Today, March 8, 2021, I participated in a Corteva Agriscience and GIBS Virtual Roundtable event. The event’s theme was “Building an Enabling Environment for Women Entrepreneurs in Agriculture Policy and Practice Perspectives“.
My contribution was not so much on the gender dynamics; instead, on sketching out, briefly, South Africa’s agricultural economic conditions and policy dynamics that women are participating in — or will participating in — in the case of those that are yet to join the sector. In this blog post, I share a few points that I touched on during the session.
South Africa’s agricultural economy landscape
South Africa’s agricultural sector has been largely insulated from the Covid-19 shock as it has remained in operations since the onset of the lockdown. The favourable weather conditions in 2020 meant that agriculture would continue registering positive growth in the near term. We currency forecast 10% y/y growth in South Africa’s gross value-added in 2020. Other analysts such as the Bureau for Food and Agricultural Policy are even more optimistic than us, forecasting a 13% y/y growth.
The underpinning drivers of this growth are across the subsectors. For example, South Africa had its second-largest grains harvested in history in 2020. In horticulture, South Africa has generally had a good fruit harvest in 2020, with citrus exports reaching exported a record 146 million cartons. There was also a broad recovery in deciduous fruit production, with apple and pear production up slightly by 5% y/y and 1% y/y respectively in 2020. We also observed a general recovery in the livestock industry, although this particular subsector was not as robust as other agriculture subsectors.
Of course, some sub-sectors had a more challenging 2020. The agricultural industries such as wine, tobacco, and floriculture experienced a ban on sales at various stages of the lockdown; hence, the broader agriculture optimism is not the reality of these subsectors.
The favourable weather conditions that underpinned higher agricultural output in 2020 have continued into 2021. For example, the data recently released by the Crop Estimates Committee show that South Africa’s 2020/21 summer grain and oilseed production could increase by 5% y/y to 18,5 million tonnes. While this is still the first production estimate for this season, with eight more to follow, this would be the largest on record if it materializes. Moreover, estimates from the South African Wine Industry Information and Systems (SAWIS) and Vinpro suggest that South Africa’s wine grape crop could be somewhat larger than in 2020.
In the fruit industry, there is also optimism for continued growth in output in 2021. The United States Department of Agriculture analysts in Pretoria note that “the production of South African citrus, mainly soft citrus, new orange varieties, lemons and limes is forecast to continue its strong growth in the 2020/21 Marketing Year, based on the increase in area planted, improved yields, high level of new-plantings coming into full production, and the minimal impact of COVID-19 on labour and input supply.”
Essentially, this provides the basis for another year of substantial growth in South Africa’s agriculture. We believe that South Africa’s agriculture gross value-added could expand by 4% y/y in 2021. The base effects contribute to a slightly muted growth rate this year compared to 2020. We will most likely update this data as more production field crop and horticulture production data become available.
South Africa’s agricultural policy view
South Africa’s agricultural sector continues to be viewed as one of the sectors that could stimulate economic growth and employment in rural South Africa. This message is reflected throughout the South African government’s policies, from the Reconstruction and Development Programme, Accelerated and Shared Growth Initiative, the National Development Plan, and more recently, the Reconstruction and Economic Recovery Plan of President Ramaphosa.
In the near term, South Africa’s government has focused on four broad policy guiding themes to drive inclusive growth, job creation and the eradication of hunger, namely;
- Transformation and redistribution;
- Addressing inefficiencies;
- Agricultural growth and expansion
- Coordination of policies and investments for an integrated rural economy
In these focus areas, the participation of women will have to be more pronounced than has been the case in the past. To achieve South Africa’s ambitious growth targets, gender inclusion must be prioritized. We know from research by the University of the Western Cape that men have typically been the primary beneficiaries of land reform. In farm labour, men continue to dominate, with women making up only 31% of the 810 000 people working in agriculture in the last quarter of 2020. There is also a need to improve gender diversity in private sector agriculture, especially in leadership positions.
Boosting gender diversity will have greater benefits for organizations and society, from the enhancement of economic growth to the creation of greater social cohesion, amongst other things.
From a policy perspective, the Beneficiary Selection Criteria for land reform that were first suggested by the Presidential Advisory Panel on land reform is a first step in ensuring gender diversity. The policy proposes that the government should have a bias towards women and youth in its land reform process. In the 700 000 hectares of land that the government is in the process of releasing, we will be able to judge if women and youth are genuinely prioritized.
There is also value to awareness programmes that celebrate women’s success to inspire young women to join the sector rather than agriculture viewed as a “backward men dominated sector”. This Corteva Agriscience session that we are in is one of such sessions, and the government also has some programmes, such as the Female Entrepreneur Awards and the Young Professional Development Programme, amongst others.
