A Conversation About South Africa’s Land Reform

There has been a lot of writing on the land reform subject since December 2017 when the ruling party (African National Congress) adopted the notion of expropriation without compensation. A number of analysts (myself included) warned of the unintended consequences of the aforementioned policy proposal.

The abundance of thought-pieces on the negative outcomes of badly managed land acquisition programmes have not been matched by ideas of how to address them.

In a recent discussion with Professor Mzukisi Qobo, Dr Tinashe Kapuya and myself briefly reflected on various pillars of land reform, teased out the key elements of the policy proposals, highlighted dangers of unintended consequences, and proposed some ideas on the way forward.

Here is a 40-plus-minute conversation. If you prefer not to listen to a podcast, here is an article which summarises our views on land reform. Enjoy and please send us your ideas and comments.

Professor Mzukisi Qobo hosts a weekly podcast on a range of issues from political economy, leadership, institutional change, and business and ethics, etc.

Follow me on Twitter (@WandileSihlobo), or email me at wandile@agbiz.co.za

A Few Notes on South Africa’s Agricultural Jobs Market

The agricultural sector continues to be seen as a sector that could potentially absorb masses of unemployed South Africans, particularly the low skilled and rural labour force. In fact, the National Development Plan notes that the sector has a potential to create an additional million jobs by 2030 if conditions highlighted in a document are met (read Chapter 6 of NDP).

Without saying much about the feasibility of that, I thought it would be interesting to reflect on this chart (featured image) – illustrating a long-term trend of the South African agricultural labour force.

The number of people employed in the South African agricultural sector increased from 802 000 in the 1910s to a peak of 1.7 million in the 1960s. Afterwards, it decreased to an average of 750 000 in the 2010s. These numbers account for both seasonal and permanent labour.

Also worth noting is that agriculture’s share in total employment has declined significantly over the past 77 years. Such trend is unsurprising – as economies develop, the share of people working in agriculture declines.

Back in the 1940s, the agricultural sector used to be one of the leading employers, with an average share of 42% in total employment. This, however, has changed over the years due to the introduction of new technologies in the sector, as well as growth and expansion in labour participation in other sectors of the economy. Between the 1940s and 2010s, the agricultural labour share in total employment declined 21-fold to 5%.

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

Let’s Discuss South African Bread Issues

I know we have a lot to contend with at the moment, but bread and butter issues will take the front burner.

In March 2018, South Africa produced 192 million loaves of bread loaves of bread – largest volume on record in a dataset starting from July 2015 (see featured image).

Our bread basket is comprised mainly of brown, white, and whole wheat bread. But, brown and white bread are the most dominant, with a combined share of 98 percent of all commercial pan baked bread produced in the country.

Brown bread commands 50 percent of South Africa’s bread production. White bread makes up 49 percent and the rest is whole wheat and other types of bread.

The notable uptick in bread production in March 2018 was mainly in brown bread, which increased by 15 percent from the previous month, whilst, white bread production increased by 12 percent over the same period.

The overall number of loaves reaching our plates is expected to increase over the foreseeable future. But, who will be the key suppliers of wheat?

At the moment, South Africa imports about half of its annual wheat consumption. Next time, let’s talk about this!

Note: I’m leaning on data from the good folks at the South African Grain Information Services (SAGIS).

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

Consumers Will Benefit From Fewer Farming Pressures

This year promises to be a fairly good one for South African consumers, particularly from a food cost perspective.

The deceleration in food inflation that was observed in 2017 could again prevail this year as large grain stocks and the expected good harvest in the current production season continue to underpin the market. In 2017, food inflation decelerated to 7.0%, from 10.5% in 2016, thanks to a robust agricultural output.

Indeed, the slowdown has continued into 2018 with food price inflation reaching a multi-year low of 3.5% year-on-year (y/y) in March.

The deceleration this year could, however, be broader compared to 2017 where most food products price inflations slowed with the exception of meat. Meat price inflation was quite sticky, averaging 12.8%, from 5.8% in 2016.

The year 2016 was characterised by higher slaughtering activity as farmers struggled to feed their livestock amid higher feed costs, coupled with drier pastures. In that year, the South African farmers slaughtered 3.6 million head of cattle which is a 5.0% y/y increase, according to data from the Department of Agriculture, Forestry and Fisheries. This dampened meat price inflation even as other parts of the food basket were rising.

I highlight meat not only because of its price dynamics, but also its share within the food inflation basket. Meat accounts for 35.3% of the food inflation basket. Therefore, meat price changes could have notable implication on the overall food price inflation path.

In 2017, lower maize and soybean prices on the back of record harvest, as well as a good recovery in pastures provided a conducive environment for farmers to start rebuilding their herds. This process subsequently led to a decline in slaughtering activity of cattle to roughly 3.4 million head. Herd rebuilding by farmers was not limited to cattle. Other sub-sectors such as piggery and sheep faced similar dynamics to an extent.

More recent data has shown a reversal in livestock slaughtering. This is evident from data from the Red Meat Levy which shows that cattle slaughtering activity softened by 4.6% month-on-month (m/m) and 11.3% y/y in February 2018, with 185 262 head of cattle slaughtered.

This has raised some concerns that meat price inflation could rise again as supply comes under pressure. However, some analysts suggest that this trend is only temporary and could soon bottom out, particularly in cattle slaughtering.

