by Wandile Sihlobo | Nov 28, 2023 | Food Security
Food inflation has been topical over the past few months, and South Africa saw double-digit levels from mid-2022 to mid-2023.
This was not unique to South Africa but a global phenomenon underpinned by various factors, including drought in South America; China’s strong demand for grains and oilseed; higher energy prices and the Russia-Ukraine war.
Positively, from March 2023, South Africa’s consumer food price inflation began to slow, from 14,4% at that time to 8,0% in September 2023. The product prices underpinning the deceleration throughout this period were primarily bread and cereals; meat; fish, and oils, and fats.
But October 2023 disrupted the six-month consecutive decline, with consumer food inflation having quickened to 8,8% from 8% the previous month. The product prices underpinning this increase were mainly milk, eggs, cheese, fruit and vegetables.
Still, I believe the recent rise in the price of these products will probably be a temporary blip. They are a reaction to brief supply constraints in the past few months.
The avian flu was the main issue behind the egg supply constraints, which remain a challenge although not as acute as we saw in September and October.
Regarding vegetables, potatoes were mainly the driver of the prices in the basket as the harvest was limited following quality challenges caused by irrigation disruptions in some fields due to load-shedding in much of the year’s first half.
But with interventions underway in the poultry sector, such as importing fertilised eggs to rebuild the parental bird stock lost from avian flu, importing table eggs (powder and liquid eggs that would help in baking processes and free the whole eggs for other consumption), and the ongoing discussions about vaccinations to curb the spread of the disease, I am hopeful that the prices will normalise in the coming months.
Furthermore, eggs have a lower weight in the food inflation basket, at 0.4%, which means their impact might not be as pronounced in an overall inflation figure.
I expect a similar recovery in vegetable and fruit supplies in the coming months, which will help ease the current upside price pressures. Load-shedding has reduced somewhat, and farmers have invested in alternative energy sources, which is helpful for production conditions.
Overall, I remain optimistic that South Africa’s consumer food price inflation will return to a moderating path going into 2024. Some products that will probably drive such a price trend include grain-related products, as well as fats and oils.
Farm-level grain and oilseed prices remain lower than a year ago because of improved global and domestic supplies, notwithstanding the trade risks. This is one of the catalysts behind the slowing price of grain-related products and fats and oils and the expected favourable trend for the coming months.
Notably, these are products with a higher weighting in the food basket. Favourably, meat price inflation has also continued to slow. However, given the anticipated festive season demand and potential small price increase, the meat price trend could slightly change over the festive season months.
Also crucial for the food inflation outlook going into 2024 is highlighting that El Nino’s forecast in the 2023/24 summer crop season is another aspect to keep an eye on, although we remain optimistic that it will have a mild impact on the sector and thus keep production at decent levels and, by extension, sustain moderating food prices.
There are good soil moisture levels across South Africa following several rainy seasons.
Furthermore, the weather forecast remains reasonably favourable for the year, with El Nino expected to intensify from March 2024.
Farmers are busy planting across the country, and they hope the area planted with summer grains and oilseeds will increase from a year ago.
Still, the prices of these products are influenced by global developments as we are an open economy interlinked with the world markets. So, monitoring global agricultural developments, geopolitics, and energy markets remains essential.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Nov 22, 2023 | Agricultural Environment and Natural Resource
South Africa has had a number of outbreaks of animal diseases in recent months that suggest there are weaknesses in the country’s biosecurity system – the measures in place to reduce the risk of infectious diseases being transmitted to crops, livestock and poultry.
The outbreaks pose a major challenge for South Africa’s domestic animal farming sector. Fears of weaknesses in the system have been raised by agribusiness for some time, suggesting that pressures and concerns are mounting.
Biosecurity breaches are not unique to South Africa. They have become a significant challenge globally. It’s not easy to put a monetary figure on it, but reports of disease outbreaks across the world, and indeed in South Africa, suggest the problem has intensified.
In South Africa, reports about foot-and-mouth disease in cattle, African swine fever in pigs and avian influenza in poultry have become frequent. But few countries have had to deal with these disease outbreaks almost simultaneously, as South Africa has.
