by WANDILE SIHLOBO | Jul 17, 2018 | General Comments
I planned to spend some time this evening updating a piece I wrote for Business Day early last year about the Eastern Cape’s agricultural activities. Amongst other things discussed in it, I highlighted the province’s contribution to South Africa’s wool and milk production, and new developments in the grain and oilseed production.
As I prepared to update the piece, I realised that I have not said a word in this blog about the structure of the South African milk industry.
So, here we go — the number of milk producers in South Africa decreased by 55 percent between January 2009 and January 2017 to 1 593 farmers, according to data from the Milk Producers Organisation. This decline was largely in the inland provinces such as the Free State, North West, Limpopo, Gauteng and Mpumalanga. This was partially underpinned by lower milk prices and higher feeding costs – profitability is a major issue. This is a global challenge by the way.
For consumers, however, this is not much of an issue in the near term as milk production has increased significantly in the country. Between 2009 and 2016, South Africa’s milk production increased by 22 percent to 3.2 million tonnes.
Moreover, South Africans are increasingly consuming more milk. The per capita consumption increased by 4 percent over the corresponding period to 39 kg per year, according to data from the Department of Agriculture, Forestry and Fisheries.
Also worth noting is that the prices of milk have slowed from levels seen in the past couple of months. On average in May 2018, a price of a litre of milk was down by a percentage point from the same time last year.
Ok, now that we have the milk story out of the way – I will come back to this Eastern Cape agricultural production stuff sometime during the week.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by WANDILE SIHLOBO | Jul 17, 2018 | General Comments
The one thing that South African consumers can smile about in the near term is the relatively lower cost of basic foodstuffs, and this could be the key theme for the rest of the year.
On average in May 2018, a 5-kilogram bag of super maize meal in South Africa was down by 22 percent from the same period last year. A litre of milk was down by a percentage point from May 2017. A 2.5-kilogram bag of sugar was down by 9 percent from May 2018. Even the price of imported products, such as rice, has declined by 3 percent from May 2017. Some other basic household products, such as cooking oils and vegetables, have also declined from levels seen last year.
This good news is largely underpinned by an improvement in agricultural output – thanks to good rainfall, albeit arriving late in some parts of the country. Just last week, as I was packing my bag to leave my desk for a weekend, the United States Department of Agriculture released its monthly World Agricultural Supply and Demand Estimates report covering a wide range of commodities, but most importantly – painting a positive picture for South Africa.
The agency lifted its estimate for South Africa’s 2017/18 maize production by 2 percent from last month to 13.8 million tonnes. While it indicates above-average production of 12.5 million tonnes, it is lower than the previous season’s record harvest of 17.6 million tonnes due to a decline in area planted and expectations of average yields in some areas.
This is in line with the local Crop Estimate Committee’s estimate for overall production (commercial and non-commercial). The non-commercial production, which is subsistence farming, accounts for a 4 percent share in the estimated harvest of 13.8 million tonnes.
The key message from these numbers is that South Africa’s maize market will be well supplied in the 2018/19 marketing year, which ends in April 2019. Total 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.
This essentially means that during South Africa’s 2018/19 marketing year maize exports could, at least, amount to 2.5 million tonnes, slightly lower than the volume exported in 2017/18. Most importantly, this suggests that the SAFEX maize prices could remain at relatively lower levels for some time, all else being equal.
This might not be good news for farmers (lower prices), but it will certainly help ease pressure on constrained consumers over the next couple of months.
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by WANDILE SIHLOBO | Jul 16, 2018 | General Comments
Agriculture has its fair share of challenges, but I try to find uplifting domestic and regional developments to discuss. This week, agricultural trade was in my cross hairs.
For context, I recently reflected on the positive trade performance in calendar 2017, when South Africa’s agricultural exports surpassed $10-billion (about R134-billion) for the first time, boosted by growth in exports of edible fruits, beverages, spirits, vegetables, grains and other farm products. The $10.0-billion figure represented a 15% year-on-year increase from $8.7-billion.
