South Africa has a robust summer and winter crop harvest

South Africa has a robust summer and winter crop harvest

The data released this afternoon by South Africa’s Crop Estimates Committee (CEC) paints a positive picture of the 2022/23 summer crop season and the 2023/24 winter crop season.

Regarding the summer crops, we have the seventh 2022/23 summer crop production estimates, and these data are unlikely to change in the following three updates for the season.

If we focus on a few major summer crops, the CEC forecasts South Africa’s 2022/23 maize crop estimate at 16,4 million tonnes, up mildly from last month (up 0,3% m/m). This crop is 6% more than the 2021/22 season and the second-largest harvest on record.

The expected ample harvest is primarily on the back of large yields, as the area planted is slightly down from the 2021/22 season.

A crop of 16,4 million tonnes implies South Africa will have sufficient supplies to meet domestic maize needs of roughly 11,4 million tonnes and have over 3,2 million tonnes for export markets in the 2023/24 marketing year (this marketing year corresponds with the 2022/23 production season).

Moreover, the soybeans harvest was unchanged from July’s record estimate of 2,8 million tonnes (up 24% y/y). The annual crop improvement is due to an expansion in the area planted and higher yields. The ample soybeans harvest means South Africa could meet its domestic demand and remain with about 350 000 tonnes of soybeans for export markets.

The sunflower seed production estimate was lowered by 2% from July estimates to 743 610 tonnes (down 12% y/y). The general decline in the sunflower seed production forecast mirrors the reduced planted area in some areas.

Winter crops

Today, we received the first production estimates for winter crops, with the 2023/24 wheat production at 2,1 million tonnes (up 2% y/y). This is primarily due to an expected large harvest in the Western Cape and Limpopo.

With a wheat harvest of this size, South Africa will likely need to import about 1.5 million tonnes of wheat to meet domestic consumption in the 2023/24 season (down from 1.6 million tonnes in the previous season).

Moreover, the 2023/24 barley production is estimated at 380 020 tonnes (up 26% y/y). This will be the largest crop in four years and will mainly be supported by an expansion in the area planted and the anticipated better yields.

The 2023/24 canola crop is estimated at a record 243 950 tonnes (up 16% y/y), also on the back of increased plantings and expected better yields.

Overall, the winter crop is in good condition, and we will keep a close eye on weather conditions in the coming months.

Regarding the summer crop, the focus will soon shift to the new 2023/24 production season that starts in October. The current season is towards completion.

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The re-opening of beef export markets is positive for South Africa

The re-opening of beef export markets is positive for South Africa

One positive development in SA agriculture in the past week was the reopening of the Chinese beef market and the firm establishment of beef access to the kingdom of Saudi Arabia.

The latter has not featured prominently in SA’s beef export markets in the past, with small volumes last exported in the early 2000s. The renewed access is critical to SA’s ambition to expand its beef exports, as the Saudi beef market is sizeable at more than $647m in 2021, according to Trade Map data.

About 62% of the Saudi beef imports was frozen beef, while 38% was chilled or fresh. Some of the leading suppliers to Saudi Arabia include Brazil, Australia, Pakistan, the US, New Zealand and Canada.

Beyond beef, the overall Saudi meat market is large, with total meat imports valued at about $1.9bn a year on average over the past five years. This means as SA increases its production in other meat value chains over time, Saudi Arabia could become a strategic country for export growth.

China has an established trade relationship with SA. Over the past six years China has been the leading importer of SA frozen beef cuts in value terms. Therefore, the easing of import restrictions put in place after an outbreak of foot-and-mouth disease is a welcome development because it is likely to lead to an increase in exports.

These positive developments provide some relief while the SA beef industry has faced a challenging operational environment for several reasons. One of the most significant challenges is the rise in feed prices since 2020, especially for maize and soya beans. The rise in animal feed prices coincided with rising financial strain on consumers due to the Covid-19 pandemic’s damaging effects.