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Earlier today, I participated in Citi’s Conference Call on South Africa Food Inflation & Food Retail. In this blog post, I present the reflections I shared with the colleagues on the call.
We are in unusual times, and therefore a bit of historical perspective to preface our discussion might be useful. I will not provide a long historic perspective per se, but rather a broad view from the 2019/20 production season.
We finished 2019 on a constructive path in terms of food price inflation, which averaged 3,1% y/y (from 3,3 % y/y in 2018, and the periods before that were much higher rates on food price inflation). The distinct drivers of food price inflation from 2018 to today have primarily been meat and grains-related products (bread and cereals), as well as oils and fats. The drivers of prices each year have differed. For example, in 2017, the 2016/17 production season (which is to date the largest on record) kept grains-related product prices under downward pressure. In the two years that followed, the grains harvest was decent to meet the local needs, although not at record levels, and prices were roughly sideways.
It is also in 2018 and 2019 where the outbreak of foot and mouth disease also contributed to softening meat prices as South Africa was banned in export markets, and all products had to be consumed locally. From a volume perspective, roughly 5% of South Africa’s red meat goes to export markets, but the sentiment around a ban on exports was sufficient to keep prices under pressure. In these years, slaughtering activity continued at an average pace across the country, and there was a notable supply of meat in the market. All these movements were roughly in line with what we have seen in the past and what we expected to understand the agricultural market’s fundamentals.
- Agriculture during the covid-19 period
We started 2020, and the onset of covid-19, with food price inflation still on the subdued path. In the first three quarters of the year, South Africa’s food price inflation averaged 4,4% y/y, which is up marginally from the previous year’s rate of 3,1% y/y. It is mainly in the last quarter of the year where food price inflation accelerated notably, averaging 5,9% y/y. For 2020, South Africa’s food price inflation averaged 4,8% y/y (from 3,1% in 2019, as previously stated). The products underpinning the acceleration in food price inflation were, again mainly, grains related (bread and cereals), meat, as well as oils and fats.
Ironically, this is when South Africa had its second-largest grains harvest on record and generally large agricultural output in the 2019/20 production season in all major crops and fruits. So, what happened?
Maize price dynamics
Starting with grains, South Africa had its second-largest maize harvest in history in the 2019/20 production season, estimated at 15.3 million tonnes. This is against an annual consumption of about 11.0 million tonnes. In seasons of large harvest like this one, where there is also a substantial surplus for export markets, maize prices are usually under pressure. Such a scenario was experienced in the 2016/17 production year, where South Africa recorded its largest maize harvest on record, about 17.6 million tonnes. Maize prices started declining in the first quarter of 2017, which was a year of a harvest of this crop, reaching levels below R2 100 per ton in the second quarter of 2017 from around R 3 357.
Interestingly, in 2020 South Africa’s maize prices (white and yellow) remained elevated since February and have stayed at levels over R3 500 in the later months of the year.
Exhibit 2 shows different trends of monthly maize prices for the years 2017 – 2020. We use the maximum price reached in each month. We do this to capture all the spikes ever reached within a month over the years, which is one side of volatility, rather than using a simple average that will smoothen-out or undo a spike when a decline is recorded in the same month.
These price increases are a combination of factors which include:
- Weaker domestic currency
- Increasing demand from Zimbabwe and the Far East
- Lower stocks at the earlier part of the year
- Higher international maize prices
The movement in Rand maize market prices is closely related to the Rand/Dollar exchange rate. The correlation between Rand maize prices and the exchange rate over the past years is positive and around 70%. This means as the currency weakens, the Rand maize prices tend to rise.
Rising Demand from Zimbabwe:
South Africa recorded a 76% quarterly increase in maize exports in the first quarter of 2020, compared to the previous one. This was primarily underpinned by growing demand from Zimbabwe, which had had a poor harvest following the devastation from the 2018/19 drought, which was preceded by a cyclone. Zimbabwe’s maize harvest halved to 800 000 tonnes, a level of output that is less than half of Zimbabwe’s consumption needs of 2.0 million tonnes.
Therefore, Zimbabwe had to import roughly a million tonnes of maize to supplement the local supplies. The unique circumstances of Zimbabwe’s food security situation forced the country’s lawmakers to lift the ban on importing genetically modified maize imports on the 31st of January 2020, which opened doors for South Africa’s maize exports to Zimbabwe. South Africa produces roughly 80% of genetically modified maize, which had been prohibited for importation into Zimbabwe for a long time.
What was perhaps less apparent was the pace at which Zimbabwe procured maize imports. A “fast lane” was established at the Beitbridge border post to facilitate urgent maize supplies from South Africa into Zimbabwe in February 2020. A drastic increase following maize exports to Zimbabwe followed after that.
