by Wandile Sihlobo | Apr 23, 2020 | Agricultural Trade
We have previously warned of the restrictions placed by countries on agricultural commodity exports, specifically rice and wheat. The concern was that restrictions in the world’s larger supplier markets would inevitably result in drastic price increases of the aforementioned commodities, of which South Africa is a net importer of.
South Africa imports all of its rice and half of its wheat requirements. The restrictions on exports were announced in the Black Sea and Asia regions, although the world has large supplies of rice and wheat. The United States Department of Agriculture forecasts 2019/20 global wheat production at 764 million tonnes, up 4% y/y. And the 2019/20 rice production is estimated at 496 million tonnes, down by 1% y/y.
This past week, however, Romania, which is the world’s seventh-largest wheat exporter, retracted its statement on the ban of wheat exports. Over the past five years, Romania’s wheat exports averaged 5.6 million tonnes. While not directly a big supplier of wheat to South Africa, the easing of exports is a positive move towards boosting the global wheat supplies for export markets. The International Grains Council estimates that the world has 176 million tonnes of wheat for exports within the 2019/20 season, which is a 5% increase from the previous season.
Under circumstances of increased wheat production and supplies for exports, one would ordinarily assume that wheat prices would be somewhat lower than levels seen this time last year. But this is not the case.
Global wheat prices traded around US$238 per tonne (US HRW) on 22 April 2020, which is up 13% y/y. The increase can, in part, be attributed to the restrictions on exports announced by various countries over the past couple of weeks amid fears about the timeframe of the COVID-19 pandemic. If we could see similar statements as Romania or assurance that there won’t be an export restriction on wheat from major wheat-producing countries, there could be some ease in the global wheat market about supplies throughout the season.
This is a message that was widely shared in the G20 Extraordinary Agriculture Ministers Meeting, earlier this week, noting a need to “guard against any unjustified restrictive measures that could lead to excessive food price volatility in international markets and threaten the food security and nutrition of large proportions of the world population.”
In the case of South Africa, 2019/20 wheat imports could increase by 33% y/y to 1.8 million tonnes. This is 13% higher than the five-year average import volume, exacerbated by the decline in domestic wheat production on the back of unfavourable weather conditions in parts of the Western Cape in late 2019. As of 17 April 2020, South Africa had imported 804 335 tonnes of wheat, which equates to 45% of the volume the country intends to bring into its shores within the 2019/20 season. The leading suppliers so far are Germany, Lithuania, Poland, Latvia, Ukraine and Russia.
There is no doubt that over the coming weeks and months, there could be supply chain disruptions because of the pandemic. However, the hope is that trade policy in key producing counties doesn’t add to an already challenging environment for importing countries. We are counting on various countries upholding the G20 message.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Mar 6, 2020 | Agricultural Trade
Written for and first published in Business Day on 03 March 2020
There is a strong sense of unease in the world right now. The coronavirus outbreak in China is fast spreading across Asia and other regions, and the health implications present risks for global value chains.
From a macroeconomic perspective, we have already seen organisations such as the Organisation of Economic Co-operation and Development slashing growth forecasts for the year. Some of the economic data released in China this week was quite weak.
In my own world of the agricultural economy, I have started to pick up concerns from various stakeholders who are worried about the potential effect of the coronavirus on their fortunes. No-one can blame them for that. With SA’s agriculture being export-orientated and exports totalling about $10bn in 2019, the potential for disruptions to global value chains is significant. This is especially true with respect to Asia, the epicentre of the outbreak and also an area that accounts for a quarter of SA’s agriculture exports. The commodities most exposed to the Asian market are wool, fruit, grains, beverages, vegetables and red meat.
There are two channels to consider when thinking about the potential implication of the virus for the SA agriculture sector. First, the supply side of the aforementioned products SA typically exports to Asia is in good shape, promising to be higher than that of 2019 because of improved domestic weather conditions. SA’s 2019/2020 summer grains production could increase by 26% year on year to about 16.8-million tonnes, according to the latest figures from the Crop Estimates Committee.
