Russia-Africa Summit brought positive news for South Africa’s agriculture

Russia-Africa Summit brought positive news for South Africa’s agriculture

The first Russia-Africa summit that was held in October 2019 concluded with an announcement that urged all participants to increase cooperation in security, science, environmental protection, trade and economic matters.

On this last point — trade and economic matters — the declaration highlights that participants should “make efforts to substantially expand the trade between the Russian Federation and the African States and diversify it, including by increasing the share of agricultural products in import and export operations.”

Russia is an important player in global agricultural markets, ranked as the 13th largest importer, valued at US$28.8 billion annually, on average, over the past five years. The countries that have benefitted from Russia’s agricultural import needs are Belarus, China, Germany, Brazil, Ecuador, Italy, Turkey, Paraguay, Indonesia and France, amongst others. The African countries are down on the list of key agricultural exporters to Russia. In fact, while Russia’s agricultural trade balance is negative, the country has a trade surplus with the African continent. In 2018, Russia had an agricultural trade surplus of US$2.8 billion with the African continent, according to data from Trade Map.

Over the past five years, wheat has been the dominant product in Russia’s agricultural exports to Africa. It accounted for an average of 79% of all exports into the continent over the past five years. The other products that Africa imports from Russia are sunflower oil, soybean oil, barley, maize, and linseed. Also, this is not widespread across the continent. Nearly half of Russia’s agricultural exports into Africa go to Egypt, and it is mainly wheat. Sudan, Nigeria, Algeria and Kenya are other key markets, which collectively added to Egypt accounted for about 73% value of Russia’s agricultural exports to Africa.

Here at home, South Africa, the picture is different. South Africa enjoys an agricultural trade surplus with Russia. The products that South Africa exports to Russia include citrus, apples, pears, wine, grapes, apricots, cherries, peaches and fruit juices. These are amongst the products that Russia generally imports from the world (Russia’s top ten agricultural imports are citrus, bananas, wine, soybean, cheese, beef, palm oil, apples, pears and tobacco).

In 2018, Russia was South Africa’s 16th largest agricultural market. The call for increased agricultural trade between Africa and Russia sets a good basis for South Africa to explore the means of increasing its share within the Russian agricultural market. In terms of reciprocity, Russia is already a notable supplier of wheat to South Africa and could increase its share if it were to compete comparatively with wheat suppliers such as Ukraine and Lithuania, amongst others.

Overall, the announcement of increased agricultural trade by the Russia-Africa Summit is positive for South Africa’s agricultural sector. The growth that South Africa envisages in this particular sector will be export-led, therefore, any talks that encourage trade should be viewed positively. In 2018, South Africa’s agricultural sector exported nearly half of its production in value terms which means the sector is export-orientated. South Africa’s agricultural sector already participates within Russia’s market, although ranked as the 29th country supplying agricultural products to Russia in 2018.

The current engagements with Russia should seek to improve South Africa’s position by promoting more exports in that market. If Russia was to insist on reciprocity within the agricultural sector, wheat would be their targeted space. In there, South Africa imports roughly half of its annual consumption. An increase in Russia’s wheat would displace other suppliers rather than adding pressure to the local market in the near term.

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Is it true that SA youth doesn’t like farming because it’s not sexy?

Is it true that SA youth doesn’t like farming because it’s not sexy?

It has become fashionable in conferences to say “let’s make agriculture sexy in order to attract the youth”.  I get where the sentiment comes from, after all, Africa’s farmers are ageing with an average age of 60. Here in South Africa, that number is estimated at 62.

But I have two difficulties with supporting this statement.

First, I don’t believe that agriculture is necessarily supposed to be made sexy for young people to want to join the sector — it needs to be valuable. In other words, if agriculture can have a greater reward as other sectors of the economy, young people might want to join in.

Second, I haven’t done my homework on this to actually assess if young people are really uninterested in agriculture. But there is anecdotal evidence that there are a large number of young people out there with agriculture degrees and diplomas who struggle to get jobs in this sector, specifically in the case of South Africa. I often receive emails with CVs from graduates from the universities of Limpopo, KwaZulu-Natal, Fort Hare, North West, etc.  in need of jobs within the agricultural sector.

