by Wandile Sihlobo | Sep 22, 2020 | Daily Notes
The move to ‘level 1’ of the lockdown is a welcome step from a broader macroeconomic perspective, as this ensures that economic activity in the country continues to normalize gradually across more sectors of the economy. Within agriculture, the only segment that will likely benefit the most from this move is agritourism, which has been hard hit by the pandemic due to restrictions in international and local travel, along with the wider tourism industry.
The agritourism industry comprises, amongst others, hunting tourism, rural tourism, wine tourism, nature-based tourism, cultural heritage tourism, and adventure tourism. These activities provide additional income to farming businesses and create jobs in rural areas.
One of the most common forms of tourism in South Africa has mainly been wine tourism and hunting tourism. The former has been hard hit not only by the temporary ban on interprovincial and international travel during various stages of the lockdown but by the temporary prohibition on alcohol sales which has recently been lifted. Wine producers and farmers, specifically small farms, rely to a certain extent, on agritourism to diversify income and to boost the sales of their produce. Hence, the impact of the temporary ban on sales and limited movement of people was quite pronounced despite exports having been permitted for the greater part of the lockdown.
Rural Limpopo also stands to benefit from the increased wider opening of the economy through hunting and wildlife tourism (game-farms and game-lodges). While there is no clear measurement of the value of agritourism in South Africa, studies from the Western Cape Department of Agriculture suggest that accommodation, wine cellars, tours and tastings, restaurant, hiking, conferences and functions, weddings, picnics and fishing are amongst the key offerings in that province. Accommodation, hiking and hunting are likely to be some of the common offerings in other provinces in the country.
Although international tourists, who generally have a higher average spend when compared to local tourists, might remain limited, even with the move to level 1 of the lockdown, we suspect that there might be an uptick of locals exploring the country. This is partly because consumers’ confidence and appetite are likely to slowly return as the spread of the pandemic continues to slow. With respect to international tourists, studies from the Western Cape’s Department of Agriculture show that 29.8% of the international market’s average spend on wine tourism was between R501 to R1000 per day in 2017. The local tourists will most likely spend less than that, especially during the current tough economic times.
Nevertheless, we are already starting to observe anecdotal evidence on social media and other platforms such as various establishments offering special prices and local tourists showing updates of such offerings. While local tourists might not boost the rural economy to vibrant levels as before the pandemic, there will nonetheless be an improvement from weeks of limited business activity. The key challenge is that local tourists will likely be cautious about spending given the poor domestic economic outlook, which means that various businesses that generally derived great value from agritourism will remain under pressure, to a certain extent, over the near-to-medium term. We also suspect that establishments with hiking and hunting facilities will most likely gain from local tourists as individuals may prefer nature which offers social distancing.
Aside from the agritourism, the broader agricultural sector has been open from the onset was classified as essential and did not close during the strict lockdown period. As we have repeatedly pointed out, the wine, tobacco and floriculture are amongst the products whose sales were temporarily banned and therefore hard hit by the lockdown relative to other products and broader subsectors of agriculture. The vibrancy of the sector is evident from the recent GDP data which showed that agriculture’s gross value-added expanded by 15.1% q/q on a seasonally adjusted and annualised basis following an expansion of 27.8% q/q in the first quarter.
In a nutshell, the shift to level 1 of the lockdown will have limited impact on a sector that was already largely open – agriculture. But related industries such as agritourism and small farms that depend on agritourism stands to benefit. This will largely be in provinces such as the Western Cape, Limpopo and other provinces that have various rural offerings that we have listed above, which is accommodation, wine cellars, hunting, restaurants, wedding venues, fishing, and camping, amongst others.
Note: I prepared this text as part of Agbiz weekly Agri-market Viewpoint
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by Wandile Sihlobo | Sep 15, 2020 | Daily Notes
Some analysts, myself included, did not anticipate that the 2019/20 harvest and agricultural performance would be as robust as we have witnessed. This is clear from one of the essays I wrote for Business Day on December 10, 2019, which was titled – Another grim year ahead for the despondent agricultural sector (see here).
At the time, there was a high probability of drought in midsummer and the fresh outbreak of the foot-and-mouth disease in Limpopo which had reintroduced all the risks of export bans of animal products and meat. This was overwhelming evidence to convince one that we were perhaps heading towards another fairly bad season. Some regions which were supposed to have planted by December 2019 hadn’t progressed much because of dryness.
This depressing picture only changed from January 2020 when most regions of the country suddenly received good rainfall which enabled plantings. Thereafter, good growing conditions which led to the recent bumper harvests. This delay in plantings is evident through the maize harvest and producer deliveries, which was delayed by nearly a month this year because of the late start of the season on the back of dryness.
So, why am I bringing this up?
My intention is not to introduce doubt to the current favourable rainfall forecasts for the 2020/21 production season, but rather to reflect on the scars of the previous year. While most regions received late rains and proceeded well, parts of the Eastern Cape did not get sufficient rains to improve dam levels. This was muted until recently, with now increasing reports of a potential “day zero” in Port Elizabeth and surrounding areas.
While the average provincial dam level is 51% as of September 14, 2020 data; which is marginally higher than 2019, a closer look at various dams in the province is frightening. The water levels are too low (see here).