Africa and Europe were the largest destinations for agricultural exports, collectively absorbing 67% of total exports last year in value terms. Asia was also an important market, taking 24%. The Americas and the rest of the world accounted for 5% and 4%, respectively.
In the same period, imports increased by 5% year on year, reaching $6.7-billion, particularly driven by wheat and rice.
Good start to the year
The first quarter of this year started on a positive footing, with agricultural exports amounting to $2.3-billion, up 8% from the corresponding period last year, according to data from Trade Map. This was boosted by increased sales of edible fruits, beverages and spirits, vegetables, wool, sugar and cereals.
The trade impact of the severe drought in the Western Cape was muted in the first quarter. It will, however, be felt in the coming quarters, as 2017-2018 table grape and major fruit production declined by double digits year on year. Research from the University of Cape Town shows Western Cape rainfall last year was the lowest in more than 80 years.
Agricultural imports in the first quarter of this year were worth $1.8-billion, up 2% from the corresponding period last year. This was driven by a notable uptick in grain imports, particularly wheat and rice.
South Africa is traditionally a net importer of wheat, but the Western Cape drought, which led to a decline in domestic production, resulted in an increase in wheat imports to 1.9 million tonnes – the second-highest level on record. A notable share of this was facilitated in the first quarter. At the time of writing, about 84% of our estimated wheat imports had already landed. The rest will be delivered by the end of September, which is the end of the 2017-2018 marketing year.
In the case of rice, South Africa is traditionally a net importer, and we saw imports growing by 10% year on year to 1.1 million tonnes last year due to higher demand. This year’s imports could soften to one million tonnes, according to data from the International Grains Council.
From a destination point of view, the rest of Africa was, as in previous periods, the biggest market for our farm exports in the first quarter, accounting for 43% in value terms. Products at the top of the list for export to the rest of Africa included beverages, vegetables, fruit, grains, sugar and dairy.
Exports to Europe – the second biggest market, taking 32% in value terms in the first quarter – were led by fruit, beverages, vegetables, wool and animal fats. Asia remained a key market, accounting for 20% of farm exports in the first quarter, with grains and wool leading the product pack.
The domination of beverages and fruits is notable, because it means the decline in production of fruit and wine grapes in 2017-2018 owing to the Western Cape’s drought could have a substantial impact on export figures in the coming quarters. However, at this stage it is too early to say precisely how big this impact is likely to be.
Perhaps good production in other fruit-producing provinces such as Limpopo could slightly offset the losses and keep the South African agricultural trade balance in positive territory in the coming quarters.
*Written for and first appeared on Business Times on 15 July 2018
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by WANDILE SIHLOBO | Jul 14, 2018 | General Comments
Regular readers of this blog will know that this is one of those posts that I update every month when new data comes out. This time around, however, I will make a few points on wheat production.
In May 2018, South Africa produced 187 million loaves of bread, up by 4 percent from the previous month.
Our bread basket is comprised mainly of brown, white, and whole wheat bread. But, brown and white bread are the most dominant, with a combined share of 98 percent of all commercial pan baked bread produced in the country.
Brown bread commands 50 percent of South Africa’s bread production. White bread makes up 49 percent and the rest is whole wheat and other types of bread. The overall number of loaves reaching our plates is expected to increase over the foreseeable future. But, who will be the key suppliers of wheat?
Wheat plantings in South Africa have been steadily decreasing over the years. Between the 1994/95 production season and the 2017/18 production season, South Africa’s winter wheat plantings declined by 53 percent to 491 600 hectares.
This decline could partially be attributed to the effects of climate change, which has resulted in many farmers, particularly in the Free State province, opting out of high-risk wheat production to other crops and farming activities.
