estimates committee. The maize supplies figure combines opening stocks and expected production.

In addition, the 2018-19 soya bean supplies are estimated at 1.87-million tonnes, up 33% from the previous year. The figure includes the expected record production of 1.6-million tonnes, opening stock and the small volume of imports.

Other summer crop commodities have also performed well, and the benefits of this are clear from the retail shelves. On average in May the price of a 5kg bag of super maize meal in SA was down 22% from the same period in 2017. A litre of milk was down 1% from May 2017. A 2.5kg bag of sugar was down 9% from May 2018. Even the price of imported products, such as rice, has declined 3% from May 2017. Some other basic household products, such as cooking oils and vegetables, have also declined from levels seen in 2017. This could continue to be a key theme over the next couple of months, which will help ease pressure on constrained consumers.

In terms of winter crops, the big story of 2017 was the Western Cape drought and the impact it had on field crops, livestock and horticulture. The winter rainfall in 2018 has been fairly good across the province, although not evenly distributed. In a conversation with a couple of farmers this weekend I sensed some optimism about this season’s harvest. The only area that seemed to urgently need follow-up rainfall was the southern Cape. But overall crops are in good shape.

When it comes to field crops, this area is of importance because it accounts for 64% of the total intended area of winter wheat of 500,500ha, and all canola is produced there, among other field crops. The actual production forecasts for winter crops will be clear at the end of August when the national crop estimate committee releases its first production forecasts.

Moving on to the bad news.

Last week the International Research Institute for Climate and Society at Columbia University indicated that its estimate of the probability of an El Niño occurrence in the 2018-19 production season is over 60%. Simply put, this means there is a good chance that SA will experience a drier season in 2019, which could potentially strain summer crops.

However, I should stress that these are still preliminary estimates. There will be some revisions over the coming months. The key estimates that will give us a clear indication will probably be the ones of August and September as we approach the summer crop production season, which commences in October.

I am sharing this message now to caution folks in the food space to plan better while we still have an abundance of good supplies of basic foodstuffs.

In closing, the forecasts of El Niño will possibly have a minimal effect on agricultural commodity prices in the near term, at least until there is some level of confidence in the forecast. South African consumers should therefore be in a fairly comfortable place in terms of food costs in 2018.

This blogpost is an extract from my Business Day Column, published on 19 July 2018.

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Pseudo Trade Negotiations Involving Ordinary Folk

There are evident concerns within the Southern African Development Community (SADC) and also The European Union (EU)-SADC trade relations. This became clear in a panel discussion I facilitated on 18 July 2018 at Farmers Weekly Agribusiness Africa Conference in Johannesburg. The theme of the session was ‘Towards a fairer, freer and friendlier trading environment’.

The panellists were from SADC and the EU regions. They discussed a number of important issues, but here are the two interesting observations, which brought about the title of this blog post.

On the SADC front — Mozambican economist, Tatiana Mata, expressed regrets about the signing of the SADC agreement – something that never crossed my mind — considering that Mozambique is the only country on the continent that belongs to the single trade block, which is the very same SADC. According to Mata, Mozambique does not see the benefits of SADC, and South Africa as the main beneficiary.

Interestingly, Mozambique is the fifth largest exporter of agricultural products amongst SADC countries, according to data from Trade Map. Hence, I was somewhat surprised by Mata’s remarks.

In terms of the EU — chicken was thrown on the table, literally and figuratively. Francois Baird, a founder of FairPlay, presented imported and local chicken portions in an attempt to illustrate the differences in quality.

The point was that the quality of local chicken is better than the imported product and that farmers are driven out of business by imports. The EU representative responded by saying that if the local chicken is of higher quality, why don’t they export chicken breast to the global market?

At this stage the debate was so heated, that I almost stopped the session, however, I thought it would be best to let everyone express themselves, freely.

Overall, these two selected cases somewhat demonstrated the views of ordinary folk towards trade. One wonders what trade agreements would look like if ordinary people were to be involved in trade negotiations? What forms would they have today? Given this experience, it would probably be impractical to conclude a trade agreement.

In these trade negotiations, perhaps, policymakers should be more open and share information that guides the decision making. For example – tell people that there are trade-offs at these negotiations. In other words, it is a give-and-take situation, and not winner takes all.

With appreciation to Mmatlou Kalaba (PhD) and Hamlet Hlomendlini for comments and amusement as I drafted these notes as a way of therapy.

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