Some agribusinesses and agriculturalists argue that vocational training institutions are not efficiently producing skills needed for agriculture today, and that might be part of the reason some young people are not finding work in this sector. This then calls for more alignment between the agricultural industry and training institutions.

These anecdotes contradict the view that “let’s make agriculture sexy to attract youth” which seems to suggest that there is the scarcity of labour or people to farm.

In the Agrekon Journal earlier this year, Luke Metelerkamp of Rhodes University, published a study which covered three provinces – KwaZulu-Natal, Limpopo and the Western Cape exploring this subject of “youth interest in farming”. The study concluded that the dominant notion that young people are turning their backs on farming seems to hold true, but not because of a lack of interest.

Young people interviewed in the study noted that “jobs in agriculture were either back-breaking and financially unappealing – at the subsistence level”.

Given these observations, I think those of us who are fortunate enough to be part of this sector should showcase opportunities and various possible careers within this sector so that people are not only exposed to the physically challenging jobs. Moreover, this could help young people to know where to knock for assistance and what to study that’s on-demand in the present moment.

The rise of technology use within agriculture can also play a critical role to ease the fears that agricultural jobs are back-breaking. (Yes, there are some jobs that might be physically demanding, but there are also services jobs that aren’t that way).

Moreover, it is important that the conversation also moves beyond actual primary production and more to the entire value chain. This is where potential job opportunities could also be created.

Overall, I think the conversation about youth in agriculture should rather be focused on ways to align them with potential opportunities in the sector rather than repeating the view that people have no interest in farming.  The latter leads to the situation where people spend time trying to make the sector look “attractive” instead of showcasing possible opportunities in it for young people to make their decisions if this is their desired path to follow or not.

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Does the African Continental Free Trade Agreement  offer opportunities for SA Agriculture?

Does the African Continental Free Trade Agreement offer opportunities for SA Agriculture?

The South African agricultural sector, and specifically the expansion in the sector over the recent past, is heavily reliant on exports. In fact, South Africa exports roughly 49% of its agricultural products in value terms. Hence, the newly launched African Continental Free Trade Agreement (AfCFTA) would potentially open additional avenues for South African products to destinations where the country hasn’t largely participated in over the recent past. This would practically mean, an increase in the share of South Africa’s agricultural exports to the continent, rather than mainly focusing on growing other well-established markets.

Moreover, the AfCFTA is expected to make 90% of trade within the continent duty-free by July 2020, and this is set to increase to 97% over the next decade as more duties on an additional number of products are phased down. While some African countries will be deprived of revenue currently derived from trade tariffs, the expectation is that the benefits will exceed the costs, as countries will eventually benefit from trade creation, production diversification, job creation, industrialisation with increased corporate income tax revenue as a corollary, and higher personal income tax revenue.

However, the African continent is beset by other systemic problems such as poor quality or lack of infrastructure, unconducive business environments that make trade across borders particularly costly and nearly prohibitive, corruption and weak institutions which render legal recourse and dispute settlements redundant, among others.

With the AfCFTA providing a potential opportunity to unlock further growth in trade, this will not be possible unless and until the abovementioned issues are sufficiently addressed. The precedent of African countries collaborating politically and economically set by the AfCFTA should translate to deep and fundamental reforms that unlock the existing barriers to intra-regional trade.

The make-or-break of the AfCFTA will come when trade under the agreement officially kicks off in July of 2020. Although the African Export-Import Bank has reserved $100 billion to help member countries alleviate trade adjustment costs and facilitate the creation of a common payment system, concerns still remain. Previous experiences from the Regional Economic Communities such as SADC show that tariff phase-down have been matched with, and exceeded by non-tariffs barriers (NTB), such as the excessive documentation needed for cross-border trade transactions, administrative bottlenecks and stipulated trade quotas aimed at curbing the quantity of traded goods.

