Will the improved global grain production cushion the South African consumer from the current domestic drought?

Will the improved global grain production cushion the South African consumer from the current domestic drought?

Global grain supplies are comfortable; thus, prices have continued to moderate. For example, the Food and Agriculture Organization of the United Nations Cereals Price Index, which measures the monthly change in international prices of grains, averaged 111  points in March 2024, down 3% from its February level and 20% below its March 2023 value.

The broad moderation in grain prices underscores improved global supplies in the 2023/24 season. For example, the International Grains Council (IGC) forecasts the 2023/24 global maize harvest to be 1.2 billion tonnes, which is up 6% year-on-year.

Moreover, the IGC forecasts the 2023/24 global wheat harvest to be 789 million tonnes, well above the long-term average.

There is a lot of rice globally, with the 2023/24 global harvest forecast at 511 million tonnes, well above the long-term average.

South Africa focus

So, could the ample maize supplies in the global market cushion South Africa? The challenge is that most global maize supplies are yellow maize. At the same time, the demand in South Africa, and indeed, in Southern Africa, will be white maize.

There are notable crop failures in the western regions of South Africa, which are primarily white maize-producing regions. At the end of March, the estimates from the Crop Estimates Committee placed South Africa’s 2023/24 white maize harvest at 6,3 million tonnes (down 25% y/y). While a sharp decline, this will still meet the domestic needs if it materializes.

The primary challenge, however, is the growing demand from Southern African countries that have experienced significant crop failures.

This demand, along with the decline in the domestic harvest, has led to a surge in domestic white maize prices in the recent past. White maize trades at around R5 200 per tonne, while yellow maize is around R4 200 per tonne.

But not all things are bad

Still, the upbeat global grain production could benefit South African consumers, mainly through wheat and rice imports. However, one aspect that one should watch closely is the exchange rate. The exchange rate matters as South Africa imports roughly half of its annual wheat. And South Africa imports all of its rice consumption.

Consumer inflation dynamics

Another major factor driving South Africa’s food inflation this past year was the increase in prices of vegetable and poultry products. The poor harvest caused the vegetable price increases after load-shedding at the start of the year, undermining crop quality.

Things have changed this year. While it has been quite dry across the country since the beginning of February 2024, vegetable production has not taken a strain because all commercial production in South Africa is under irrigation, and load-shedding has not been intense.

Moreover, meat prices rose at the end of 2023 due to supply constraints of poultry products on the back of avian influenza. But there is now anecdotal evidence that the restocking process is underway and there is improvement in the poultry products supplies. Therefore, the risks of further price increases have subsided somewhat.

Overall, there is increased uncertainty about South Africa’s consumer food inflation path for 2024. However, the underlying factors are not all one-sided, and one has to reflect on the price movements and weighting of various products when considering their food price forecast for the year.

Indeed, the global grain price outlook remains reasonably positive.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

The government’s support for farmers is critical in times of drought

The government’s support for farmers is critical in times of drought

The “do-nothingism” policy proposal I put forward (here) in response to this drought in South Africa does not necessarily mean a complete inaction by the government. It primarily refers to a need to practice restraint from major policy interventions such as grain export bans, price caps and panic importation.

The leadership at the Department of Agriculture, Land Reform and Rural Development is concerned about the impact of the drought on farmers. They are exploring various approaches to support small, medium and large farmers.

There are financial losses in regions where there is significant crop loss.

So, “do-nothingism” refers to a need for restraint from the current policy path while exploring ways to support the negatively affected farmers where financial resources permit.

This approach will ensure continuous production in the next season and the long-term sustainability of our agricultural sector and food security.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

Do‐Nothingism is an appropriate policy response to the current drought

Do‐Nothingism is an appropriate policy response to the current drought

Since the reports of El Niño-induced drought and crop losses emerged, there has been rising concerns about a potential surge in South Africa’s consumer food price inflation. This will be after months of moderation (at 6,0% in February 2024).

There have also been calls for the government to intervene and cushion households from potential food price surges. It remains unclear, however, if such assistance should be through policy instruments or household support in a form of food packages for the indigent.