In 2022, six of South Africa’s nine provinces reported foot-and-mouth disease outbreaks. This was the first time in the country’s history that the disease had been spread this wide.
The situation remains critical.
All these outbreaks have had a notable impact on South African agricultural exports, and the growth prospects of the sector. For example, South Africa’s beef exports for 2022 were down by 12% year-on-year, according to data from Trade Map. This decline was primarily due to the temporary closures of various export markets following the outbreak of foot-and-mouth disease in South Africa. Farmers are being hit hard.
Livestock and poultry account for roughly half of agriculture’s gross value added.
Based on this history and the experiences of the agricultural sector, there is concern that South Africa’s biosecurity breaches signal serious capacity challenges in farm biosecurity measures and the country’s veterinary and related support services (mainly the laboratories) that control the movement of livestock and vaccine production.
The South African government, organised agriculture and industry bodies should work together closely to address the country’s biosecurity challenges.
Disease outbreaks
On 4 November this year, the Department of Agriculture, Land Reform and Rural Development announced it was investigating a suspected outbreak of foot-and-mouth disease in one district.
This means the issue that was identified a year ago remains a challenge. These outbreaks weigh heavily on the cattle industry’s fortunes. The beef industry accounts for a sizable share of the South African agricultural economy, and is positioned to absorb new entrant farmers in the sector. Beef exports were about 1% of agricultural exports, valued at US$151 million, in 2022, according to Trade Map.
The sheep industry was also affected by the 2022 outbreak. China, a significant market for South African wool, suspended imports. This resulted in a 21% year-on-year decline in the export value of wool in 2022, to US$337 million, according to Trade Map data. Wool still made up 3% of South Africa’s record agricultural export value of US$12.8 billion in 2022.
China’s official reason for the suspension was the foot-and-mouth disease outbreak. But it might not be all that clear cut. China may also have had capacity issues at its ports at the time because of the tail-end effects of COVID-19 and the restrictions there.
China has a unique protocol to handle wool shipments and avoid any contamination during a foot-and-mouth disease outbreak in South Africa. This was agreed in 2019 after an outbreak.
In 2022 South Africa’s pig industry was put under fresh pressures. Towards the end of the year outbreaks of African swine fever were reported. The disease remains a challenge.
Most recently, the focus has been on avian influenza. More than a hundred commercial poultry facilities have reported cases. There are major losses for breeders of layers and broilers. As a result, there has been a spike in imports of fertilised eggs to rebuild the parent stock flock. This is key for stabilising the industry.
Major producers have announced serious losses. Consumers are also seeing a rise in the price of eggs.
Policy considerations
The growth prospects of farming businesses remain at risk if there are no material improvements in biosecurity. This is particularly true for sub-sectors that are crucial for inclusive growth. For example, the National Agricultural Marketing Council estimates suggest that black farmers account for 18%, 13% and 34% of wool, mohair and cattle production, respectively.
The department of land and agriculture should consider earmarking a share of its annual budget for emergencies to deal with biosecurity risks. These funds should be used only in the case of notifiable animal disease outbreaks and under strict rules and in concurrence with the South African National Treasury. This will be necessary to control animal movements, procure vaccines and permit vaccination in certain areas, employ additional staff and compensate producers when animals must be culled.
Notably, the government should also work the private sector on vaccine manufacturing as national laboratories have experienced failures in the recent past, thus weakening disease control efforts. Additionally, government should increase the number of veterinarians and animal health technicians.
Also necessary is the repair and maintenance of international fences, which fail to keep wild animals and infected animals from neighbouring countries out of South Africa. Collaboration between Public Works and the National Treasury in this respect is critical.
In essence, most interventions require better management, coordination, restructuring of departments, and investment in fencing, new laboratory equipment and vaccine production.
