by Wandile Sihlobo | Jun 5, 2023 | Agricultural Production
South Africa’s agriculture has had great consecutive seasons since 2019/20. The sector’s gross value added grew by 14.9% in 2020, 8.8% in 2021 and modestly by 0.3% in 2022 . This was primarily supported by favourable weather conditions.
The current season is also likely to deliver solid growth for the sector, with variation across sub-sectors. We already see prospects of large crops across the country.
Export performance is likely be robust, especially with a weaker rand exchange rate, which makes South African products more competitively priced in the global market.
Still, the sector is not reaching its full potential. A number of factors stand in the way of even greater successes and greater participation of black farmers in commercial value chains.
The first factor to mention is worsening power cuts. The agricultural sector is heavily reliant on energy. For example, recent work by the agriculture and food policy research group, the Bureau for Food and Agricultural Policy shows that roughly a third of South Africa’s farming income depends directly on irrigation, which requires power.
But that’s not the only challenge. Deteriorating roads, collapsing water infrastructure and rising crime are barriers to functioning effectively and efficiently.
These are not new issues. They have been flagged before. But they have worsened. They are a challenge for large commercial farmers as well as smaller farming enterprises. The emerging or new entrant black farmers, with limited financial resources, face it more acutely.
These challenges highlight the effects of weak governance across all spheres of government in South Africa. It is serious for all sectors, but particularly so for agriculture, which depends on the proper functioning of essentials such as roads, water and power.
Provincial governments and municipalities have not maintained or upgraded infrastructure that would support agriculture.
The results of this neglect, over time, are likely to lead to declining economic conditions and employment opportunities in small towns. Farming and agribusiness play a crucial role in sustaining the economies of small towns and rural areas. Paying attention to infrastructure could catalyse a virtual cycle in which the private sector increases investment, in turn leading to increased economic opportunities.
Roadblocks facing farmers
The impact that poor roads have on farmers is well illustrated by a recent case in the Eastern Cape province. Dairy farmers in the Ncorha area struggled to receive farm supplements, feeds and diesel because of the poor state of roads. And they couldn’t deliver their produce to the market.
Ncorha is a small region in the Chris Hani District Municipality in the Eastern Cape province of South Africa. One of its vital economic activities is farming, primarily the dairy industry. The Eastern Cape accounts for nearly a third of South Africa’s dairy production.
Poor infrastructure is not isolated to the Eastern Cape. Roads across the rural towns of the Free State, North West, Limpopo and KwaZulu-Natal, all of which are major agricultural provinces, are also poorly maintained and are in a bad condition.
More than two-thirds of South Africa’s agricultural produce is now transported by roads, as rail transport has faced challenges over the years. This is a major change from two decades ago when rail played an important role in transporting agricultural produce, specifically grains.
The poor road network has forced some farmers to pay for road maintenance. They have not been able to reap the full benefit of higher agricultural output because they’re incurring additional operating costs. Farmers have to step in when municipalities misuse funds allocated for infrastructure. Details of this have appeared in numerous Auditor General reports.
Water has often been flagged by various agribusinesses and farmers as another major problem. Key is the maintenance of water infrastructure such as dams and purification systems. Agribusinesses in some towns have had to step in and maintain water infrastructure. This again takes financial and human capital away from businesses to public service that municipalities should be covering.
Agribusinesses and farmers are also seeing a rise in corruption and crime. Commercial farming businesses have had to tighten security over the years at their own cost because of lawlessness in rural South Africa. Harvest and livestock theft affect all farmers and are much harder for new entrant farmers without a strong financial position to invest in security and technical solutions. Again, having to tighten security shifts resources from more productive uses to cover for the government’s shortcomings.
Why strong agricultural sector matters
South Africa faces a high unemployment rate at just under 33% in the first quarter of 2023. Rural areas tend to face the harsh effects of the poor economic conditions.
Resolving the unemployment crisis requires that all economic sectors perform optimally, especially the primary sectors with an ability to absorb even the least skilled labour. Agriculture is one such sector, while agribusiness and agro-processing also present a range of employment opportunities.