There may even be a temptation to ask whether the government should limit agricultural commodity exports or policy options for price interventions. Such suggestions, while sympathetic to households, would be policy mistakes.

The appropriate policy action for the South African government should be a dose of donothingism. Any intervention would potentially have negative unintended consequences in the next production season and leave the country with long-term food security issues.

We should also appreciate that the current drought will likely not result in a broad increase in food products. The risks currently lie in white maize. There are notable crop failures in the western regions of South Africa, which are primarily white maize-producing regions. It is unclear what the white maize harvest will be as the weather conditions remain challenging. At the end of March, the estimates from the Crop Estimates Committee placed South Africa’s 2023/24 white maize harvest at 6,3 million tonnes, down 25% year-on-year. This will still be sufficient to meet the domestic needs if it materializes.

While some may argue that ample maize supplies in the global market could cushion South Africa, the challenge with white maize is that it is not as widely traded. The bulk of global maize supplies is yellow maize. Indeed, there is a lot of maize in the world, with the International Grains Council (IGC) forecasting the 2023/24 global maize harvest at 1,2 billion tonnes, up 6% year-on-year. However, this will primarily be yellow maize, and the demand for white maize will likely increase.

In addition, the demand for white maize will be a South African challenge and a Southern African regional challenge. Therefore, there could be a disconnect between the domestic white maize prices and the general global maize prices, which are likely to continue softening due to improved supplies. For example, a large spread exists between South Africa’s futures prices of yellow and white maize following reports of bad crop conditions. South Africa’s white maize spot price is trading around R5 200 per tonne, while yellow maize is hovering at R4 200 per tonne. This signifies the challenge with white maize supplies.

The products that play favourably for South Africa are wheat and rice, which South Africa remains a significant importer of. There are ample supplies of these products in the global market. The IGC forecasts the 2023/24 global wheat harvest at 789 million tonnes, well above the long-term average. There is a lot of rice globally, with the 2023/24 global harvest forecast at 511 million tonnes, well above the long-term average.

The stocks of these commodities are at comfortable levels; thus, the international grain prices have continued to moderate. For example, the Food and Agriculture Organization of the United Nations (FAO)’s Food Price Index, which measures the monthly change in international prices of agricultural commodities, averaged 117.3 points in February 2024, down 1% from its revised January level and 11% from last year’s corresponding period. The broad decline in grains and oilseed prices underpinned this moderation, again underscoring the importance of improved supplies in the 2023/24 season.

The exchange rate will also matter much, as South Africa imports roughly half of its annual wheat and rice consumption.

Another major factor driving South Africa’s food inflation this past year was the increase in prices of vegetable and poultry products. The poor harvest caused the vegetable price increases after load-shedding at the start of the year, undermining crop quality. Things have changed this year. While it has been quite dry across the country since the beginning of February 2024, vegetable production has not taken a strain because all commercial production in South Africa is under irrigation, and load-shedding has not been intense.

Moreover, meat prices rose at the end of 2023 due to supply constraints of poultry products on the back of avian influenza. But there is now anecdotal evidence that the restocking process is underway and there is improvement in the poultry products supplies. Therefore, the risks of further price increases have subsided somewhat.

Overall, there is increased uncertainty about South Africa’s consumer food inflation path for 2024. However, the underlying factors are not all one-sided, and one has to reflect on the price movements and weighting of various products when considering their food price forecast for the year.

From a policy perspective, the best approach should be to do nothing. If fiscal space permits, support to the farmers, especially in the hardest hit areas would be appropriate.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

South Africa will likely have an excellent citrus harvest in 2024

South Africa will likely have an excellent citrus harvest in 2024

We have received a comforting update from the Citrus Growers Association of Southern Africa: The citrus fruit quality for 2024 looks excellent, and the harvesting timing is expected to be typical. This means the sunburns we mentioned a few days ago are isolated challenges to a few regions. The broader production conditions for the South African citrus industry remain favourable.

South Africa’s fruits and vegetables are under irrigation; thus, we don’t speak much about the drought issues. The dam levels remain healthy from the early summer season rains.

