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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Additional thoughts on El Niño impact on SA agriculture in 2023/24 season

Additional thoughts on El Niño impact on SA agriculture in 2023/24 season

This afternoon the South African Weather Service released its Seasonal Climate Watch update highlighting that “the El Niño-Southern Oscillation (ENSO) is currently in an El Niño state and, according to the latest predictions, is expected to persist through most summer months. ENSO’s impact is still limited for the initial forecast period, with early summer forecasts indicating to manifest its impact during the summer period.”

I thought it would be helpful to stress again that forecasts of an El Niño occurrence in the 2023/24 summer season do not necessarily equate to a bad agricultural season. The upcoming season of possible below-normal rainfall, i.e., El Niño, follows a rare consecutive four years of heavy rains that have improved soil moisture and natural grazing veld.

This means there is a natural cushion for agricultural activity even if the rains are below the average (typically around 500 mm) in South Africa. What will be necessary, however, is for the showers to fall in critical periods, such as seed germination and pollination stages of growth, which are all essential for crop growing.

It would not be South Africa’s first time in such a fortunate position. The summer of 2018/19 had a weather El Niño event. Still, the rains fell in critical periods, and South Africa attained a decent crop harvest, with commercial maize at 11,2 million tonnes, soybeans at 1,2 million tonnes and sunflower seed at 678 000 tonnes. Other field crops and horticulture also achieved decent yields that year.

Notably, the 2018/19 season was not preceded with favourable four years of favourable rainfall that improved soil moisture. Therefore, the current position is better than the most recent El Niño period.

Now, we are not the only ones holding this optimistic view. In the past few weeks, the International Grains Council (IGC) forecasted South Africa’s 2023/24 maize production at 15,6 million tonnes, down marginally from the current crop of 16,4 million tonnes.

Moreover, the United States Department of Agriculture’s Pretoria office recently released their forecast placing South Africa’s 2023/24 maize production forecast at 15,8 million tonnes, marginally above the IGC’s figures. These institutions have assumed a mild El Niño, and soil moisture is currently good.

Still, while we are optimistic about the upcoming season, we doubt the crop could be this large and see 13-14 million tonnes as more likely.

Overall, the upcoming 2023/24 season promises to be more forgiving than some might have initially feared.

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Worries about animal feed prices persist

Worries about animal feed prices persist

South Africa’s livestock and poultry industry has had a difficult few years. A variety of external shocks including animal diseases and rising input costs — yellow maize and soya bean prices — made for a challenging operating environment for many farmers and agribusinesses.

While the spread of diseases may be slowing, and organised agriculture and the government have continued to collaborate to address biosecurity risks, concerns about renewed increases in animal feed prices persist. This is particularly the case in the El Niño period, which might result in a lower harvest compared with recent seasons of bumper crops.

The livestock and poultry sector hardly enjoyed the gains of a large domestic harvest of the past two seasons because this did not bring any meaningful reduction in feed prices. Since December 2020, yellow maize prices have broadly traded at more than R3,000 a tonne, while soya beans have generally been more than R5,000 a tonne. In prior seasons, a large harvest would have led to a substantial price decline to much lower levels than we observed in the past two years.

The major reasons for this were higher global maize and soya bean prices on the back of drought in South America, rising demand in China, Covid-related supply chain disruptions and the Russia-Ukraine war. As a small open economy, South Africa is interlinked with the global grains and oilseeds market, and domestic prices tend to follow global price movements — and this is what we observed.

With global maize and soya bean prices declining notably since the start of the year, South Africa’s maize and soya bean prices have followed a similar trend and are roughly 15% lower than the levels we observed in 2022. This benefits the livestock and poultry industry, which is now struggling with more domestic-related costs, such as load-shedding and failing municipalities where various businesses have had to use their own resources to maintain basic services. This has added to their cost of doing business.