Moreover, the production of wine grapes and the fruit subsector in general is set to increase in 2020. All of this should ensure there will be a good supply of products to send to the global market. So, any decline in exports in the near term would be a function of softening demand rather than supply issues.
Second, with China having temporarily closed some of its manufacturing hubs and placed restrictions on human movements as a means of containing the spread of the virus, demand for production inputs will be affected negatively. What’s more, the longer Chinese manufacturers remain closed, the higher the likelihood that some might stop paying their employees, which would also have implications for consumer demand. This presents a risk for SA’s agricultural exports to Asia, which is worth about $2.5bn a year.
Moreover, we observed a significant decline in global commodity prices in the last week of February 2020, in line with what happened in global stock markets. The underpinning reason for this was the fact that Asia is an important agriculture market, not only to SA but to the world. To be specific, the top 15 importers account for nearly 60% of world agricultural imports, of which a quarter goes to Asia (mainly to China, Japan, South Korea and Hong Kong), according to data from Trade Map. That is a big enough share of the market for agricultural goods to account for declining agricultural commodity prices.
The potential decline in Asia’s agriculture demand and falling prices could see the value of SA’s agriculture exports to Asia also declining. Such a scenario would place additional financial pressure on SA farmers, who had hoped this would be a year of recovery after being strained by the drought in previous seasons. While the spectre of what could unfold looks gloomy, at least we have thus far not yet observed disruption to the movement of products to Asia. However, this risk could materialise if the spread of the coronavirus is not contained soon. As things stand, the coronavirus remains a real threat to SA agriculture.
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by Wandile Sihlobo | Feb 16, 2020 | Agricultural Trade
After reaching a record level of US10.6 billion in 2018, South Africa’s agricultural exports fell by 8% year-on-year (y/y) in 2019 to US$9.8 billion. This, however, was unsurprising as agricultural production data for 2019 showed a notable decline in a number of exportable commodities because of the drought.
The temporary ban on exports of livestock products and wool in 2019, following the outbreak of foot-and-mouth disease at the start of the year, also contributed to the decline in exports. Be that as it may, the top exportable agricultural products for 2019 included citrus, wine, grapes, apples and pears, sugar, macadamia nuts, wool and maize, amongst other products.
Over the same period, South Africa’s agricultural products imports declined by 4% y/y to US$6.4 billion. This was underpinned by the decline in the import value of rice, meat, wheat and palm oil. But these products remained amongst the top imported agricultural products in value terms. Overall, this subsequently led to a 12% y/y decline in South Africa’s agricultural trade surplus to US$3.4 billion, as shown in Exhibit 1.
Exhibit 1: South Africa’s agricultural trade
Source: Trade Map and Agbiz Research
From a destination point of view, the African continent and Europe continued to be the largest markets for South Africa’s agricultural exports, respectively absorbing 41% and 26% of total exports in 2019, measured in value terms. The leading products to these markets were beverages, fruit, vegetables, sugar, wool and grains.
Asia is also an important market for South Africa’s agricultural exports, demanding a 24% export share in 2019. Wool, fruit, grains, beverages, vegetables and meat were the leading products exported to this particular region. The Americas and the rest of the world (ROW) accounted for 5% and 4% shares, as shown in Exhibit 2. Exports to these regions were also dominated by fruits, beverages, vegetables, sugar and grains.
Exhibit 2: South Africa’s agricultural exports by region
Source: Trade Map and Agbiz Research
Looking ahead
South Africa’s agricultural exports could recover somewhat in 2020. The improved weather conditions this year has led to an increase in summer crops area plantings and prospects of a bigger maize harvest, which is an exportable commodity.[1] The South African wine grapes production is also set to increase in 2020, thus contributing to a larger wine volume output. [2] There is also general optimism about 2020 harvest in the fruit industry, which supports our view of possible improvement in agriculture exports this year.[3] The industry that is still on the backfoot because of biosecurity concerns in the red meat sector. There is currently a ban on South Africa’s livestock products (including red meat) exports because of the foot-and-mouth disease outbreak that occurred towards the end of 2019.