Here is an encouraging passage from a statement published this morning by Mr Justin Chadwick, the CEO of the Citrus Growers Association of Southern Africa:

“Overall, an increase in export volume is expected. This is a testament to the resilience of South African citrus growers, who produce more citrus under challenging circumstances, such as steep increases in input costs, load shedding, and deteriorating public infrastructure. This increase is also a result of younger trees coming into production across several regions.

The estimates below have been provided for the 2024 season:

  • The current prediction is that 37.9 million (15kg) cartons of Lemons will be exported to key markets, which is an increase of 7% over last year. This continues the upward curve of Lemon exports, which has more than doubled since 2016.

 

  • Figures for oranges are also expected to be up. Predictions show a 4% increase in export volume for Navel oranges, with 25.6 million (15kg) cartons expected to be packed. After two years of suppressed Valencia orange exports, production is likely to improve in 2024 and return to the long-term trajectory. An increase on 2023 export volumes of 12% to 58 million (15kg) cartons is projected. However, the Orange Focus Group highlighted that due to substantially higher returns expected for fruit being supplied to local processors, exports could be reduced by up to 5%. This has not been factored into the forecast of 58 million cartons.

 

  • Grapefruit exports are also predicted to increase back up to the long-term average. The 14% growth figure translates into 16.7 million (15kg) cartons. The increased export volume can partly be ascribed to processing fruit (PP class) once again being exported to China, which was not the case last year.

 

  • The Satsuma season is likely to close around the 1.7 million mark (up 16%), while Clementines and Novas are expected to reach 5.4 million (up 8%) and 4.5 million (up 8%), respectively. It is too early to tell what the late mandarin crop will be at this stage and a full estimate will be available later in the season. “

This is excellent news. The focus will now be on market access issues within the EU, a vital market for South Africa. There will also be an increased focus on logistics matters, particularly the efficiency of the Durban port. The success of the citrus export season will require the government’s collaboration, particularly on market access matters.

Transnet and other logistics stakeholders are also crucial in ensuring the season’s success. The agricultural industry roleplayers and Transnet already have ongoing engagements. These engagements are an essential platform for sharing information about potential glitches that could arise in the coming weeks and months.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

Embrace science in farming

Embrace science in farming

In addition to massive investments by the private sector over the years, one key catalyst for the agricultural progress South Africa enjoys today and food security is the government’s and regulators’ embrace of science. South Africa’s openness to crop protection, improved seed varieties, and better genetics, among other inputs, has enhanced the yields in our agricultural sector.

The scientific embrace is also one of the differentiating factors between the broader African and South African agricultural output. Of course, there is much more related to mechanisation and better farming methods. Still, the government’s embrace of science has been vital to our agricultural progress.

As new genetic improvements in animals and plants and crop protection become available to the market, South Africa must maintain its original openness to science. I undoubtedly get this progressive approach when interacting with the Department of Agriculture, Land Reform and Rural Development leadership.

Simultaneously, the South African government must revitalise its breeding programmes at the Agricultural Research Council and other organisations. We need these while simultaneously being open to what the global stakeholders bring to market. Food security is national security.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

Observations on South Africa’s consumer food inflation

Observations on South Africa’s consumer food inflation

South Africa’s consumer food inflation slowed to 6,0% in February 2024, from 7,0% in the previous month. This was underpinned by the deceleration across most food products, except for “sugar, sweets and desserts”, which remained roughly unchanged from the last months.

We expect this broad moderation path to continue for most of the products within the food basket over the near-to-medium term. However, there are significant upside risks for the “bread and cereal products” in the food basket because of the potentially poor white maize harvest on the back of the current heatwave and dryness.

There are notable crop failures in the western regions of South Africa, which are primarily white maize-producing regions. It is unclear what the white maize harvest will be as the weather conditions remain challenging. At the end of February, the estimates from the Crop Estimates Committee placed South Africa’s 2023/24 white maize harvest at 7,0 million tonnes, down 17% year-on-year. This estimate will likely be lowered over the coming months. We have gone through March with virtually no rains in the white maize regions.