Demand for red meat products fell as consumers opted for relatively cheaper forms of protein. Moreover, the spread of foot-and-mouth disease to six of SA’s nine provinces for the first time yet was particularly challenging for the industry since it brought about temporary bans in specific export markets, extending to auctions and livestock movement, mainly cattle, for some time in 2022.

Feed prices have now softened somewhat, with maize and soya bean prices down 13% year on year on average. This is a response to large domestic maize and soya bean harvests and the easing of global grain prices (irrespective of lingering worries about the Black Sea grain deal). The resumption of exports to China and the opening of export opportunities to Saudi Arabia adds to this improved operational environment.

Despite the foot-and-mouth disease challenge, SA beef exports did not collapse. Some markets remained open, though with strict controls. This is evident in SA’s beef exports for 2022, which amounted to 28,422 tonnes, down 12% from 2021. This is only mildly below the 10-year average.

The key markets for SA’s beef include China, Lesotho, Kuwait, Jordan, Mozambique, United Arab Emirates, Qatar, the Netherlands, Lesotho, Canada, Zimbabwe, Mauritius and Eswatini.

Overall, the broadening of SA’s beef export markets is a welcome development and shows what the country could achieve through collaboration and aligning interests between the government and the private sector.

The type of effort that has led to the opening of key markets such as Saudi Arabia should be extended to other commodities, especially fruits and wine, in which producers are ready and eager to expand their export destinations while retaining existing markets in the EU, rest of Africa and within Asia and the Americas.

Organised agriculture, agribusinesses and the government share this ambition and should therefore continue to collaborate to find new growth opportunities.

Written for and first published on Business Day.

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South Africa’s consumer food inflation decelerated in July 2023

South Africa’s consumer food inflation decelerated in July 2023

South Africa’s consumer food inflation continued to slow in July 2023, recorded at 10,0% from 11,1% in the previous month. The product prices underpinning this deceleration are primarily bread and cereals; meat; fish; and oils and fats.

While there are renewed risks in global 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, we are still optimistic that South Africa’s consumer food inflation will continue to slow during this second half of the year.

The products that could underpin the slowing food inflation trend will likely remain similar to those in the past few months. Notably, red meat prices, which have softened at the farm level, should continue on this trend at the retail level in the coming months. Fruit prices should also remain affordable because of improved domestic supplies.

However, there are some risks in some food product categories. For example, the recent decline in “oils and fats” products in the inflation basket mirrored the softening price trend we saw in the global environment a few months ago. But this trend may change slightly in the coming months as we see the changes already in the global environment.

In July 2023, the FAO’s vegetable oil price index was at 130 points, up 12% from June. Significantly, this marked the first increase after seven months of consecutive declines. This increase was due to Black Sea concerns, mainly on sunflower oils, and the subdued production conditions on palm oil, a product South Africa imports in large volume.

We will keep an eye on the global vegetable oil prices as their price trends, over time, may reflect in South Africa, but not in equal proportion as the global price changes.

Regarding the “bread and cereals” product prices, the Black Sea Grain Deal challenges and India’s rice exports ban remain 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 a material change in prices for now, and we should not be alarmed; what is essential to monitor is the extent of price changes and their duration. Importantly, there is roughly a lag between three to five months between the price changes at farm and retail levels. Hence, we expect the prices of grain-related products in the inflation basket to maintain a softening path regardless of the recent disruption in grain prices.

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. 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.

Other field crops and fruits also show prospects for decent harvest this season. These increased supplies support the slowing food inflation view we expressed. However, there are now renewed upside global risks and energy costs issues in the domestic market that need constant monitoring.

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South Africa’s agricultural interests in BRICS are not at the expense of the existing key export markets

South Africa’s agricultural interests in BRICS are not at the expense of the existing key export markets

Folks, South Africa’s agricultural interests in the BRICS markets are not at the expense of the existing and vital export markets in the African continent, EU, Asia, Americas, Middle-East and others. These current markets are essential; thus, South Africa exported a record US$12,8 billion in agricultural products in 2022.