Beyond the technical matters, the relationship between the regulators and farmers should also be improved so that disease outbreaks can be managed collaboratively with no hostility.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Nov 20, 2023 | Agricultural Labour Market
The solid production conditions in South Africa’s agricultural sector continue to be reflected in the employment data. The Quarterly Labour Force Survey data released last week by Statistics South Africa showed that in the third quarter of 2023, about 956 000 people were employed in primary agriculture, up 10% year-on-year (and 7% quarter-on-quarter). This is well above the long-term agricultural employment of 793 000.
From a regional perspective, the Western Cape, Eastern Cape, Northern Cape, KwaZulu-Natal, North West and Gauteng significantly drove this uptick in sectoral employment. The Free State, Mpumalanga and Limpopo saw a decline in jobs.
As with the previous quarter, the robust production conditions of various field crops, forestry and aquaculture were behind the improvement in agricultural jobs in the third quarter.
Meanwhile, the livestock industry registered a decline, which is unsurprising as the industry is confronted by various animal diseases such as foot-and-mouth, avian influenza and African swine fever. Moreover, there was a notable decline in the game industry and production of organic fertiliser facilities.
This improvement in employment in the third quarter is unsurprising as South Africa has a robust field crop and horticulture harvest following favourable rainfall and farmers’ strategic interventions to adapt to load-shedding interruptions.
Hence, the 2022-23 maize harvest is estimated at 16.4 million, 6% higher than the 2021-22 season’s harvest and the second-largest harvest on record. Soybean harvest could reach a record 2.8 million tonnes. South Africa’s sugarcane crop is forecasted to be 18.5 million tonnes in 2023-24, up 3% year-on-year.
Other field crops and fruits also show prospects for decent harvests this season, which underpins the favourable job data.
Beyond the current jobs data, the sector’s broad problems are inefficiencies at the ports, rising geopolitical tensions, deteriorating rail and road infrastructure, weakening municipalities, rising crime and energy supply constraints.
If not addressed, these challenges, particularly the ones within South African policymakers’ reach, could negatively influence farm profitability and job prospects over the medium term.
The government and the private sector should address these issues to support long-term growth and job creation. The first step could be a revitalisation of the Agriculture and Agro-processing Master Plan and placing it in the centre of development and growth interventions for the sector, which would be the plan’s appropriate place.
Also worth highlighting is the prospects of a relatively mild El Niño in the 2023-24 summer season, along with better soil moisture across the country, which is comforting and suggest that the sector could have another decent agricultural season and possibly sustain healthy employment conditions.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Nov 19, 2023 | Agricultural Trade
International trade is at the heart of SA’s agricultural success. For this reason any disruptive legislative and logistical constraints to exports constrain the sector’s growth and are cause for concern. Equally, the differences in the interpretation of export-related legislation by industry leaders versus regulators could have adverse effects on the sector or dent sentiment.
It is therefore critical that the meaning and intent of regulation and policy be clearly articulated and communicated in a way that is commonly understood.
A case in point was the weekend newspapers that misinterpreted the export legislation relating to the EU market, causing unnecessary panic in the sector. The regulations outlined the procedure for exports from the Southern African Customs Union (Sacu) and Mozambique to the EU and the UK to take advantage of preferential tariff rate quotas for certain agricultural and agro-processed products contained in an annexure to the agreement. However, they were reported as though they were new stringent BEE regulations for exports.
The reality is that these requirements are not new and mirror the previous years’ requirements. There is no new BEE threshold or level that an applicant must reach to be awarded an export permit.
The critical nature of trade in SA’s agricultural sector is evident from the fact that the sector has more than doubled since 1994, in both value and volume terms. Admittedly, trade wasn’t the only catalyst for growth. The improvement in seed varieties, genetics and farming techniques has played a key role in improving farm productivity.
However, equally important is the expansion of the export markets that enabled and sustained the growth of the SA farming sector, ensuring that output derived from productivity gains has a wider reach to a range of export markets.
As highlighted in the past, in 2022 SA’s agricultural exports reached a record $12.8bn, up 4% from the previous year. This considerable success in a year of logistical challenges is commendable. The relatively higher commodity prices and large harvest were at the heart of the success.