Policy considerations
The South African government and private sector players have embraced a vision of expanding labour-intensive agricultural subsectors as part of a broader development strategy. This is to be an export-driven initiative. Such subsectors are mainly horticulture and to certain extent field crops. Fortunately, the top valuable agricultural exports over the past five years were also within these subsectors, which means that South Africa is on the right path in its agricultural development strategy.
With that said, while 24% share of South Africa’s agricultural exports goes to Asia, as previously noted, there is still potential to expand participation in that market. With India and China headlining the growth potential in Asia and the Far East, this region overall is significant enough to warrant more attention, especially given that there is currently no preferential market access for South Africa’s agricultural sector in this region.
South Africa is having to compete with the likes of Australia and Chile, who have secured trade agreements that have afforded them a significant competitive advantage which could end up threatening South Africa’s market share and future growth. Therefore, South Africa should continue to engage these countries for greater market access to agricultural products.
[1] We currently forecast SA’s 2019/20 maize production at 12.5 million tonnes (up 12% y/y), which means there could be over a million tonnes of maize for export markets.
[2] Vinpro, “SA wine grape crop set to be good, but below 5-year average”, December 10, 2019. Available at: https://vinpro.co.za/sa-wine-grape-harvest-set-to-be-good-but-below-average/
[3] USDA, “South Africa: Citrus Annual”, December 27, 2019: Available at: https://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName?fileName=Citrus%20Annual_Pretoria_South%20Africa%20-%20Republic%20of_12-15-2019
Written for Agbiz.
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by Wandile Sihlobo | Feb 10, 2020 | Agricultural Trade
South Africa’s wool industry experienced a tough year in 2019. China, which accounts for an average of 71% of South Africa’s wool exports in value terms, placed a ban following the outbreak of the foot-and-mouth disease in Limpopo. This lasted for months and weighed on the farmers’ finances.
With the agricultural trade data for 2019 out, we now have a sense of the impact of this ban on exports. South Africa’s wool exports fell by 24% year-on-year in 2019 to US$302 million. The notable decline was in exports to China, which fell by almost a third from 2018, in both volume and value terms. What’s more, the Chinese share in South Africa’s wool exports fell to the lowest level in nine years – at 55%, as illustrated in Exhibit 1 below.
Exhibit 1: South Africa’s wool exports
Source: Trade Map, Agbiz Research
The countries where South Africa saw its wool exports expanding were mainly the Czech Republic, Italy, India and Bulgaria. With that said, these are small markets, China remains an important market for wool. In 2018, China accounted for roughly half of global wool imports in volumes terms, and more than half in value terms. Fortunately, South Africa’s wool exports to China has resumed, and if that continues with minimal interruptions, 2020 could show some level of recovery from 2019 levels. There are now measures in place to continue exporting wool to China, regardless of the most recent foot-and-mouth disease outbreak.
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by Wandile Sihlobo | Dec 9, 2019 | Agricultural Trade
The week got off to a fairly slow start with no key data releases in the domestic agricultural calendar. This offered us an opportunity to briefly look back at key developments this year. If there is anything that has shaped agricultural permeance it is the drought in the 2018/19 production season and also the biosecurity matters. I spoke about the impact of these on agricultural economic performance in the third quarter of 2019 (see here).
But it is important that we also zoom into the recent trade figures, which show that South Africa’s agricultural trade surplus narrowed by 9% in the third quarter of this year compared to the corresponding period in 2018, recorded at US$1.2 billion.
Similar to the previous quarter, the narrowing of South Africa’s agricultural trade balance was underpinned by lower export values of wool, edible fruits, wine and grains. This can be explained by two factors, which are animal health and the changing climate. (Although I am not going to dive into details – I should note that imports also increased somewhat in the third quarter of 2019, and thus, also contributed to a narrower trade-balance).