As a result of this decline in production, coupled with growing domestic consumption, wheat imports have increased significantly. In the 2017/18 marketing year, which ends in September, South Africa’s wheat imports are estimated at 1.9 million tonnes, up from 681 559 in the 1994/95 season. So far, 84 percent of this has already been imported. The leading suppliers were Russia (35% share – largest supplier thus far), Germany, Lithuania, Argentina, Latvia, Romania, Ukraine, the United States and Poland.
Clearly, in the short to medium term – South Africa will remain dependent on wheat imports. I’ve previously discussed the dryland wheat production expansion currently underway in the Eastern Cape province, but it will not be sufficient to solve South Africa’s issue of declining wheat production. Perhaps, I should discuss this in more detail in the next couple of days.
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by WANDILE SIHLOBO | Jul 13, 2018 | General Comments
This week I sat down with Professor Mzukisi Qobo to chat about South Africa’s agricultural performance, the key trends driving the sector and other light hearted stuff. This was part of his weekly podcast series: Perspective with Mzu. Here is a podcast – available on Soundcould and iTunes. If you are unable to listen to it at the moment – here is a gist of our discussion without the light hearted chat and domestic agricultural conditions.
Earlier this year, I came across an interesting article by the U.S. agricultural economist, Jason Lusk, highlighting the disruptive trends in food and agriculture. Lusk identified six key trends on the horizon. However, the two most notable ones were: Blockchain – an underlying technology that facilitates bitcoin trades and could be applied to many other industries; and Online food buying – Amazon might do to food what they have done in other industries.
While I agree with Lusk’s sentiments, Africa’s food and agricultural sector is still developing, and it might follow a slightly different trajectory to that of developed economies in the near-to-medium term. Some of the more pertinent near-term megatrends were identified in a research paper by agricultural economists, Lulama Ndibongo Traub, Felix Yeboah, Ferdinand Meyer and Thomas Jayne.
The most notable ones were:
(1) The youth bulge – which speaks to the fact that 45% of sub-Saharan Africa’s population is below the age of fifteen and over the next two decades will be looking for employment, which will potentially be in the agricultural sector.
(2) Climate change and the management of environmental risks – the exact impacts of climate change are still highly uncertain and are likely to vary significantly across various regions, but two general predictions are that much of Africa will experience greater variability in rainfall and a rise in temperatures. This, naturally, would have an effect on agricultural production, and possibly a decline in crop production. This would inevitably alter the geographical spread of crops, have an effect on horticulture and affect animal production. Whilst other sectors of the economy may see a greater focus on climate change mitigation, agriculture will need to focus on climate change adaptability.
(3) Telecommunications revolution – there is likely to be continued growth in Africans’ use of mobile banking, and software-based provision of information and services.
I concur with all the aforementioned mega-trends, and in addition, I would add a few more mega-trends that I believe will also underpin the food and agricultural sector in the medium to long-term, particularly for the African continent, namely:
Infrastructure – although the South African agricultural sector is arguably one of the most advanced on the African continent, there is still room for improvement; this is particularly evident in communal areas. Therefore, the subject of infrastructure and technological advancement will remain a key focus in the near future for both commercial and smallholder farmers, not only in South Africa, but more so across the rest of the continent.
Technology – There are already clear examples of this through precision farming, big data, drones, satellites and other methods currently in use in the industry. Moreover, the climate change challenge could also lead to further developments in seed breeding in an effort to find seeds that would adapt best to erratic rainfall. The Water Efficient Maize for Africa (WEMA) by Monsanto is a clear example of such efforts as it is designed to tolerate dry weather conditions.
Demographics – Africans are urbanising which means more people will be getting their daily foods from retailers instead of producing for themselves. This is an opportunity for agribusiness to expand their share in the retail space in order to meet the needs of the urban consumers.
Overall, the agricultural sector will need to adapt to the challenges posed by climate change, technology, infrastructure, and proactive social and environmental sustainability initiatives. The sectors will need to become more agile and innovative, to take advantage of the opportunities provided by the urbanising demographic of the African continent and labour supply.