But all these hinge on effective provision of public services such as roads, water and electricity. In turn, these depend on strong provincial governments and municipalities.
The recently launched Agriculture and Agro-processing Master Plan presents practical steps for implementing Chapter Six of the National Development Plan, which outlined a vision for developing the agricultural sector further.
Weaknesses of the provincial government and municipalities are undermining the government’s plans to expand agricultural output and resolve inefficiencies within the Department of Agriculture, Land Reform and Rural Development.
These weaknesses are also hindering the economic vision for South Africa set out by President Cyril Ramaphosa.
Addressing local government failures should be a top priority for the presidency. Rural towns and communities support millions of people and are currently in despair.
Public-private sector partnerships can also be considered to help tackle some of these challenges. Models of how these can work are outlined in various master plans and need commitment and effective leadership.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Jun 4, 2023 | Agricultural Production
The FAO Food Price Index, a measure of the monthly change in international prices of a basket of food commodities, declined by 3% in May 2023 from the previous month to 124 points.
Importantly, this is 22% lower than the all-time high reached in March 2022, primarily driven by the softening prices of the cereals, dairy and vegetable oil indices.
These price trends will likely overshadow the impact of the rising sugar and meat prices in the near to medium term and thus keep the headline global food price index at relatively lower levels than a year ago.
The price surge in sugar reflects the concerns about the tight global supplies in the 2022/23 season and the rising concerns over how the development of the El Niño phenomenon may affect the 2023/24 crops.
Moreover, the meat price index increase was underpinned by the firm demand in Asian countries for pork and supply constraints. The pork supply limitations in several leading producing countries were due to high production costs and animal health issues.
Additionally, the solid Asian demand extended to poultry meat; hence the price rebounded following nine months of continuous declines. The supply limitations arising from widespread avian influenza outbreaks in various regions also increased the price.
South Africa is part of the global agricultural market. Therefore, this anticipated price trend, particularly in grains (other than rice, which is rising globally, and the is a rand/dollar exchange risk on its imports) and vegetable oils, will likely be a reality also in the domestic market.
In essence, this means that agricultural commodity prices will likely continue to soften from last year’s levels, although not to the extent that we are back at pre-covid-19 levels.
Importantly, this FAO Food Price Index measures commodity prices at the farm level, and there is a lag before such price trends are reflected at the retail level, and even there not to an equal extent because of the value costs such as processing, packaging, distribution, labour, etc.
Still, this will be sufficient to somewhat moderate the consumer food price inflation from the current levels in the year’s second half. Also, we will monitor the global meat price direction and its impact on South Africa, as this would influence the current food inflation view.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | May 25, 2023 | Agricultural Production
South Africa’s Crop Estimates Committee lifted the country’s 2022/23 maize production estimate by 2% from last month to 16,1 million tonnes. This crop is 5% more than the 2021/22 season and the third-largest harvest on record.
The expected large harvest is primarily on the back of large yields, as the area planted is slightly down from the 2021/22 season.
A crop of 16,1 million tonnes implies South Africa will have sufficient supplies to meet domestic maize needs of roughly 11,4 million tonnes and have over 3,0 million tonnes for export markets in the 2023/24 marketing year.
The soybeans harvest was unchanged from April’s record estimate of 2,8 million tonnes (up 24% y/y). The crop improvement is due to an expansion in the area planted and the expected higher yields.
The ample soybeans harvest means South Africa could meet its domestic demand and remain with over 300 000 tonnes of soybeans for export markets. This soybean export expansion is a new territory for South Africa, which until recently, had been a net importer of soybeans and soybean products, and positive for the agricultural trade balance.
The sunflower seed production estimate remained unchanged from last month at 797 610 tonnes (down 6% y/y). The annual decline in the sunflower seed production forecast mirrors the reduced planted area and yields in some areas.
Other small crops, such as groundnuts and dry beans, were lifted from April estimates to 51 510 tonnes (up 6% y/y) and 48 560 tonnes (down 8% y/y), respectively.
Overall, farmers nationwide are hard at work harvesting the summer crops at the momentum. The recent rains have not caused quality issues; thus, we anticipate a large harvest of high-quality summer grains and oilseed.