In addition to the tendency to follow global price trends, large grain and oilseed supplies are in the market, which adds downward pressure on animal feed prices. For example, the crop estimates committee forecasts 2022/23 maize production at 16.35-million tonnes. This crop is 6% more than the 2021/22 season and the second-largest harvest on record. The 2022/23 soya bean harvest is forecast at a record estimate of 2.76-million tonnes (up 24% year on year).

Still, there are fears that as we transition into an El Niño weather phenomenon, which may result in below-average rainfall in Southern Africa, harvests could decline notably. Such a scenario would lead to an increase in maize and soya bean prices and further strain the livestock and poultry sector.

However, the expected El Niño weather phenomenon might not be as harsh as the 2015/16 season, where grains and oilseed harvests fell below long-term averages, necessitating imports. In that year, livestock suffered and there were cases of livestock deaths across the country, particularly in new-entrant farming regions. There is good soil moisture from the past few seasons’ higher rainfall, which should support natural grazing veld and crops during planting season, which starts in October.

Moreover, the recent crop estimates from the International Grains Council paint a good picture of global grain and oilseed supplies in the upcoming 2023/24 season, which points to moderate price movements. For example, the 2023/24 global maize harvest is forecast at 1.2-billion tonnes, up 5% year on year. Subsequently, the 2023/24 global maize stocks are estimated at 276-million tonnes, up 2% from the previous season. Such stock levels signal an environment of a slight decline in global prices. Regarding soya beans, global production in 2023/24 could reach 402-million tonnes, up 9% year on year.

All else being equal, the 2023/24 summer season may not be as harsh to the South African livestock and poultry industry. The global grains and oilseed prices are likely to be under pressure. If El Niño does not badly hit the domestic harvest as expected, the benefits of the potentially lower global prices will filter into our domestic environment.

Written for and first appeared in the Business Day.

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The Karoo offers far more than sheep and wool

The Karoo offers far more than sheep and wool

I attended the Karoo Winter Wool Festival at the weekend. Hosted in Middelburg, in the Karoo region of the Eastern Cape, the festival was a wonderful event, showcasing the value chain activities of the sheep industry and the rich Karoo heritage.

I was one of the speakers at this exciting event, and my message to farmers and other stakeholders focused on how SA can promote agricultural growth in this sparse, remote region by unlocking its natural assets and heritage.

There are various opportunities to pursue, including the region’s food heritage, high-end fashion and agritourism. Exploring and expanding these opportunities would ensure that Karoo farmers can diversify and improve their revenue streams by not solely depending on the wool export market.

High dependence on wool exports can come with challenges, such as when China temporarily banned SA wool, leading to a 22% year-on-year decline in the country’s wool export earnings in 2022.

So what to do? At the most basic level we need to eat to live, and food carries the smells and tastes of places, families and histories. It matters to people how, what and when they eat, and sometimes where their food comes from. Thus, food heritage is linked to ecology, sustainability, health and origin.

Exploring food in the context of heritage can raise interesting questions about identity, people’s relationship to the land, the availability and quality of local produce, poverty and health. This would not be the first time this is done. Various countries in Europe in particular continue to benefit from their food heritage.

In 2010 Spain, Greece, Italy, Morocco, France and Mexico successfully nominated the Mediterranean diet, Mexican cuisine and the gastronomical meal of the French as part of the intangible cultural heritage of humanity under the Unesco Convention.

Food heritage offers obvious spin-offs in product development, economic value and tourism. There are elements of these foreign food heritage products on our leading supermarkets’ shelves, but somehow the same retailers do not showcase our own heritage to the same degree.

The Karoo is SA’s hinterland and one of the natural assets of the Northern, Eastern and Western Capes due to its pristine natural beauty and clean air, as well as peace and quiet. It therefore has strong potential commercial and marketing value, which farmers can use.