The extent of these NTBs effectively reversed the potential gains of the SADC Free Trade Area. In the AfCFTA scenario, policymakers have indicated that NTBs will also be given equipollent attention as its contemporaneous existence could threaten the growth of intra-African trade and impede the effective operationalisation of the AfCFTA.

Overall, this relationship would not be one way. South Africa remains an importer of poultry meat (edible offal of fowls), rice, wheat, sugar, palm oil, soybeans, beer, fish, sunflower oil, soybean oilcake, and tobacco, amongst other agricultural commodities. Ideally, the African countries can also have room to participate in the South African market by supplying these products.

But most African countries do not have the capacity to export significant volumes of the aforementioned agricultural products, at least not to the extent of satisfying South Africa’s import requirement. The onus, however, lies on the Member States and their respective industries to realise that there is demand in South Africa, and start investing in production and providing an enabling environment for such industries to thrive.

With thanks to Tinashe Kapuya, PhD.

Written for and first published by the Agricultural Business Chamber of South Africa (Agbiz)

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Lessons from Africa: High time for South Africa to refine its cannabis licensing mechanism

Lessons from Africa: High time for South Africa to refine its cannabis licensing mechanism

Essay by Professor Mzukisi Qobo[1] and Wandile Sihlobo[2]

A spectre of cannabis is hovering above Africa. The boom is on the horizon and for some countries, it will be a slow burn.

A number of countries in Africa have in the recent past reformed their cannabis regulations – moving it away from being a prohibited drug to a source of income as an exportable commodity. This is motivated by the promise of riches, with many policymakers viewing the burgeoning cannabis industry as offering prospects for boosting rural economic growth and job creation.

It is thus not surprising that reforms in the regulatory regime have been championed mostly by politicians and lawmakers. This is in contrast to trends in advanced industrial economies such as Canada, the US, Germany, and Italy where citizens and private businesses have been the leading advocates for decriminalisation and legalisation of cannabis and its products. The large users of cannabis by value are in advanced industrial economies. They consume the product for medical, recreational and industrial purposes. Moreover, demographics play a part as many Western countries have ageing populations who often require medical attention.

A number of African countries are finalising their cannabis regulatory reforms, and global output may rise. Lesotho was the first African country to decriminalise cannabis in 2017, and the first licence for production was issued in 2018. The ministry of health is the licensing authority. Applicants are vetted through the Lesotho Narcotics Control Board. The licensee has to meet a number of requirements, including access to land and commitment from off-takers, so as to curb diversion to illicit markets. The process can take up to six months.

The fee to obtain a single licence in Lesotho is equivalent to R540,000, which is a steep amount for smallholder farmers. The licence has to be renewed annually at R130,000. This poses a risk of deepening socio-economic stratification, with Lesotho’s cannabis sector likely to be dominated by big players, and smaller producers pushed to the shadows of illegality. Since Lesotho’s output is mainly for export, the country may not develop a thriving sector across the value chain.

Zimbabwe issued its first cannabis licence in March 2019. Export markets and foreign exchange earnings are the key drivers for cannabis regulatory reforms in Zimbabwe. The licensing regime in Zimbabwe has changed a few times in the past year. The licence was initially set at R700,000 ($50,000), and there were suggestions that this could be revised downwards to R140,000, which will still be prohibitively high in view of Zimbabwe’s tough socio-economic conditions.

At the time of writing, only one medical cannabis project had been approved, Precision Cannabis Therapeutics, with more than 37 licences still under consideration. Skewed moral concerns raised by communities and religious leaders have undermined progress in the licensing process. Further, the uptake by Zimbabweans has been low due to the expensive licensing regime and ambiguities about how to obtain licences.

Other countries like Eswatini (formerly Swaziland) have also put in place a draft bill regulating cannabis. Similarly to Zimbabwe, cannabis production in Eswatini is restricted to medicinal purposes and scientific research. Decriminalisation has been actively championed by the Minister of Commerce, Industry and Trade, Manqoba Khumalo, who sees this as an avenue for economic development.