From a grains consumer perspective, these data bode well with the already softening maize and oilseed farm prices and reinforce our view of a possible moderation in grains-related food product prices in the food inflation basket.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | May 19, 2023 | Agricultural Production
The was probably minimal activity in the farms across South Africa this week. The South African farmers were at Nampo Park in Bothaville, a small agricultural town in the Free State.
Nampo is an agricultural trade show where stakeholders from technology developers to start-ups, agricultural financiers, biotechnology companies, insurance companies, agricultural retailers and others gather to showcase new industry developments and informally interact with clients and potential partners.
Farmers in this gathering meet all their suppliers and partners in one setting. The crowd is sizeable; it is arguably the largest agriculture gathering on the African continent.
The NAMPO engagements also mean that summer crop harvesting probably slowed this week. The harvest is still at the elementary stages for significant crops such as maize, while soybeans have advanced.
If we consider maize in this post, the South African farmers have started harvesting in areas that planted maize early in the season. Last week, on 12 May, about 236 634 tonnes were delivered to commercial silos.
But it will be a month before the harvest gains momentum across the country. Several regions planted a month behind the typical planting window because of excessive rains at the start of the season.
If we combine the first two weeks of the 2023/24 marketing year, 456 935 tonnes of maize were delivered to commercial silos out of the expected harvest of 15,9 million tonnes (up 3% y/y). This is the third-largest maize harvest on record.
The maize crop improvement this season is primarily on the back of expected large yields, as the area planted is slightly down from last season.
Of the expected 15,9 million tonnes, about 8,4 million tonnes is white maize, with 7,5 million tonnes being yellow maize.
Notably, a crop of 15,9 million tonnes implies South Africa will have sufficient supplies to meet domestic needs of roughly 11,4 million tonnes and remain with about 3,0 million tonnes for export markets in the 2023/24 marketing year.
Over the coming weeks, we will pay attention to the quality of the crop. Still, we do not think the recent rains have caused crop quality damage.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | May 13, 2023 | Agricultural Production
The Crop Estimates Committee’s latest data reaffirmed our optimism about South Africa’s 2022/23 summer grains and oilseeds production season. Maize production is estimated at 15,9 million tonnes, 3% higher than the 2021/22 season’s harvest. The current harvest is the third-largest harvest on record.
The harvest improvement is primarily on the back of expected large yields, as the area planted is slightly down from the 2021/22 season. About 8,4 million tonnes is white maize, with 7,5 million tonnes being yellow maize.
A maize crop of 15,9 million tonnes implies that South Africa will have sufficient supplies to meet domestic needs of roughly 11,4 million tonnes and remain with about 3,0 million tonnes for export markets in the 2023/24 marketing year that started in May.
Moreover, the soybeans harvest is estimated at a record 2,8 million tonnes. The crop improvement is due to an expansion in the area planted and the expected higher yields. The expected large harvest means South Africa could meet its domestic demand and remain with just over 300 000 tonnes of soybeans for export markets.
This soybean export expansion is a new territory for South Africa, which until recently, had been a net importer of soybeans and soybean products, and positive for the agricultural trade balance.
The sunflower seed production is estimated at 797 610 tonnes (down 6% y/y). The annual decline in the sunflower seed production forecast mirrors the reduced planted area and yields in some areas. Other small crops, such as sorghum and groundnuts, have a reasonably large expected harvest of 107 180 tonnes (up 4% y/y) and 49 080 tonnes (up by 1% y/y), respectively.
Overall, South Africa’s 2022/23 summer grains and oilseeds are maturing, and some areas are nearing harvest. Notably, these data bode well with the already softening maize prices, now hovering around R3 600 per tonne, roughly down by 20% from a year ago.
Sunflower seed and soybean prices have also softened at the same rate, and spot prices are currently trading around R8 536 per tonne and R7 791 per tonne, respectively.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | May 6, 2023 | Agricultural Production
The global wheat market has been in focus since Russia invaded Ukraine in February last year. Many countries feared they would not meet domestic needs due to supply constraints resulting from war in one of the world’s major producing regions. The price surge after the invasion was also a big challenge for importing countries such as SA.