Going forward, the need for innovation and agility will only become more imperative for the continent, as its tracts of land will be expected to not only feed Africa, but also to increasingly contribute to the food security of the growing global population.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by WANDILE SIHLOBO | Jul 12, 2018 | General Comments
We typically use the Agbiz/IDC Agribusiness Confidence Index to gauge the health of the South African agricultural sector, as well as the potential investment path. Of late, a number of commentaries have surfaced arguing that the discussions about the proposed expropriation without compensation have not negatively affected investment in the agricultural sector, suggesting that investment has actually increased over time.
This argument leans on investment in JSE food listed companies, which I believe would not be an ideal measure of observing investment in farming.
Roughly speaking, the food share index is largely driven by short-term adjustments mainly from the consumption side. Knowing that food and beverages are price inelastic, it is often not surprising that one finds the food share index growing despite the uncertainty in policy.
One data point that we observe closely, but also not a perfect indicator of measuring investment reaction to policy changes in the short term, is the Gross Fixed Capital Formation. This declined by 3% year-on-year to R16.2 billion in 2017. This decline is largely on the back of unfavourable weather conditions in some parts of the country, which somewhat constrainted investment.
Going forward, however, policy uncertainty could further weigh on investment. In the meantime, we look at agribusiness confidence levels as a guide of investment path for the year. Figure 1 below shows that there is a good correlation between Agbiz/IDC agribusiness confidence and investment in the sector.
In the second quarter of this year, the Agbiz/IDC Agribusiness Confidence Index declined from 58 index points in the first quarter to 54 (see Figure 2). With the results still above the neutral 50-point mark, albeit having declined, this means that the agribusiness sector was still optimistic about business conditions in South Africa.
Be that as it may, the decline in confidence is concerning, as we pointed out in the official statement of the second quarter index results that ‘the uncertainty around land reform policy, particularly expropriation without compensation, remains a key risk that could potentially undermine investment in the sector. At this point, however, farmers are somewhat in a wait-and-see mode. We have not seen a notable dent on investments in the sector yet’. Additionally, investment figures are not yet available for the period in which the debate escalated to be a major risk to the sector
In closing, we believe the suggestions that the proposed expropriation without compensation policy have not affected investments in the sector and have actually led to an increase in investment, might be premature.
Given the data presented in the aforementioned figures (1 and 2), we are of the view that the deterioration in confidence could lead to a decline in investment in the sector if uncertainty continues for longer around the proposed land reform policy.
— with comments from my colleagues John Purchase (Ph.D.) and Sifiso Ntombela of the Agricultural Business Chamber (Agbiz).
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by WANDILE SIHLOBO | Jul 10, 2018 | General Comments
It is hard to imagine where South Africa’s horticultural sector would be without effective trade policy. The recent expansion in South African horticultural production has largely been export driven. One fruit that clearly mirrors this is avocado.
South Africa produces on average about 90 000 tonnes of avocados a year. This has grown significantly from levels of just under 70 000 tonnes in the early 2000’s. The key driver behind this has largely been an expansion in area planted, which in turn was supported by an uptick in both domestic and global demand.
To illustrate the point of global demand — in the past six seasons, South Africa exported roughly two-thirds of its avocado production. The typical key markets are the Netherlands, the United Kingdom, Spain, Portugal, Russia and regional markets such as Botswana, Namibia, Zambia and Swaziland.
This year also started on a good footing for South African avocado producers and exporters. The exports for the first quarter of 2018 reached 4 524 tonnes, up by 32 percent from the corresponding period last year, and the largest volume for this period since 2015. About 94 percent of these exports went to the Netherlands, the United Kingdom and Spain, with the rest destined for regional markets, as well as Portugal, Russia and Lebanon, amongst others.
Other fruits such as citrus, stone fruit and table grapes, amongst others, also mirror a similar trend. One can only hope that South Africa will maintain this momentum and further explore new attractive and growing markets to diversify and support the horticulture industry.
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