by Wandile Sihlobo | Feb 18, 2020 | Agricultural Production
Avocado is one of the crops that make the headlines whenever there are unusual trends in its market. This is understandable as the fruit has become the favourite of many because of its health benefits, amongst others. Hence, I feel compelled to caution fellow South Africans that when one sees the 46% year-on-year decline in South Africa’s avocado exports of 2019 to 47 940 tonnes, they should not worry much.
It is not that South Africa is regressing, but rather more of normalization. The exports of 2018 were an exception because of an unusual bumper harvest that year. South Africa’s avocados production reached a record level of 169 243 tonnes in 2018, from 101 377 tonnes the previous year. As a result of this, exports increased notably as illustrated in Exhibit 1 below.
In 2019, South Africa’s avocado production normalized or fell from the previous year to 121 156 tonnes, which is still a good harvest – third-largest harvest on record. Hence, the exports subsequently fell to 47 940 tonnes in 2019. The South African avocado industry players are optimistic about 2020’s harvest and export prospects. The numbers I’ve seen suggest that 2020 could be the second-highest export volume on record. So, when these numbers finally make it to the headlines, don’t stress much, have a bite of avocado sandwich and enjoy knowing that we could see a better harvest and increased supply in your local market soon.
Exhibit 1: South Africa’s avocados exports
Source: ITC, Agbiz Research
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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 | 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 | 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