Maize, wine, grapes, citrus, berries, nuts, apples and pears, sugar, avocados and wool were some of the top exportable products in 2022, spread across various key markets. Africa remained a leading market, accounting for 37% of SA’s agricultural exports in 2022. Asia was the second largest, accounting for 27% of exports, followed by the EU at 19%. The Americas was the fourth-largest region, accounting for 7%, and the remaining 10% went to the rest of the world. The UK was one of the leading markets within the “rest of the world” category.
Considering the share and composition of the exports to the EU market, it is unsurprising that farmers and agribusinesses in the horticulture and wine industry were most surprised by the talk of changes in export regulations to the EU. However, in our interpretation there are no material changes, but rather a misinterpretation of the regulations by various sections of the media.
Appreciating the importance of trade as a catalyst of growth in agriculture, SA’s strategic focus should be on broadening the export markets even further in the coming years. The markets ideal for expansion, which both the government and private sector favour, are China, South Korea, Japan, the US, Vietnam, Taiwan, India, Saudi Arabia, Mexico, the Philippines and Bangladesh.
Crucially, the broadening of the export markets should happen while simultaneously focusing on maintaining smooth relations with these critical export markets such as the EU, the US and the African continent. Furthermore, the drive to export markets should be in a form of SA Inc and not to the exclusion of any stakeholder.
Provided there is room for expansion of agricultural production in the underutilised land now on government books and the former homelands, the export drive will become even more vital to accommodate further growth of SA’s agricultural sector in the coming years.
Written for and first appeared in the Business Day
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Nov 12, 2023 | Agricultural Production
We continue to receive evidence that the 2023-24 summer crop season might not be as bad as some feared when discussing the El Niño prospects.
For example, on October 31, the South African Weather Service (SAWS), in its monthly Seasonal Climate Watch, noted that the “multi-model rainfall forecast indicates above-normal rainfall for the north-east of the country during November-December-January, December-January-February and January-February-March with below normal rainfall predicted for the central and south-western parts of the country”.
SAWS added, “Predictions still favour above-normal rainfall conditions over the north-eastern parts of the country, even with an El Niño in place.”
Considering that the soil moisture is excellent across most regions of the country from the past rainy seasons, the possibility of favourable rainfall through to early next year means that South Africa could have a better summer crop season in 2023/24.
Notably, this recent update is slightly different from the message the SAWS shared in the previous month, where it said the prospects of dryness were from the start of 2024. The most recent message speaks of good rains through to February 2024 in the north-eastern regions. This means favourable rains could also cover the pollination stages of the summer crop, where moisture is needed the most, and thus lead to better yields.
In addition, while the central and western regions could see below-normal rainfall from the start of 2024, the crops could still be in good condition. We base this view on the fact that soil moisture would be healthy, having benefited from rains through to the end of the year, adding to better moisture levels from the past rainy seasons.
Still, what is essential is for grain and oilseed farmers to plant on time so that, by the start of 2024, the crop is in its growing stages. While the country’s western regions typically plant from mid-November to the end of December, we think starting the planting as soon as possible would be ideal so that the crop has an extended growing period before the El Niño-induced lower rainfall period in these regions.
Also encouraging is that recently released data by the Crop Estimates Committee reaffirmed our positive view about the 2023/24 summer crop season. The committee stated that South African farmers intend to plant a total area of 4,47 million hectares of summer grain and oilseed in the 2023/24 season, up 2% year-on-year. The farmers were this upbeat, possibly basing their views on soil moisture conditions on their farms. These positive rainfall prospects further strengthen their view.
As we stated last week, these are “intentions” to plant, not plantings yet. It is still early in the season and we will only have a preliminary area planting estimate for the 2023/24 season at the end of January 2024. Still, these intentions to plant data paint an encouraging picture and the planting progress is evident when one drives across South Africa.
From now on, we will be watching the rainfall and the temperature conditions across the country. On the temperature aspect, the SAWS notes that “minimum and maximum temperatures are expected to be mostly above normal countrywide for the forecast period”.
Having observed the scorching temperatures in the northern hemisphere and the negative impact on agriculture in their recent summer season, this will require constant monitoring in South Africa as the season continues.
