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 | Jan 24, 2020 | Agricultural Trade
One of the key themes that dominated agricultural markets in 2019 was US-China trade tension. This caused trade diversion, as Chinese agricultural traders looked at other markets for goods they would have imported from the US. One of the countries that benefited most was Brazil, which saw its agricultural exports to China grow 35% between 2017 and 2018, to $31bn.
With a phase one trade agreement having been reached between the US and China this past week, there is now a sense of relief. The question that has arisen, however, is whether the agricultural supply chains will readjust back to their pre-2017 state.
In brief, from an agricultural perspective, the agreement states that from January 1, 2020, to December 31 2021, China will ensure that agricultural goods of “no less than $12.5bn above the corresponding 2017 baseline amount [are] purchased and imported into China from the US in the calendar year 2020, and no less than $19.5bn above the corresponding 2017 baseline amount [are] purchased and imported into China from the US in the calendar year 2021”.
The value of US agricultural exports to China in 2017 was $24bn. The phase one agreement, therefore, means China has pledged to buy $36.5bn worth of US agricultural goods (including ethanol) in 2020, rising to $43.5bn by 2021. This, however, will be done under “commercial considerations and market conditions”.
The agricultural products the US intends to export to China as part of this agreement include oilseeds, cereal, meat, cotton and other agricultural commodities. However, it is unclear at this stage how much of each product China will buy.
I doubt if the supply chains will readjust back to pre-2017 stages, as the ever-increasing Brazil soya bean production, combined with the weaker domestic currency, makes its agricultural products attractive and affordable for international buyers (including China). Moreover, the caveat included in the agreement, which states that China will purchase the agricultural products on “commercial considerations” and dictated by “market conditions” is another factor that introduces uncertainty.
For SA farmers these developments will have a limited effect. SA has minimal exposure to the Chinese agricultural market the US is aiming to increase its participation in. SA only had a 0.5% share of the value of China’s agricultural imports, which were worth $129bn in 2018.
Be that as it may, China remains an attractive market that SA should continue pursuing to earn trade agreements for various products. As I have previously argued in this column, what has constrained SA’s agricultural export growth in the Chinese market over the past few years is not only the fact that the products most in demand there are not produced in SA, but rather trade barriers. In part, this is because of the way China facilitates agricultural trade agreements — mainly focusing on one product line at a time — which ultimately slows trade.
If China is to be an area of focus for SA’s export-led growth in agriculture, a new way of engagement will be essential to soften the barriers to trade. One way of doing this would be for SA to encourage foreign direct investment in agriculture, specifically for potential new production areas such as Eastern Cape, KwaZulu-Natal and Limpopo, which still have large tracts of underutilised land.
Having Chinese nationals as partners to agricultural development might be one way of easing trade and a way of doing business between the countries. A number of instruments can be devised, but one thing for certain is that China should be key to SA’s agricultural sector as a place for export-led growth.
Written for and first appeared on Business Day on 21 January 2020.
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by Wandile Sihlobo | Jan 16, 2020 | Agricultural Trade
If you are an agribusiness or farmer in SA, it is almost impossible not to think about the possibility of expanding the footprint of your product to a big and growing market such as China. After all, the success of SA’s agricultural sector is, in part, linked to trade. SA exports nearly half its agricultural products a year in value terms, mainly throughout Africa and the EU.
More recently, Asia and the Far East (particularly China) have become a key growth frontier that presents SA with new opportunities to expand its agricultural exports. Overall, Asia has accounted for a quarter of SA’s agricultural exports, with indications that SA can potentially increase its market presence substantially in the future.
China is particularly interesting because of the size of its population and economy. The country is significant enough to warrant more attention, especially given that there is currently no preferential market access for SA’s agricultural sector there. SA is having to compete with the likes of Australia and Chile, who have secured trade agreements that have afforded them a significant competitive advantage.
How big a player in China is agricultural trade, and what is SA’s share there?
China’s agricultural imports increased from $70.7bn in 2009 to $129.7bn in 2018, and SA is low on the list of the supplying countries, at number 32. SA’s agricultural exports accounted for a mere 0.5% in China’s agricultural imports in 2018, according to data from Trade Map.
The key agricultural products that China imports include soybeans, cotton, malt, beef, palm oil, wool, wine, strawberries, pork, citrus and barley. SA’s presence within the Chinese market is mainly wool, citrus, nuts, sugar, wine, beef and grapes. But within these products, SA’s share remains negligible, with the exception of wool.
What constrains SA from growing its share within the Chinese agriculture market?
What has constrained SA’s growth in the Chinese market over the past few years is not only that the products in demand are not produced in SA, but rather trade barriers. In part, this is because of the way China facilitates agricultural trade agreements — mainly focusing on one product line at a time — which ultimately slows trade.
A strategic approach to increase SA’s agricultural exports to China
If China is to be an area of focus for SA’s export-led growth in agriculture, then a new way of engagement will be essential to softening the current barriers to trade. Most important, both SA and China are members of Brics — a platform that should help improve economic activity across its member countries.
SA should also encourage foreign direct investment in agriculture, specifically for potentially new production areas such as the Eastern Cape, KwaZulu-Natal and Limpopo, which still have large tracts of under-utilised land. Having Chinese nationals as partners to agricultural development might be one of the ways of easing trade and a way of doing business with the country.
A number of instruments can be devised, but one thing for certain is that China should be key to SA’s agricultural sector as a place for export-led growth. The growing population and income provide a good base for the demand of higher value agricultural products, which SA intends to focus on in its development agenda.
Written for and first appeared on Business Day on January 16, 2020
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
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.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