The African continent was the leading market, accounting for 37% of South Africa’s agricultural exports in 2022. Asia was the second largest agricultural market, accounting for 27% of exports, followed by the E.U., the third largest market, accounting for 19%. The Americas region was the fourth largest, accounting for 7%, and the remaining 10% went to the rest of the world. The U.K. was one of the leading markets within the ‘rest of the world’ category.

Maize, wine, grapes, citrus, berries, nuts, apples and pears, sugar, avocados, and wool were some of the top exportable products 2022.

In value terms, South Africa already exports roughly half of its annual agricultural produce annually. As we expect our production to increase in the coming years with additional land put into production, we will need other export markets. It is at this point that BRICS becomes essential.

As things stand, BRIC(S – excluding South Africa) countries account for a relatively small share of South Africa’s agricultural exports – an average of 8% over the past ten years in total agricultural exports of US$9,9 billion.

China is the leading market, accounting for an average of 5% of South Africa’s agricultural exports worldwide. The top products were wool, citrus, beef, nuts and grapes.

The second largest market within BRIC(S) was Russia, accounting for an average of 2%, with citrus, apples, pears, grapes and wine as some of the top products. At the same time, India and Brazil were negligible importers of South African agricultural products.

While the BRIC (with South Africa excluded in this calculation) countries imported an average of US$764 million of agricultural products from South Africa, a small share in the nearly US$10 billion South Africa exported over the past decade annually, the grouping – BRICS — imported an average of US$241 billion worth of agricultural products from the world market. This is according to data from Trade Map.

The US$764 million imported by BRIC from South Africa over the past ten years makes South Africa a small player in the agricultural trade of this grouping.

China is the largest importer accounting for 67% of the total BRIC agriculture import of US$196 billion, followed by Russia (16%), India (12%), and Brazil (5%).

These realities imply that within the agribusiness stream of the BRICS Business Council and the broader political grouping, the South African representatives should continue to advocate for lowering import tariffs for agricultural products, specifically within India and China.

At the same time, the business community will have to actively promote the “proudly South African” agriculture (and broadly food, fibre and beverages) products within the bloc.

So, when one calls for increased focus on the BRICS, this is not at the exclusion of other existing and important agricultural export markets for South Africa.

Policy considerations

Beyond the BRICS matters, I must stress that South Africa’s agriculture is export-orientated. Thus, the focus should be on maintaining smooth relations with these critical export markets while searching for additional new markets.

The priority countries for expanding agricultural exports should be China, South Korea, Japan, the USA, Vietnam, Taiwan, India, Saudi Arabia, Mexico, the Philippines and Bangladesh. All have sizeable populations and large imports of agricultural products.

The Department of Trade, Industry and Competition, along with the Department of Agriculture, Land Reform and Rural Development, all share the view of widening the export markets for South Africa’s agriculture. This should be at the top of the policy agenda, with many domestic production-oriented interventions for the sector.

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South Africa’s agricultural exports may soften this year from the record US$12,8bn in 2022

South Africa’s agricultural exports may soften this year from the record US$12,8bn in 2022

South Africa’s agricultural export earnings will likely soften this year from the 2022 record. The lower commodity prices, ongoing restrictions to exports of some livestock products because of the foot-and-mouth disease and the stringent regulations of the citrus black spot disease in the EU market are among some of the factors likely to result in lower export earnings.

While SA’s agricultural exports have remained relatively solid in the first few months of the year, we are expecting the effects of these challenges to be more evident in the second half. South Africa’s agricultural exports for the first five months of this year were still robust, amounting to US$5,06bn, roughly unchanged from the corresponding period in 2022.

The export destinations remained the same as the previous years, with the African continent as a leading market, followed by the EU as well as selected Asian and Middle-East markets. Outside these regions, the US was also a prominent export market.