While some may argue that ample maize supplies in the global market could cushion South Africa, the challenge with white maize is that it is not as widely traded. The bulk of global maize supplies is yellow maize. Indeed, there is a lot of maize in the world, with the International Grains Council (IGC) forecasting the 2023/24 global maize harvest at 1,2 billion tonnes, up 6% year-on-year. However, this will primarily be yellow maize, and the demand for white maize will likely increase.

In addition, the demand for white maize will be a South African challenge and a Southern African regional challenge. Therefore, there could be a disconnect between the domestic white maize prices and the general global maize prices, which are likely to continue softening due to improved supplies. For example, a large spread exists between South Africa’s futures prices of yellow and white maize following reports of bad crop conditions. At the end of the week of March 22, South Africa’s white maize spot price closed at R5 159 per tonne, while yellow maize was R4 258 per tonne. This signifies the challenge with white maize supplies.

The products that play favourably for South Africa are wheat and rice, which South Africa remains a significant importer of. There are large supplies of these products in the global market. The IGC forecasts the 2023/24 global wheat harvest at 789 million tonnes, well above the long-term average. There is a lot of rice globally, with the 2023/24 global harvest forecast at 511 million tonnes, well above the long-term average.

The stocks of these commodities are at comfortable levels; thus, the international grain prices have continued to moderate. For example, the Food and Agriculture Organization of the United Nations (FAO)’s Food Price Index, which measures the monthly change in international prices of agricultural commodities, averaged 117.3 points in February 2024, down 1% from its revised January level and 11% from last year’s corresponding period. The broad decline in grains and oilseed prices underpinned this moderation, again underscoring the importance of improved supplies in the 2023/24 season.

The exchange rate will also matter much, as South Africa imports roughly half of its annual wheat and rice consumption.

Another major factor driving South Africa’s food inflation this past year was the increase in prices of vegetable and poultry products. The poor harvest caused the vegetable price increases after load-shedding at the start of the year, undermining crop quality. Things have changed this year. While it has been quite dry across the country since the beginning of February 2024, vegetable production has not taken a strain because all commercial production in South Africa is under irrigation, and load-shedding has not been intense.

Moreover, meat prices rose at the end of 2023 due to supply constraints of poultry products on the back of avian influenza. But there is now anecdotal evidence that the restocking process is underway and there is improvement in the poultry products supplies. Therefore, the risks of further price increases have subsided somewhat.

Overall, there is increased uncertainty about South Africa’s consumer food inflation path for 2024. However, the underlying factors are not all one-sided, and one has to reflect on the price movements and weighting of various products when considering their food price forecast for the year.


Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

Why a South Africa-Middle East Agricultural Trade and Investment Strategy is Critical

Why a South Africa-Middle East Agricultural Trade and Investment Strategy is Critical

The Middle East is deepening its economic ties with Africa. This past weekend, The Economist magazine ran an article titled “The Gulf’s scramble for Africa is reshaping the continent“, which focused on growing geopolitical ties and significant investments in infrastructure projects such as ports in various African countries.

The leading countries are the United Arab Emirates (UAE), Saudi Arabia and Qatar. For countries like South Africa, with diverse interests worldwide, the Middle East’s growing interest in Africa requires proactive engagement, particularly for drawing in investments and opening up the market for exporting sectors of the economy.

Investment need

Agriculture is one sector that needs investment and a broadening of export markets. Consider the eastern regions of South Africa and the former homelands; these areas typically are on the periphery of agricultural progress because of poor land governance and weak infrastructure, which renders them effectively isolated from the formal value chains of the food, fibre, and beverage sectors. In some areas, the transaction costs of moving agricultural produce to the consumption points become too high because of the lack of roads, rail and storage facilities.

In the regions historically part of the commercial farming sector, the deteriorating network infrastructure is also increasingly a significant cost driver for businesses. These include roads, rail, water, dams, storage facilities and the on-farm infrastructure.

