With ample agricultural harvests, why is South Africa still seeing food prices rising – and what is the outlook for the rest of the year?
South Africa’s agricultural sector could have expanded more than what we observed in the past decade had it not been hindered by the following challenges, (1) inefficiencies in state administration, (2) infrastructure challenges, (3) lack of security in rural areas and (4) prevailing uncertainty.
The high court on the ruling Ingonyama Trust leasing land held in custody highlights the dangers.
The United States Department of Agriculture reaffirmed its view that Zimbabwe’s 2020/21 maize crop could amount to 2,7 million tonnes, almost 200% from the 907,628 tonnes produced in the previous season. Notably, this is the largest harvest since 1984/85. With Zimbabwe’s annual maize needs at roughly 2,0 million tonnes, there will be enough, and the country could even export if needs be, something that would be the first since 2001, when the country last exported maize.
163 of the 278 local authorities in South Africa are in financial distress, and 40 are in serious financial and service delivery crisis.
The poor service delivery by municipalities is driving business away and leading to ghost towns. We have recently learned of a similar situation with Clover leaving Lichtenburg because of poor service delivery by municipal officials. This challenge is not unique to Lichtenburg but familiar across many towns across South Africa.
South Africa’s agricultural sector has not, in the recent past, had a season as good as the current one. This is evident from the Agbiz/IDC Agribusiness Confidence Index (ACI), which in the second quarter of this year reached a record high (since its inception in 2001) of 75, from 64 in the first quarter of 2021.
This week I joined The Finance Ghost and Mohammed Nalla (Moe-Knows) to discuss the investment opportunity in the South African agricultural sector.
The decline in the sector’s output for the 3 months ending March likely to be temporary with bumper harvests expected.
Production forecasts suggest that global crop prices from June going forward could soften slightly from the recent months’ levels, which could also influence the South African consumer food price inflation outlook.