Now, back to the main point, first, the foot-and-mouth disease outbreak that occurred in Limpopo earlier this year resulted in a temporary ban of South Africa’s livestock products exports, which included wool, and thus the lower export values. The wool exports have since resumed, and we could see some normalisation in export values in 2020.
Second, the drought that started in October 2018 and continued into early 2019 in some parts of South Africa led to a poor summer crop and horticulture harvest. The main challenge throughout the year has been the lower output of major agricultural commodities such as maize, soybeans, sunflower seeds, amongst others, whose harvests declined by double-digit levels in the 2018/19 production year. Moreover, the wine grapes harvest was down by 2% from 2018. All this subsequently led to lower export volumes in the second quarter of this year compared to a corresponding period in 2018.
From a destination point of view, the African continent and Asia were the largest markets for South Africa’s agricultural exports in the third quarter, respectively accounting for 35% and 30% in value terms. Europe was the third-largest market, taking up 25% of South Africa’s agricultural exports in the second quarter of 2019. The balance of 10% value was spread across other regions of the world.
Note: My column which appears on Business Day on Wednesday, 11 December 2019, will present a brief review of South Africa’s broad agriculture performance in 2019.
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by Wandile Sihlobo | Nov 11, 2019 | Agricultural Trade
Essay by Wandile Sihlobo and Tinashe Kapuya[1]
South Africa’s trade policy is underpinned by an export-led growth strategy. This means that the country essentially looks to grow its economy by deepening and expanding its export markets.
Such efforts can be seen through South Africa’s participation in trade negotiations which seek to increase market access with traditional trading partners such as the European Union (EU) and penetrate new markets in Africa through the African Continental Free Trade Agreement (AfCFTA).
The focus on these two key regions comes as no surprise since they represent a significant portion of South Africa’s export revenue, specifically in the case of the agricultural sector. More than two-thirds of South Africa’s agricultural exports are concentrated within the African continent and the European Union (EU).
More recently, Asia and the Far East (particularly India and China) have become a key growth frontier that present South Africa with new opportunities to expand its exports. Overall, Asia has accounted for a quarter of South Africa’s agricultural exports, with indications that South Africa can potentially increase its market presence substantially in the future.
In Asia and the Far East, India and China are especially interesting because they account for 36% of the world’s population, whose economic sizes are US$3.2 trillion and US$15.5 trillion respectively. With India and China headlining the growth potential in Asia and the Far East, this regional overall, is significant enough to warrant more attention, especially given that there is currently no preferential market access for South Africa’s agricultural sector in this region. South Africa is having to compete with the likes of Australia and Chile, who have secured trade agreements that have afforded them a significant competitive advantage which could end up threatening South Africa’s market share and future growth.
India
India’s agricultural imports have nearly doubled over the past decade – from US$11.2 billion in 2009 to US$21.2 billion in 2018 – but is currently not on the list of Asian countries that import a reasonably large value of agricultural products from South Africa. Yet, if one looks into Asia’s leading agricultural products importers, India is ranked the second importer after China.
The products that underpinned this tremendous growth in India’s agricultural and food imports included palm oil, soybean oil, sunflower seeds, coconuts, cashew nuts, cotton, sugar, apples, dates, greasy wool, whiskies, coffee, and grapes.
South Africa, although a key producer and exporter of some of the aforementioned products (namely greasy wool, sugar, apples and grapes), doesn’t feature even on the top 40 countries supplying agricultural products to India. In 2018, South Africa was ranked the 46th largest supplier of agricultural products to India by value, accounting for a mere 0.3% of the US$21.2 billion worth of India’s agricultural imports. The key agricultural products that South Africa exported to India were pears, dog and cat food, greasy wool, oranges, apples, maize seed for sowing, cotton, and mandarins amongst other products.