The Black Sea grain deal brokered between the UN, Turkey, Russia and Ukraine to allow the movement of grains out of the region has brought much-needed relief from possible wheat shortages. Wheat prices have since moderated markedly. At end-April, SA’s wheat spot price was about R6,650 per tonne, down 10% year on year.
The decline in wheat prices has raised concerns about a potential reduction in domestic plantings. But we learnt this week that farmers are optimistic about the 2023/24 season.
The crop estimates committee indicated in its most recent data release that farmers intend planting 542,600ha of wheat in the 2023/24 season, 3% more than the five-year average (though 4% down year on year). Such an area planted, combined with favourable weather conditions, would yield a solid harvest of about 2.03-million tonnes, assuming an average yield of 3.75 tonnes/ha, which is quite possible if the climatic conditions remain favourable throughout the season as suggested by forecasters.
Farmers intend to plant 109,100ha of barley, up 8% on last year but also below the five-year average planting. Applying the same logic of a five-year average yield of 3.38 tonnes per hectare to an area planting of 109,100ha, SA could have a barley crop of 368,758 tonnes in the 2023/24 season, up 19% year on year.
Canola-planting intentions are at 127,500ha, an increase of 3%, which will be a record area planting. Combined with an average yield of 1.71 tonnes/ha, this suggests a harvest of 218,025 tonnes this season, 4% higher than last year.
SA has been progressively growing its oats crop. In the 2023/24 season farmers intend to plant 29,600ha, up 10% year on year and well above the long-term average. In this crop the average yield is 1.41 tonnes/ha. Applying this to the area mentioned implies a harvest of 42,032 tonnes, a 41% increase year on year.
We are still early in the season though. The planting activity and weather conditions in the next two months will be crucial in determining whether the intended area is successfully planted or even exceeded. There will be an update on the area plantings when the crop estimates committee releases the preliminary area planted data on July 26. The first actual production forecast will be released on August 29.
Farming input prices such as those for fertilisers and agrochemicals have come off last year’s highs, helping to compensate for the decline in wheat and other winter crop prices.
The outlook for weather conditions for the winter crops also remain positive. In its Seasonal Climate Watch update published on April 3 the SA Weather Service noted that while regional weather conditions are transitioning to an El Niño state, which typically brings below-normal rains in much of the country, the winter crop-growing regions of SA will still receive rains. This is positive for the agricultural season.
The areas that produce under irrigation in Limpopo, Free State, Northern Cape and other provinces should also thrive, benefiting from the good 2022/23 soil moisture and improved dam levels.
Overall, the planting intentions data and favourable weather outlook suggest that SA should have a decent winter harvest.
Written for and first appeared in Business Day.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Apr 22, 2023 | Agricultural Production
The agricultural sector has the potential to expand given the correct incentives and visionary alignment between the government and private sector.
My confidence in agriculture’s potential was reignited by the crop estimates committee’s 2022/23 soya bean production forecast of a record 2.7-million tonnes, up 22% from the previous season. This is nearly three times the volume SA produced a decade ago.
This expansion was occasioned by farmers’ response to the animal feed crisis a decade ago. At that time SA was importing large volumes of soya bean oil cake for its growing intensive livestock production systems. In 2011 these imports amounted to almost 1-million tonnes, compared with 1.2-million tonnes of domestic demand.
This significant net importer status was due to a domestic soya bean production deficit and limited capacity to process raw beans into oil cake and oil. SA had a soya bean processing capacity of about 860,000 tonnes in 2012, nearly on par with the soya bean oil cake imports of that year (767,130 tonnes).
To achieve import substitution agricultural industry role players and the government gathered to formulate a strategy to stimulate domestic soya bean production. This strategy focused on demand-pull innovation, by increasing investment in the expansion of oil seed crushing capacity from 860,000 tonnes in 2012 to more than 2.2-million tonnes by 2016.
The government provided incentives for the private sector role players to expand this capacity. The department of trade, industry & competition deserves credit for supporting this approach, with the department of agriculture, land reform & rural development.