During this period, Botswana, Namibia and Mozambique were also amongst the vital maize importers from South Africa. This meant that by the end of South Africa’s 2019/20 marketing season in April 2020, white maize exports amounted to 1.04 million tonnes. For yellow maize, the regional markets and, to a lesser extent, the Far East were the essential buyers of South Africa’s maize
Lower stocks at the earlier part of the year:
As the demand for South Africa’s maize increased in Zimbabwe and elsewhere, the country had lower stocks from the 2019/20 marketing year. The 2020/21 marketing year (this coincides with the 2019/20 production year), which had the second-largest maize harvest on record of 15.4 million tonnes, was delayed by roughly a month because of the late rains at the start of the planting season. The tighter stocks are in part one of the critical drivers of prices, especially the spike experienced in March 2020. Exhibit 4 illustrated the stock levels in South Africa’s maize market. April 2020, which was the end of the 2019/20 marketing year, was the lowest since 2014.
International maize prices:
Internationally, maize prices have been rising in the past few months (see exhibit 4). The primary driver of global grain prices has been increasing demand from China, and weather concerns (dryness) in South America, specifically Argentina. The Chinese are rebuilding their pig herd, which was destroyed by the African swine fever in 2019, requiring an increased supply of maize and soybeans. In October 2020, the size of China’s national pig herd was up by 27% year-on-year.
Although South Africa is a net exporter of maize, domestic price movements track international prices. This is because South Africa is one of the biggest maize producers globally; thus, roughly 16% of domestic supply is for exports. The global supply fears, therefore, put upward pressure on South Africa’s maize prices. High-frequency data (daily with more than 300 observations) shows that the correlation between domestic and international maize prices this year is positive, 60% for white maize and 85% for yellow maize (see table 1). This means as the global maize markets face pressures, domestic maize prices tend to rise. To corroborate the view expressed in forgoing Table 1, here we further show that elevated international prices are partly to blame for the maize price upsurge (Exhibit 4).
Meat, oils and fats price dynamics
Second, the decline in the slaughtering rate in red meat (aside from cattle), along with the recent increase in poultry import tariffs, are amongst the factors that have provided an increase in meat price inflation. Moreover, there is also an element of base effects as meat price inflation was somewhat subdued in 2019.
Lastly, the acceleration in oils and fats price inflation is partly influenced by the weaker domestic currency in the past few months. South Africa remains a net importer of vegetable oils and therefore exposed to exchange rate risks. Moreover, the global vegetable oil prices have generally been at higher levels in recent months, boosted, in part, by the growing demand from China. These dynamics influenced the price levels that we observed in the South African market.
- Concluding remarks
This is all history, and many people are probably more interested in the outlook view for 2021. Here I am generally optimistic that South Africa’s food price inflation might not exceed an average of 5% y/y in 2021.
The La Nina rains have boosted agricultural production – across all subsectors. For maize, which is essential and discussed extensively, we expect a harvest of 16,6 million tonnes (from 15,3 million tonnes in 2019/20), against an annual consumption of 11,4 million tonnes. This will be the second-largest harvest on record and well above the Crop Estimates Committee’s estimate of 15,8 million tonnes.
The increase in area plantings and favourable weather conditions are the main drivers of the harvest. The recent excessive rains across Southern Africa, fortunately, didn’t cause notable damage to crops. We spotted a few farms in western Free State and parts of the North West. Notably, most countries in the region are also expecting a massive harvest.
For example, Zambia’s maize production could reach 3,4 million tonnes (up 69% y/y), while Malawi’s maize harvest is estimated at 3,8 million tonnes (up 24% y/y). There is optimism about the crop in other countries, including Zimbabwe.
This means that the regional demand, which underpinned domestic prices in 2020, will most likely be curtailed this year. Moreover, the firmer domestic currency also adds downward pressure on domestic maize prices. Hence, we are of the view that South Africa’s maize prices will most likely decelerate from their current levels of around R3 200 per tonne in the coming months, as more information about the potential harvest is confirmed. This ultimately bodes well for food price inflation.
Moreover, the strengthening domestic currency also bodes well for products the country imports, such as vegetable oils and fats, which in 2020, were amongst the products driving up food price inflation. For other agricultural products like fruit, vegetables, dairy products, and milk, we have a constructive view of generally sideways movement on prices. The output in almost all these products is set to be just as large as 2020; hence we don’t expect any surprises on product price movements.
The only significant upside risk to food price inflation that one can perhaps keep an eye on is fuel. It’s essential to always keep in mind that roughly 70% of South Africa’s grains are transported by road and a large volume of other food products.