South Africa – together with its Southern African Customs Union (SACU) partners have been negotiating a preferential trade agreement (PTA) since the mid-2000s. However, 15 years of on and off negotiations have not amounted to a favourable outcome. India is known for its highly protectionist policies, especially in agriculture, and exceptionally complex and high technical barriers to trade. Negotiations for opening up India’s market have inevitably come with difficult conditions, especially given their substantially larger tariff book. However, given the market size and potential of India, it is important that further considerations be made to allow South African agriculture to capture its export market opportunities.
China
In the case of China, its agricultural imports increased from US$70.7 billion dollars in 2009 to US$129.7 billion in 2018, and South Africa is also down on the list of the supplying countries, at number 32. South Africa’s agricultural exports account for 0.5% in China’s agricultural imports. The key agricultural products that China imports include soybeans, cotton, malt, beef, palm oil, wool, wine, strawberries, pork, citrus and barley.
South Africa’s presence within the Chinese market is mainly wool, citrus, nuts, sugar, wine, beef and grapes. But within these products, South Africa’s share remains negligible, with the exception of wool.
What has constrained South Africa’s growth in these markets over the past few years is not only the fact that the products in demand are not produced in South Africa, but rather trade barriers. In part, this is because of the way China facilitates agricultural trade agreement – mainly focusing on one product line at a time – which ultimately slows trade.
Strategic Approach to the Far East and Asia
If India and China – as Asia’s leading agricultural importers – are to be areas of focus for South Africa’s export-led growth in agriculture, then a new way of engagement will be essential to softening the current barriers to trade. Most importantly, all three countries are members of BRICS – a platform which should help improve economic activity across its member countries.
South Africa should also encourage Foreign Direct Investment in agriculture, specifically for potentially new production areas such as Eastern Cape, KwaZulu Natal and Limpopo, who still have large tracts of underutilised land. Having Chinese and Indian national as partners to agricultural development might be one of the ways of easing trade and way of doing business amongst these countries.
A number of instruments can be devised, but one thing for certain is that China and India should be key to South Africa’s agricultural sector as places for export-led growth. The growing population and income provide a good base for the demand of higher value agricultural products which South Africa intends to focus on in its development agenda.
[1] Sihlobo and Kapuya are agricultural economists.
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by Wandile Sihlobo | Jul 21, 2019 | Agricultural Trade
The Business Times newspaper ran a piece today warning that the growing strikes in South African ports could weigh on agricultural exports, particularly the Citrus industry. But this is not where the story ends. There are also infrastructure challenges in the South African ports which, if not addressed, could, in the long run, undermine the country’s desire to have an export-led growth in the agricultural sector.
Just last week the Minister of Agriculture, Land Reform and Rural Development, Thoko Didiza, noted that some of her focus areas will be to expand South Africa’s agricultural footprint in export markets. This all sounds exciting if one assumes the shipping ports are well-functioning. But they are not, specifically in agriculture-focused terminals. In his newsletter to members at the end of May 2019, Justin Chadwick, CEO of the Citrus Growers Association of Southern Africa, expressed concern about the poor performance of the Durban port, which has led to delays in shipments of citrus products.
The challenges that Durban port is facing are primarily technical, including the narrowness of Bayhead Road, which often leads to congestion, a lack of investment in maintaining and upgrading the port, insufficient cold storage infrastructure, and the long-term need for a dug-out port.
Not too long ago, I boasted about South Africa’s agricultural export success after it reached a record of US$10.6 billion in 2018. What this tells me is that for South Africa to remain an important player in global agricultural markets, we need to not only focus on boosting production on farms but also have a strong hand on logistics. This can be done by ensuring that there are good management and investment in infrastructure, and also addressing labour-related challenges in the near term – the disputes at the moment seem to be about the pay and promotions. But there are also industry reports which suggest that most of this has been sorted. Whatever the situation, the bottom line is that there will be delays in export activity.
Overall, this is not only an agricultural story. Other exporting sectors of the economy will ultimately benefit from improved shipping ports infrastructure.
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