What emerged in the years after this initiative was an environment in which rising poultry feed demand was met with crushing plants that were ready to produce the feed. Growing demand for domestic soya beans caused its prices to improve, thus incentivising farmers to further increase production. Market forces were now at play after the initial government nudge.
Farmers progressively increased the area under soya bean from about 516,500ha in the 2012/13 season to the current 1.15-million hectares. Along the way the seed breeders and regulators also ensured that high-yielding seed varieties were used.
The improvements in seed, fertiliser and other inputs caused soya bean yields to improve from an average of 1.5t/ha in 2012/13 to about 2.4t/ha in 2022/23. This combination of yield improvement and larger hectarage has led to the expected record soya bean crop of 2.7-million tonnes in the 2022/23 production season.
Notably, soya bean oil cake imports have declined to about a fifth of the 945,544 tonnes imported in 2011 at 183, 590 tonnes in 2022. With a large soya bean harvest on the horizon, SA is likely to transition to a net exporter of the product imported in large volumes just a decade ago.
There are similar success stories in various agricultural commodities, including citrus, avocados, nuts and berries. Some of these commodities have even surpassed the targets initially outlined in chapter six of the National Development Plan, in its agriculture growth-focused section.
While various sectoral efforts, such as the Agriculture & Agro-processing Master Plan, may seem ambitious, SA has achieved great success through effective collaboration. What it achieved in soya beans and various horticultural products has to be replicated in other commodity industries, this time with a clear focus on transformation (including more black farmers).
The inclusiveness drive should not be at the expense of the existing commercial farmers. Rather, it should be through bringing underutilised land into economic production. But the government will have to lead the way and provide targeted incentives, regulatory and monetary, to ensure good participation.
Agriculture holds great potential for growth, job creation, domestic and regional food security. Still, the key ingredient lies in all role players working together with the same visionary energy, determination and alignment for the collective good of the country and the sustainability of businesses.
Written for and first appeared in Business Day.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Mar 29, 2023 | Agricultural Production
We have now received additional comforting information that the erratic weather conditions at the start of the 2022/23 summer production season had minimal impact on South Africa’s summer grains and oilseeds.
The data released by the Crop Estimates Committee this week places South Africa’s 2022/23 summer grains and oilseeds production at 19,6 million tonnes, up 2% from last month’s figure and 5% higher than the previous season.
This is primarily on the back of expected higher yields as the overall planted area for summer grains and oilseeds are 4,4 million hectares, roughly unchanged from the previous season. The persistent load-shedding raised concerns that areas under irrigation could receive poor yields.
Thankfully, the favourable rainfall, at a moderate pace, from mid-February provided a much-needed breather and improved crop conditions. Within summer grains and oilseeds, roughly 20% of maize and 15% of soybeans are produced under irrigation. The various energy interventions, such as possible load curtailment and expansion of renewables, are some options that could assist the irrigation regions in the medium term.
The Crop Estimates Committee’s data provides sufficient comfort that South Africa will have sufficient staple food supplies in the 2023/24 marketing year (which corresponds with the 2022/23 production season). For example, if we consider the large crops like maize, soybeans and sunflower seed, production is forecast at 15,9 million tonnes (up 3% y/y), 2,7 million tonnes (up 22% y/y), and 797 610 tonnes (down 6% y/y), respectively.
To underscore our point, the expected improvement in the maize harvest is on the back of better yields, as the area plantings are down marginally from the 2021/22 season.
Meanwhile, the robust forecast increase in soybeans results from both expected large yields and an expansion in planted areas. The fall in the sunflower seed production forecast mirrors the reduced planted area and yields in some areas. Other small crops, such as sorghum and groundnuts, have a reasonably large expected harvest of 109 400 tonnes and 47 930 tonnes, respectively.
South Africa’s 2022/23 summer grains and oilseeds are now at pollination stages in some regions, and others are maturing. This could be another excellent harvest season if the weather conditions remain favourable.
Notably, these data bode well with the already softening maize, which is now hovering around R4 000 per tonne, roughly at the same levels as a year ago and well below the higher levels we saw a few months ago. Sunflower seed and soybeans prices have also moderated notably, and spot prices currently trade around R8 192 per tonne and R8 660 per tonne, respectively.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