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For many years, South Africa has prided itself as the most food-secure country in the African continent and has also ranked relatively well with its peer BRICS countries. But disappointingly, the results of the 2020 Global Food Security Index recently released by The Economist and Corteva show that South Africa has regressed. South Africa is now ranked 69th most food-secure country out of 113 countries, from 44 (out of 113) in 2019. Technically, South Africa’s scoring dropped by just a point from last year’s position (scoring 57,8 down by 1,4 from 2019 in the Global Food Security Index). Still, other countries improved notably, resulting in a drop in South Africa’s ranking.
The Global Food Security Index is comprised of four significant sub-indices, namely; (1) food affordability, (2) food availability, (3) food quality and safety, and (4) natural resources and resilience. The affordability and availability have a higher weighting of a combined two-thirds (each 32,4%). In 2020, South Africa experienced a sharp deterioration in the food affordability sub-index (a 5,5 drop), while all other subindices improved marginally. Notably, the major challenge was an overall increase in food prices and a deterioration in South Africa’s food safety net programmes.
These results are unsurprising. The ‘third wave’ of the National Income Dynamics Study – Coronavirus Rapid Mobile Survey (NIDS-CRAM) published on 17 February also pointed to a rise in hunger in 2020. Moreover, South Africa’s overall food price inflation also started rising in the last quarter of 2020, averaging 5,8% y/y, from an average of 4,3% y/y in the first three quarters of the year. This challenge speaks to the rising costs of food in an environment where more people were out of work.
This is an extract from my weekly column for Fin24, and you can read the full article by clicking here.
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Agriculture has, for a long time, been dominated by men, from leadership positions to primary workers, where only a third of the labour force are women. Similar, black farmers in staple commodities such as maize, wheat and even including citrus and potatoes constitute about 10% of the commercial production outputs combined. This makes the death of Dr Vuyo Mahlati such a heavy loss to the country. She was a fearless champion of transformation, a scholar, and government advisor.
Dr Mahlati gave so much of her life in trying to improve the lives of all South Africans. She fought for the prosperity of all, and to make the agricultural sector more inclusive, both in terms of race and gender.
Educated at the London School of Economics and Stellenbosch University, Dr Mahlati hailed from the Eastern Cape where she founded one of Africa’s first indigenous wool processing plants in a small town of Butterworth. The agricultural and development passion that many witnessed at the national level was rooted in real work she did at the grassroots in the Eastern Cape.
Amongst many responsibilities, Dr Mahlati was the president of the African Farmers Association of SA (AFASA), a member of South Africa’s National Planning Commission and also chaired the Presidential Advisory Panel on Land Reform and Agriculture (Panel). It is on Panel that I had an opportunity to work with her closely for many challenging days and nights from 2018 until we delivered the final report on this emotional and important policy question to the President and Cabinet towards the end of 2019.
During challenging debates about the concept of “expropriation without compensation” where various Panel members had contrasting views, she managed to pull us all together, in spite of all our divergent views. During various colloquiums where the Panel sought public views on land reform, emotive debates would erupt in break out sessions but Dr Mahlati always found a way of making sure that everyone’s views were heard and considered in the thinking of land reform matters. More importantly, her deep insights on the history and economic development, combined with a passion and practical insights about farming and rural development were critical in providing guidance to the Panel.
Through her role as President of AFASA, Dr Mahlati always advanced Black farmers interests in various government and industry policy and programme discussions. Her latest contribution was on the Agriculture and Agribusiness Sector Mast Plan which is currently being developed as part of efforts to foster inclusive growth and job creation in agriculture.
In addition to this considerable body of policy work, Dr Mahlati did not just inspire young black women, but also all of us, and made us realise that we too have a major role and contribution to make in the advancement of South Africa’s agricultural and agribusiness sectors. Such inspired young farmers and agriculturalists were also present at the AFASA’s annual Yong Farmers Conference.
Dr Mahlati leaves us at a time when land reform is again emerging to national newspapers headlines following the government’s announcement to release state land for farming and the publication of the expropriation bill. While many may have differed at the time with some of her ideas, one thing we can all agree on is that there is still a need for transformation in South Africa’s agricultural sector, from both racial and gender basis. Dr Mahlati’s work through various policy structures has paved a way for such a transformation to happen. The Panel’s report on Land Reform and Agriculture will be her lasting legacy, and her untimely death behoves the government to implement workable solutions in advancing inclusive growth. We hope that her vision of having an equal society will be realized. And in that spirit, the best way to remember sis’Vuyo would be through advancing the rural development work that she dedicated many years of her life in.
Wandile Sihlobo, an agricultural economist, is a former colleague of Dr Vuyo Mahlati at the Presidential Advisory Panel on Land Reform and Agriculture. This tribute first appeared on Business Day on 13 October 2020.
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