“Karoo” has been widely misappropriated by various individuals and businesses, misrepresenting products such as “Karoo lamb”. Karoo region farmers therefore need to reclaim the brand by:

  • Registering it as a geographical indication.
  • Lifting Karoo lamb out of the meat commodity market and creating its own pricing and distribution structure.
  • Creating a different price point for Karoo lamb.
  • Enforcing quality and food safety standards.
  • Ensuring producer control of the supply chain and forming strategic partnerships with abattoirs, packers and wholesalers.
  • Preventing overdominance by major retail chains.
  • Educating consumers about the quality and value of Karoo lamb.

SA consumers are already buying European geographical indication products in our supermarkets. Many cheeses and ham carry the famous EU geographical indication logos, and retailers sell these famous names protected by EU legislation.

SA introduced similar regulations in 2019, enabling rooibos and soon Karoo lamb as the country’s first geographical indication products. Ongoing efforts in this regard have brought about interesting spin-offs in relation to the fashion industry, which have the potential to add tremendous value to the Karoo.

The global fashion industry, especially the luxury goods and clothing industry, is now demanding wool, mohair and leather from the Karoo because of its reputation for quality and its heritage.

The Karoo is an important region in SA, and we need to continuously think of creative strategies to support the sheep and other industries as well as agritourism there.

Written for and first published in Business Day.

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El Niño at our doorstep

El Niño at our doorstep

South Africa has had four seasons of La Niña induced heavy rains from 2019/20 to 2022/23. These above-normal rains supported agriculture leading to higher yields across various field crops, fruits and vegetables. The livestock industry also benefitted from improved grazing pasture.

Importantly, having four consecutive La Niña seasons was an unusual occurrence. The typical cycles are two seasons of higher rainfall followed by normal-drier seasons.

Excluding the current trend, the only other period in the recent past with three successive years of conducive weather conditions and a large crop harvest ran through 2007/08, 2008/09, and 2009/10 production seasons. This period brought a sizeable agricultural yield to the country.

But there is now a shift from a prolonged period of La Niña to El Niño. This weather phenomenon would bring below-normal rainfall and hotter temperatures in South Africa (and across Southern Africa).

If it is intense, this could resemble the bleak agricultural conditions we witnessed during the last El Niño drought in the 2015/16 season, where staple crops such as maize dropped to 8,2 million tonnes, well below South Africa’s consumption levels of 11,8 million tonnes.

This shortfall necessitated imports of maize to supplement domestic needs. Other field crops, fruits, vegetables and livestock also experienced severe losses.

But I doubt things will be this bad. Also, the soil moisture remains reasonably favourable across South Africa following good rains, which should cushion farmers. Thus, I remain optimistic that the 2023/24 agricultural season in South Africa should be okay, although crop yields could drop considerably from the levels of the past few years.

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Poor roads limit South Africa’s agricultural potential

Poor roads limit South Africa’s agricultural potential

Despite various challenges in trade and animal diseases, South Africa’s agricultural sector has had a good few seasons. But one other crucial issue is road deterioration; in some provinces, such as the Eastern Cape, roads are almost non-existent in various regions.

These past few days, farmers in areas such as the Ncora region of the Eastern Cape have struggled to receive diesel supplies, which they need to keep the dairy farming entities running given the load-shedding, feeds, and concentrates. The roads are so bad and muddy in this rainy weather that farmers can’t even deliver the milk to processing facilities; it’s a cocktail of challenges.

We should not have such challenges in a province like the Eastern Cape, where the government leadership speaks of its drive for agricultural development, expansion, job creation, and agri-tourism.

The essential ingredients for such a vision of prosperous agriculture (and agri-tourism) are proper roads and water infrastructure (since energy is a separate big issue). With such poor roads, we will also struggle to see decent participation of black farmers at the commercial farming level.

I’ve centred my comment on the Eastern Cape, but the challenge applies across the country, with perhaps an exception of the Western Cape.

I will reflect on this issue with government colleagues at the national level. Still, the provincial government structures and municipalities must do their part and assist with essential infrastructure maintenance to support business activity.