With the citrus industry and nuts benefiting from AGOA in the US market, its continuation is vital for these industries. In terms of products, citrus, maize, apples and pears, soybeans, wine, wool, sugar, flour meals, fruit juices, and various nuts were the leading products in the exports.

The citrus challenges in the EU are not new. In the 2022 export season, South Africa experienced another challenge in that market, where the EU proposed changes to its plant safety regulations for citrus without notifying its trading partners within a reasonable time.

These changes purported to protect the EU from a quarantine organism, the false codling moth, by introducing stringent new cold treatment requirements, particularly on citrus imports from Africa, mainly impacting South Africa, Zimbabwe and the Kingdom of Eswatini.

But South Africa had already put rigorous measures to control false codling moth. As such, we viewed this as a measure to protect the EU’s citrus-growing countries like Spain. The engagements on this issue between South Africa and the EU are ongoing, and the citrus black spot disease issue adds to this challenging environment.

The appropriate channel for resolving the matter is through the continuous engagement of the South African government with the EU authorities. From a South African perspective, the EU is a crucial export market for the citrus industry. A speedy resolution of these matters and clarity for long-term rules is so important beyond the near-term dissatisfactions on both sides.

Regarding foot-and-mouth, the livestock industry continues to struggle with the tail-end challenges of last year’s outbreaks. As we stated in a previous note, the South African government, along with organized agriculture and industry bodies, should closely work together to address biosecurity challenges in the country.

Notably, the government must assist at such times to ensure the sustainability of farming businesses and jobs in rural South Africa. Fortunately, this year, the wool exports have not been interrupted as was the case in 2022 when China temporarily banned wool from South Africa because of fears of foot-and-mouth disease. Hence, wool was amongst South Africa’s top ten agricultural export products in the first five months of this year.

Beyond these industry challenges, another constant matter worth continuous engagement is the effectiveness of the ports. This year is arguably better than last year regarding delays the agricultural sector faces.

The ongoing engagements between Transnet and the industry help ensure effective communication and that glitches in logistics are resolved quickly. Still,  more work is needed to improve the logistics and, by extension, lower the cost of exporting.

There is no alternative for South Africa’s agriculture, as the sector is export-oriented, and therefore efficient logistics are necessary for the sustainability of farming businesses.

South Africa’s agricultural sector will remain a net exporter in 2023. But the value may not be as robust as in 2022 when the sector reached a record US$12,8bn. At the time, the increase in the volume and value of exports was the key driver.

This stemmed from a good agricultural season and higher global prices. We have yet another good agricultural season this year, but commodity prices have, on average, declined by roughly 11% from a year ago. Moreover, the biosecurity challenges and ongoing constraints in key fruit export markets such as the EU remain a constant worry.

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South Africa’s farm jobs up 2% y/y in the second quarter of 2023

South Africa’s farm jobs up 2% y/y in the second quarter of 2023

In the second quarter of 2023, about 894 000 people were employed in South Africa’s primary agriculture, up 1% q/q and 2% y/y. This is the highest farm employment level since the last quarter of 2016 and is well above the long-term agricultural employment of 780 000.

From a regional perspective, the Western Cape, Eastern Cape, Northern Cape, and KwaZulu-Natal were the significant drivers of this employment.

The robust production conditions of various field crops, forestry and aquaculture were behind the improvement in agricultural jobs in the second quarter.

Meanwhile, the livestock industry saw modest improvement, which is unsurprising as the industry still deals with the tail-end effects of the rough period of foot-and-mouth disease and higher feed costs among the industry’s pressures. There was a notable decline also in the game industry and production of organic fertilizer facilities.

Overall, this notable improvement in employment in the second quarter is unsurprising as South Africa has a robust field crop and horticulture harvest following favourable rainfall.

At the start of the season, production was threatened by persistent load shedding. Still, the various interventions to ease the load-shedding burden on farmers, such as load curtailment, expansion of the diesel rebate to the food value chain, and most private sector investment in alternative energy sources, all supported the production conditions.