Case in point is the recent report from the United States Department of Agriculture (USDA) which suggests that the number of cattle to be slaughtered in 2018 could increase by 4.0% from the previous year to 3.5 million head. This is largely driven by the expected increase in demand and a general recovery in the industry performance.

Other food products which have a relatively large share of the food inflation basket are ‘bread and cereals’, as well as ‘milk, eggs and cheese’. The prices of these food products could remain relatively low for some time owing to favourable weather conditions, which supported crops. In the case of eggs, however, prices could remain elevated for some time, as the sector continues to recover from the 2017 avian influenza which led to the culling of roughly 4.8 million birds, of which more than two-thirds were egg-layers.

Above all, meat price inflation was the key upside risk on food inflation in 2017. Fortunately, the outlook is fairly positive on that front as the USDA hints of a possible increase in slaughtering.

That said, the effects of the tax increases announced in the February Budget, including a percentage point increase in VAT, will affect a significant part of the food basket outside of the zero-rated items. However, in the absence of underlying upside price pressures, the outlook for food price inflation remains favourable. Therefore, consumers should be in a fairly better place this year compared to 2017 on the food price inflation perspective.

*Written for and first published on Business Day on 26 April 2018.

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

Let’s Talk About Fast Food For 30 Seconds

My good friend, Michael McDougall, at EDF Man Capital Markets in NY, released a nice titbit yesterday about the US fast food industry.

He noted that “there are over 200,000 fast food stores in the US and the industry employees over 4 million people, adding 200,000 in 2015 alone. Hamburger chains dominate with a 30% market share, pizza 15%, sandwich shops 12%, Chicken 8% and Mexican food 7%” and the rest are unspecified food joints.

This prompted me to look at the South African picture, so I did a quick search and came across an interesting report by Insight Survey which spells out the current market dynamics of the South African fast-food industry.

It’s evident from the report that South Africans love their chicken. The chicken was flying high, accounting for more than a third of the total fast food market, followed by burgers, pizza and fish reeling in at fourth place.

In 2016, the number of chicken joints was 1 504. Trailing behind by just a handful of stores, burgers, were also amongst the country’s fast food favourites with 1 493 outlets. The pizza was third on the list with 999 stores. Fish are perhaps not a favourite of many, with just 376 fast food joints. Other unspecified joints totalled 410 (see featured image).

I should have warned you that reading this article might give you ideas of approaching one of these delectable fast food joints. Unfortunately, I won’t be joining you today, I packed a sandwich to work.

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

Structural Shift in South Africa’s Soybean Oilcake Imports

OK folks, I know I have recently discussed South Africa’s soybean production outlook, but here is a few lines about structural changes in oilcake import market.

To reiterate a point made on April 27, Agbiz estimates that South Africa’s soybean oilcake imports could reach 458 992 tonnes in 2018, down by 17 percent from last year (see featured image). The expected decline in imports is driven by strong local soybean production, currently estimated at a record 1.4 million tonnes.

Over the past 12-years, Argentina was the leading supplier of soybean oilcake to South Africa, accounting for roughly 99 percent of the market share (see featured image).

This year will most likely present similar dynamics, albeit Argentina having recorded a decline in its soybean production (Argentina’s 2017/18 soybean production could reach 38 million tonnes, down by 31% percent from the previous season).

There was somewhat a structural shift in soybean oilcake imports in 2017, with new entrants in the market on the processing side of the value chain. Thus, leading to a decline in Argentina’s share in South Africa’s soybean oilcake import market. The new suppliers were Zambia, Malawi and Zimbabwe. These collectively accounted for 12 percent of South Africa’s soybean oilcake imports in 2017.

With that said, South Africa’s soybean oilcake imports are on the decline, despite the aforementioned structural shifts.

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

Here is the Structure of the South African Sugar Industry

The United States Department of Agriculture (USDA) recently released an interesting report on South Africa’s sugar industry. The report covers the supply and demand dynamics for the 2018/19 production season, as well as the structure of the industry.

The picture is generally positive, with sugar production set to increase by 7 percent year-on-year to 2.2 million tonnes in the 2018/19 production season. This is based on the improvement in sugarcane quality, better factory recoveries and an increase in sugarcane delivered to the mills for crushing.

In terms of structure, the South African sugar industry is well organized, with different units playing critical roles to ensure its sustainability. All of this is illustrated in the featured image.

The South African Sugar Association is the highest decision making authority in the industry on common issues of interest for sugarcane growers and sugar millers.

The South African Sugar Research Institute (SASRI) conducts research on sugarcane varieties, pests, diseases, and crop protection. Moreover, SASRI provides extension and meteorology services to industry players.

The Sugar Milling Research Institute is involved in research and technical services for the Southern African sugar milling and refining industries.

There are two associations representing sugarcane growers in South Africa, the South Africa Growers Association and South African Famers Development Association.

Roughly 80 percent of the sugarcane production is supplied by large-scale farmers, with the remaining 20 percent accounted for by small-scale farmers, including subsistence farmers.

The South African Millers Association represents the interests of the six sugar milling; Tongaat Hulett Sugar Ltd, Illovo Sugar Ltd, Tsb Sugar RSA Ltd, Gledhow Sugar Company, Umfolozi Sugar Mill Ltd and UCL Company Ltd.

These six milling companies own a combined total of 14 sugar mills in the Kwa-Zulu Natal Province (12 Mills) and Mpumalanga Province (2 Mills).

*In this blog entry, I am leaning on the work of the good folks at the USDA.

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