Overall, the weather prospects continue to paint an encouraging picture of the 2023/24 summer crop season and the farmers will probably respond by expanding their planting areas, as they have signalled.
We have commented mainly on grains and oilseeds but the improved weather conditions will benefit all agricultural sub-sectors, thus boding well for growth and food production.
Written for and first published in the Mail and Guardian.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Oct 21, 2023 | Food Security
On October 16 we celebrated World Food Day, commemorating the founding of the UN Food & Agriculture Organisation in 1945. This day is also an opportunity for countries to reflect on their food security conditions and efforts to boost agricultural production.
This column will therefore revisit an issue discussed a year ago in these pages: food security conditions in SA. One of the measures researchers use to evaluate the food security condition of each country relative to the world is The Economist’s global food security index.
In 2022 SA ranked 59th out of 113 countries in the index and was the most food secure country in Sub-Saharan Africa. This was an improvement from a ranking of 70th in 2021. We ranked the second most food-secure country in Africa after Morocco.
The index comprises four subindices: food affordability, food availability, food quality and safety, and sustainability and adaptation. The affordability and availability subindices carry a combined weighting of two-thirds of the total index. The affordability subindex includes the change in average food costs, agricultural trade, food safety net programmes, proportion of population under the global poverty line, and funding for food safety net programmes.
The availability subindex includes the sufficiency of supply, access to inputs, agricultural research & development, farm infrastructure, supply chain infrastructure, food loss and political and social barriers to food.
In 2022 SA experienced a mild deterioration in the food affordability subindex. Meanwhile, the rest of the subindices improved significantly. This decline in the affordability subindex is unsurprising as the country has witnessed a broad acceleration in consumer food price inflation since the start of the year.
Food inflation
SA’s consumer food price inflation averaged 9.5% year on year in 2022, up from 6.5% in 2021. Food inflation was also elevated in the first half of 2023, with only the second half showing moderation. In the first eight months of this year food inflation averaged 12.2%.
The higher food inflation in the past months was a global challenge. In an environment such as SA, with high unemployment, the effects of food inflation shocks tend to be felt more severely by consumers.
Over the past few years several factors have added to upward pressure on global food prices. The drought in South America, a major grains and oilseed-producing region, from the 2019/20 season reduced the harvest notably, worsening the grain price increases from 2020 to end-2022.
China’s imports of grains and oilseed as the country was rebuilding its pork industry after a devastating African Swine Fever outbreak added to the surge in demand while global stocks were tight.
As Covid-19 spread in early 2020, several major grain producers worsened global price increases by temporarily banning exports. Shipping costs also soared. These challenges were further worsened by the Russia-Ukraine war.
As a small, open economy SA was not insulated from these global agricultural and food price shocks.
A major issue to remember when observing international agricultural indices such as the global food security index is that subjectivity can never be fully eliminated from the authors’ judgment. Resource constraints can hinder objective data collection on the ground in each country, and they sometimes rely on blueprint models that may not be site-specific.
Sources of bias can stem from inconsistency in data quality, frequency and reliability across all countries. The weightings and rankings are also tricky because they must be tailored to different socioeconomic contexts.
SA is in a relatively good place regarding food security compared to most other countries. Still, we should continue to strive to improve food security through agricultural production and job creation expansion.
Ideas for expanding agriculture and agro-processing were well established as far back as in the National Development Plan of 2012.
Written for and first appeared in Business Day.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Oct 18, 2023 | Food Security
South Africa’s consumer food inflation slightly slowed to 8,0% in September 2023 from 8,2% in the previous month. The product prices underpinning this deceleration are mainly bread and cereals; oils and fats; sugar, sweets and desserts; and vegetables. Our view of the path forward remains unchanged from what we have consistently communicated over the past few months.
While there are renewed risks in global and agriculture, such as India’s decision to ban specific categories of rice exports and the Black Sea Grain Deal Initiative that facilitated grains and oilseeds exports from Ukraine terminated, and domestically, the avian flu, we are still optimistic that South Africa’s consumer food inflation will continue to slow throughout the year into 2024.