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Global agricultural commodity prices continue to moderate

Global agricultural commodity prices continue to moderate

By and large, global grains and oilseeds prices have continued to trend lower. This follows the diplomatic interventions by the United Nations representatives, and the Turkish, Russian, and Ukrainian government counterparts to facilitate the safe passage of grain exports out of the Black Sea region through the “Black Sea Grain Deal.”

In March 2023, the Food and Agriculture Organization of the United Nation’s Global Food Price Index, a measure of the monthly change in international prices of a basket of agricultural commodities, was at 126.9 points, down by 2.1% from February 2023. This marked the twelfth consecutive monthly decline since reaching its peak one year ago.

Notably, the index is down 21% from March 2022. This shows that there is an improvement in the affordability of various agricultural commodity prices since their peak in the month after Russia invaded Ukraine last year. This decline has been observed in most commodity prices across the board, which include meat, dairy, cereals, and vegetable oils.

The exception is for sugar prices which are up marginally from March 2022. 2022/23 global sugar ending stocks are projected to tighten as growth in global consumption exceeds the rise in production.

While the downward trend in most global agricultural commodity prices will likely persist over the near term, they will probably not return to pre-covid-19 levels. The global grain stocks are also expected to tighten as the production of some commodities has declined while consumption increases. This will support agricultural commodity prices to remain well above long-term levels.

For example, earlier in March 2023, the United States Department of Agriculture (USDA) indicated in its World Agricultural Supply and Demand Estimates report that 2022/23 global wheat production could reach 788 million tonnes, up by 1% from the February 2023 estimates and the previous season’s harvest. The larger harvest is on the back of expected larger average yields in Russia, the US, Canada, Kazakhstan, China, Australia, and the UK.

That said, the 2022/23 global wheat stocks could decline by 1% from the previous season to 267 million tonnes because of solid consumption.

Moreover, the 2022/23 global rice production is estimated at 509 million tonnes, up by 1% from the February 2023 estimates and roughly the same level as the 2021/22 harvest. Because of solid consumption levels, the USDA currently forecasts an 8% annual decline in global rice stocks, estimated at 173 million tonnes.

However, the maize and soybean monthly production picture is different. For example, the 2022/23 global maize production is forecast at 1,15 billion tonnes, down by 0,3% from the February 2023 estimate and 6% less than the 2021/22 season’s crop. This is mainly due to an expected smaller crop in the US, Ukraine, and the EU.

Subsequently, the 2022/23 global maize stocks are forecast to dwindle by 3% from the prior season, estimated at 296 million tonnes.

Moreover, the 2022/23 soybean production forecast was slashed by 2% from February 2023 due to a poor anticipated harvest in Argentina due to dry weather. Still, this is 5% up from the previous season. The anticipated large soybean harvests in Brazil, Russia, and China are expected to more than offset the expected production declines in the US, India, Argentina, and Uruguay. These deviations in crop expectations are a function of weather conditions and variations in the area planted from season to season.

Overall, I view the 2022/23 global grains and oilseeds production season in a positive light. The expected global production levels should be sufficient to provide relief from the soaring grain and oilseed prices which was experienced in the weeks after the start of the Russia-Ukraine war. Still, the tighter maize and rice stock levels are likely to keep prices at reasonably higher levels than their long-term averages.

South Africa is part of the global agricultural market. Therefore, these anticipated price trends will invariably be transmitted to the domestic agricultural market. In essence, this means that agricultural commodity prices will likely continue to soften from last year’s levels, although not to the extent of reaching pre-covid-19 levels.

This producer price stickiness will be welcomed by grain and oilseed producers, which still have to contend with input costs that are now edging lower but still remain stubbornly high.

Therefore, we still expect the terms of trade in field crop production to remain positive in the short term. The same cannot be said, however, for horticultural production where producer prices have not surged to the same extent (as those of field crops) to provide a much-needed buffer to high input and exporting costs. The livestock subsector has also been taking a strain due to high feed costs.

Nonetheless, the latest field crop commodity bearish trend will somewhat provide a reprieve for the intensive livestock production systems and struggling households as consumer food price inflation gradually moderates.

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