It is in these areas of South Africa’s agriculture, food, fibre and beverages value chain that one should ask whether it would be worthwhile to assess if the Middle-East countries that are in search of opportunities to invest would not, with the help of local stakeholders, form commercially viable business ventures that respond to the above challenges. Some investments would form part of joining with South African agribusinesses and farming enterprises that aim to expand their operations and require capital for such activities.

The significant funds in these Middle Eastern countries also have some form of government involvement. The South African government, particularly the Department of Trade, Industry and Competition (DTIC) and the Department of Agriculture, Land Reform and Rural Development (DALRRD), should lead the way in the formulation of a “Middle East-South Africa Agricultural Investment Strategy”.

Such a strategy would be helpful in formally starting a conversation with the Middle-East stakeholders and introducing South African firms and farming businesses.

South Africa is heading towards general elections in May, and the political leadership may have its eyes on the election, with perhaps limited time for such tedious but important activities. Still, the officials of the departments will remain regardless of potential changes in the political leadership.

This means the Directors General of the DTIC and DALRRD should consider starting such work and keeping their political leaders apprised of progress. Also, the current political leadership could start prioritizing such work even in the uncertain election climate, as this is a vital programme for the country regardless of the leadership.

Export drive

Beyond the investment need and the challenges South Africa’s agriculture faces, the country is export-oriented, with exports reaching a record US$13,2 billion in 2023, according to data from Trade Map. The Middle East region is increasingly important in the South African agricultural trade. For example, in 2023, Asia and the Middle East accounted for 28% of South Africa’s agricultural exports, the second largest region.

The African continent remains the leading market, accounting for 38% of South Africa’s agricultural exports in 2023 in value terms, while the EU comes in third at 19%, the Americas fourth at 6%, and the rest of the world at 9%.

South Africa primarily exports citrus, apples and pears, beef, fresh berries, grapes, and sheep and goat meat to the Middle East. These industries have a potential for growth in South Africa and, therefore, prospects of large volumes for exports to the Middle East.

Still, if one focuses on the key economies in the Middle East, South Africa plays a peripheral role in agricultural markets. For example, Saudi Arabia imported US$29,5 billion of agricultural products in 2022, according to data from Trade Map. South Africa was a minor exporter, accounting for a mere 1% of the Saudi Arabian imports, and ranked 31st in the agricultural importers list.

Similarly, the UAE imported US$23,3 billion of agricultural products in 2022, with South Africa capturing a mere 2% market share as the 16th largest supplier. Qatar, which imported US$3,9 billion of agricultural products in 2022, with South Africa playing a small role, ranked 10th in the list of suppliers and with a 2% market share in Qatar’s agricultural imports.

The countries that occupied a larger market share in these Middle Eastern countries were generally India, Brazil, Australia, the United States, Canada, New Zealand, United Kingdom, Denmark, Netherlands, Italy, Spain, Argentina, Russia, France, and Turkey. Regarding the products, the Middle East primarily imports various meat products, grains, oilseeds, and fruits, amongst other products.

This means South Africa would benefit from increasing its market share; something that is only possible through targeted promotion and marketing of products, along with government support to nudge the Middle Eastern countries to address any remaining phytosanitary barriers for South African products in these countries.

Policy consideration

While South Africa faces challenges of drought in the near term, the goal of growing the agricultural sector should remain a priority for all stakeholders. The following should be the next steps in engaging the region:

  • The DTIC and DALRRD should formulate a Middle-East-South Africa Agricultural Investment and Trade Strategy. This Strategy would help rank the priority list of products for investments and map up any barriers that should be addressed within the government’s official channels, with timelines. The document would also outline possible investment paths aligned with industries highlighted in the Agriculture and Agro-processing Master Plan, as well as the opportunities presented on PLAS land and in the former homelands, amongst other opportunities.
  • The DALRRD should appoint attachés in the Middle-East region who would communicate and lobby for South African agricultural products in the area.
  • The DITC should engage with International Relations officials to actively promote South Africa’s agriculture and agro-processing sector as an investment destination.
  • The private sector and organized agriculture should be involved in all the above stages.

Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

Pin It on Pinterest

Shares
Share This