The spreading of avian influenza has mostly affected Gauteng, Mpumalanga, Free State, Limpopo and North West. Over a hundred primarily commercial facilities have reported avian influenza cases. There are reported losses in parental stock for breeders of layers and broilers.
In response to the challenge, the Department of Agriculture, Land Reform and Rural Development, along with poultry producers and retailers, are exploring a range of instruments to respond to the current crisis. These include the containment measures currently being implemented by industry and government to control the spread of the disease. Regarding the egg supply constraints, the industry is working on importing fertilized eggs to rebuild the parental stock lost from this disease and import table eggs (powder and liquid eggs that would help in the baking process and free the whole eggs for human consumption). There are also ongoing processes about the possible vaccinations to curb the spread of the disease.
There is anecdotal evidence of various retailers that have adjusted egg prices significantly to manage the demand. Such price adjustments in a short period have raised concerns about the possible impact of the current avian influenza on food inflation. What will matter a lot is the duration of these higher prices, which we doubt will persist for an extended period if the interventions of imports and control of the spread of the disease we listed above succeed. The current increases could be a temporary blip, which will likely show on one-monthly inflation figures, and the trend would then continue to the expected path we were on before, which is deceleration or sideways.
Also worth noting is that eggs have a lower weighting within the food inflation basket, at 0.4%, which means its impact may not be as pronounced in an overall inflation figure. Poultry products, which have a slightly higher weighting of 2,09%, have not increased at the retail level as significantly as eggs. Given that the poultry products supply is still relatively good and various trade measures are under consideration, there should not be supply constraints over the foreseeable future.
Beyond the poultry developments, the products that could underpin the slowing food inflation trend will likely remain similar to those in the past few months, specifically grain-related products, fats and oils and fruit and vegetables.
Within the vegetable side, however, we may see temporary price increases in potatoes due to quality issues and lower volumes in some regions. Such price shocks are already visible in some Fresh Produce Markets nationwide. Given the anticipated demand and potential slight price increase, the meat price trend could slightly change ahead of the festive season.
Regarding the “bread and cereals” product prices, admittedly, the Black Sea Grain Deal challenges and India’s rice exports ban are an upside price risk. With South Africa importing a million tonnes of rice and similarly exposed to wheat imports, the disruption in trade of these commodities and the length of it could have implications on global price and, ultimately, South Africa’s “bread and cereals” component of the food inflation basket. Still, we have not seen material price changes in the grain prices so far, although there were price reactions after the announcements of both the Black Sea Deal and the India rice exports ban. Hence, we expect the prices of grain-related products in the inflation basket to maintain a softening path.
We had feared that the “oils and fats” products prices would start to increase and follow the global price trend, which showed an uptick in July. However, the recent data from the FAO shows continuous moderation. For example, In September 2023, the FAO’s vegetable oil price index was at 121 points, down 4% from August 2023 and 21% y/y. The decline in the global prices of palm, sunflower, soybean and canola oils underpinned this.
Beyond the global dynamics, South Africa has a favourable agricultural season. For example, the 2022/23 maize harvest is estimated at 16,4 million, 6% higher than the 2021/22 season’s harvest and the second-largest harvest on record. Soybean harvest could reach a record 2,8 million tonnes. Other field crops and fruits also provided decent harvests. These increased supplies support the slowing food inflation view we expressed.
Also crucial for the food inflation outlook going into 2024 is highlighting that El Nino’s forecast in the upcoming 2023/24 summer crop season is another aspect to keep an eye on, although we remain optimistic that it will have a mild impact on the sector and thus keep production at decent levels and, by extension, sustain moderating food prices. There are good soil moisture levels across South Africa following several rainy seasons. Furthermore, the weather forecast remains reasonably favourable for the year, with El Nino expected to intensify from January 2024.
Be that as it may, the prices of these products are influenced by global developments as we are an open economy interlinked to the world markets. So, monitoring global agricultural developments, geopolitics, and energy markets remains vital.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