The licence is valid for five years and can be renewed. Licences are approved at ministerial level in the department of health, with applicants having to meet 13 requirements. The proposed licence fee is prohibitively high at the equivalent of R1-million. So far, only one company has been granted a licence, Profile Solutions Inc from Florida, and this is for a minimum of 10 years to produce hemp and medical-grade cannabis.

Malawi has moved glacially in putting in place its own licensing regime. The factors influencing a shift towards decriminalisation are similar to those of other African countries: to diversify foreign exchange earnings in response to depressed prices for other commodities and to create jobs. Malawi’s tobacco economy has come under pressure as a global shift away from cigarette smoking in developed countries intensifies as a result of regulation and health concerns.

Although parliament has given the go-ahead for the drafting of the Medicinal Cannabis Cultivation Bill, encompassing industrial and medical hemp, progress has been extremely slow, in part due to elaborate consultative processes and technicalities related to distinguishing the banned Indian hemp from medicinal cannabis. Malawi has a thriving hemp association that lobbies strongly for decriminalisation.

In short, many African countries are gradually considering decriminalising the cultivation of cannabis for medical and scientific purposes. Those countries where reforms are in motion are using the Canadian code as a guide in developing their licensing regimes. For many of them, the major motivating factor will be foreign exchange earnings to diversify their income. Broadening their tax base is another important consideration. However, constituencies championing decriminalisation are either non-existent or outnumbered by religious and other conservative groups.

Unlike in many other African countries, South Africa has a diverse consumer base for cannabis. This includes Rastafarians, ordinary users, and medical patients who have been at the forefront of lobbying for legalisation. Data from New Frontier suggests South Africa has a market of $1.2-billion of cannabis and its products as of 2018. Apart from low-income consumers, South Africa has a potential market at the high-end for products such as edibles, cannabis-infused beverages, nutritional foods, textiles, topical lotions, essential oils, and medical cannabis.

South Africa can draw important lessons from the nascent cannabis regulatory regime on the continent. The first is that the country should take a value chain approach and emphasise economic inclusion. This means the licence fee should not be prohibitive.

Take the example of Lesotho where a licence is R540,000. For communities in fertile areas such as Lusikisiki in the Eastern Cape, this means a farmer would need to sell 54 head of cattle to obtain just one licence if we were to follow the Lesotho example. This does not take into account the capital expenditure on constructing greenhouse tunnels, water systems, energy, storage, and security measures. High licensing fees can be anti-development.

Second, South Africa should have a very clear and sound licensing regime with a single authority that can make a determination between the various types of licences, such as for scientific and medicinal use, dispensary, and industrial hemp production. This would mean a recognition of cannabis as an agricultural crop through rescheduling, as well as a key ingredient for medical uses. The licensing process should take less than a month since longer periods undermine the ease of doing business.

Third, South Africa should avoid being trapped in primary production. The policy should aim to enrich the value chain, including R&D, seed breeding, and biotechnology on the medicinal side; as well as supporting the production of high-value products on the industrial hemp side to improve niche-based competitiveness in the clothing and textiles sector in line with the country’s industrial policy. This could lead to positive spill-overs in knowledge upgrading, and help stimulate job creation across the value chain.

Finally, this sector offers an opportunity for the government to create a unique suite of incentives to promote the participation of black players in this sector, and to uplift smallholder farmers and rural communities. In addition to labour-intensive jobs, new opportunities could be created for agronomists, master growers, lab scientists, compliance officers, as well as give rise to side-stream jobs in branding, packaging, and logistics and transport.

It is important that South Africa has a simple, clear, and predictable licensing regime that is aimed at promoting economic growth, competitiveness, and economic inclusion. For the country to reap benefits, speed and purposeful action will be critical.

[1] Mzukisi Qobo is Associate Professor: International Business & Strategy, Wits Business School.

[2] Wandile Sihlobo is Chief Economist at the Agricultural Business Chamber of SA (Agbiz).

*Written for and first published on the Daily Maverick on 28 July 2019.

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