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. Soybeans harvest could reach a record 2,8 million tonnes. South Africa’s sugar cane crop will likely increase by 3% to 18,5 million tonnes in 2023/24.

Other field crops and fruits also show prospects for decent harvest this season, which underpins these favourable jobs data. In the coming weeks, the focus will also be on the effectiveness of the recently announced Agro-Energy Fund and the application details.

The key challenges the sector faces are rising geopolitical tensions, deteriorating infrastructure, weakening municipalities, crime, and energy supply which all influence farm profitability and job prospects. The South African government, collectively with the private sector, should address these issues to support long-term in the sector.

El Nino’s forecast in the upcoming 2023/24 summer 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 decent employment.

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Feedback from our South African agribusiness roadshow

Feedback from our South African agribusiness roadshow

We spent most of July on the road, engaging with agribusiness and sector role-players in various regions of South Africa. The feedback about the near-term outlook was reasonably positive in all our engagements, with many attributing their optimism to the favourable 2022/23 summer crop and 2023/24 winter crop seasons.

The feedback from the horticulture and wine industries also remained encouraging as various stakeholders forecast growth and expansion prospects in the coming years.

The outlook was less optimistic when we engaged the livestock and poultry industries that struggled with higher feed costs and persistent animal disease outbreaks.

Beyond this, what all meetings agreed on was that the persistent load-shedding, rising protectionism in key export markets, rising interest rates, intensified geopolitical tensions, ongoing weakness of municipality service delivery and network industries (water, rail and ports) and deterioration of rural roads remain a significant threat to the sustainability of their businesses.

While these are not necessarily new issues, the extent of weakness this year has reached worrying levels in some. Not all these issues are within the government’s control, but many are, and in such cases, the government should urgently assist. Here are a few of such cases.

First, the summer rainfall, which has supported agricultural production, has also had the downside of exacerbating the damage to neglected rural roads. This is not a challenge faced only by large commercial farmers that serve a broader clientele but all farmers.

The emerging or new-entrant black farmers with limited financial resources face this challenge more acutely. The roads across the rural towns of the Eastern Cape, Free State, North West, Limpopo and KwaZulu-Natal, to name a few provinces, are poorly maintained in some instances in an unusable state.

Compounding this challenge is the reality that South Africa now transports over two-thirds of its agricultural produce by roads, as rail transport has faced its fair share of challenges over the years. This means the higher agricultural output without functional roads does not yield full financial benefit to farmers and agribusinesses, as some have to fund private construction at their own costs to maintain some roads. This happens while the municipalities often have the allocated financial budget to cover their infrastructure needs but mismanage the funds, as so often reported by the Auditor General.

Secondly, the rising protectionism in crucial export markets remains a major challenge. This area requires the South African government to take the lead and help engage with our trading partners to resolve this issue. Moreover, the need for expanding export opportunities has become even more urgent as the agricultural output consistently improves and the country has limited capacity to absorb new produce.

Japan, China, India, Saudi Arabia, Bangladesh, Philippines and South Korea are key markets in which South African agriculture and agribusinesses are interested in expanding their presence. While working on new markets, we must maintain access to existing markets such as the EU, Africa, the US, and various Asian markets.

Third, biosecurity remains a challenge as we see through various outbreaks of Foot-and-Mouth disease, African Swine Fever and Avian Influenza. All these outbreaks worsen the operating conditions in industries that have also felt higher costs of inputs.

As a result of these outbreaks, exports of livestock products have also been negatively affected. Therefore, the South African government, along with organized agriculture and industry bodies, should closely work together to address the biosecurity challenges in the country.

As climate change intensifies, animal diseases are likely to be more prevalent. As such, the Department of Agriculture, Land Reform and Rural Development should consider earmarking a share of their annual budgets for emergency purposes to deal with animal disease outbreaks.

The issues discussed here aren’t exhaustive, but I believe they highlight the key intervention areas that translate the ideas on paper in various plans into tangible projects.

Written for and first appeared on Business Day.

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