In various conversations I had with farmers in the province yesterday, I learned that the critical areas, at least from an agricultural perspective, are around the Amathola mountain watershed and on the Keiskamma dam where water levels are very low; and of course, Port Elizabeth. The aforementioned dam levels data corroborates this view. Also, I am told that Gamtoos farmers have very little water.
With this worrying picture, I am hoping that the forecast of La Niña rains could be a relief to the province (see here). The recent indications from the South African Weather Service suggested that we could receive the first rains towards the end of this month, specifically the eastern and southern regions of South Africa. So, aside from the government interventions that are needed in the province; one looks up with a hope of rains to ease conditions to the Eastern Cape.
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by Wandile Sihlobo | Sep 14, 2020 | Daily Notes
My aim in this morning’s blog post is to discuss briefly the sentiment conditions in South Africa’s agriculture and agribusiness sectors. This follows the release of the third-quarter results of the Agbiz/IDC Agribusiness Confidence Index (ACI). For full disclosure, I lead the compilation of this Index.
Slight optimism
We ran the third-quarter survey in the first two weeks of September, covering all major agribusinesses operating in all agricultural subsectors – livestock, field crops and horticulture – across the country. This helps one to get a good feel of sentiments across the country, and not be swayed by one subsector or region in their assessment.
The ACI showed a rebound from 39 points in the second quarter to 51 points in the third quarter. A level just above the neutral 50-point mark implies that agribusinesses are only marginally optimistic about business conditions in South Africa.
I wasn’t surprised by these results as they corroborate various high-frequency data – from production (see here), agricultural machinery sales (see here) to agricultural trade (see here) – which show that most of South Africa’s agriculture and agribusiness sectors have not been severely affected by the ongoing COVID-19 crisis, as the sector was classified as essential and largely did not close down throughout the lockdown period.
With that said, the picture wasn’t broadly rosy from the survey responses we got. We noticed that the sentiment from business operating within the wine, floriculture and tobacco were not as positive as other subsectors. This was unsurprising as these particular subsectors were severely affected by the lockdown regulations, with sales prohibited for certain periods.
Broadly, the ACI is a composite index with about 10 sub-indices; namely, the turnover, net operating income, market share, employment, capital investment, export volumes, economic growth, general agricultural conditions, debtor provision for bad debt and financing cost.
These subindices mostly showed improvement from the second quarter except for employment, debtor provision for bad debt and financing cost. I wasn’t as surprised about the pessimism in employment even though we are in a boom agricultural year from a volumes perspective (and favourable commodity prices). The various health protocols, such as social distancing and limits on movement, that had to be adhered to, as an attempt to limit the spread of the coronavirus might have negatively influenced employment. This ha probably affected the most those who are typically involved in seasonal employment in agriculture.
But the decline in sentiment regarding the debtor provision for bad debt and financing cost subindices did surprise us given that the South African Reserve Bank has cumulatively cut interest rates by 300 basis points thus far this year. We think that the lenders may have become more risk-averse due to COVID-19-related uncertainty.
You can read more about the ACI and also access the headline data here.
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by Wandile Sihlobo | Sep 13, 2020 | Daily Notes
In this blog post, I will briefly reflect on South Africa’s recent weekly grain data releases and also on the upcoming 2020/21 production season, leaning on the United States Department of Agriculture (USDA) data that was published on Friday evening.[1]
SA weekly grain data
The producer deliveries data for the week of 04 September 2020 showed that roughly 83% of the expected maize crop of 15.5 million tonnes of 2019/20 season had been delivered to commercial silos, and the quality of the crop is mainly good. Also, a greater share of the 2019/20 soybean and sunflower seed crop had already been delivered to commercial silos. This is clear from the producer deliveries data, which have slowed in recent weeks, while the sum nearly equals the expected harvest in both crops. In the coming months, I will change the focus from summer crops to winter crops when its harvest begins. This will probably be towards the end of the year, and by then, the focus on summer crops will be on the upcoming 2020/21 production season, and on that crop conditions, not producer deliveries.
However, the weekly grain trade data will remain key for both maize and wheat throughout the year. I will touch on oilseeds and other small grain trade data around month ends, which is when the data is usually released by the South African Information Services.
South Africa exported 46 092 tonnes of maize in the week of 04 September 2020. About 51% of this went to Vietnam and the rest to South Korea and Southern Africa markets (primarily Eswatini, Mozambique, Zimbabwe, Botswana and Lesotho). This placed South Africa’s 2020/21 total maize exports at 1.31 million tonnes, which equates to 49% of the seasonal export forecast (2.7 million tonnes). The leading markets thus far are the Southern African countries (Zimbabwe, Botswana, Mozambique, Lesotho, Eswatini and Namibia), mainly for white maize, and Japan, Taiwan, Vietnam and South Korea for yellow maize. About 75% of all maize exports thus far is yellow maize, with 25% being white maize.
Moreover, South Africa is a net importer of wheat and brought in 49 457 tonnes from Russia in the week of 04 September 2020. This placed South Africa’s 2019/20 wheat imports at 1.65 million tonnes, which equates to 92% of the seasonal import forecast (1.80 million tonnes). The 2019/20 marketing year ends this month. The leading suppliers of wheat to South Africa thus far include Poland, Germany, Lithuania, Russia, Ukraine and Latvia, amongst others.
2020/21 maize production season
The USDA has painted a fairly positive outlook of 14.0 million tonnes for South Africa’s 2020/21 maize production, although this would be 13% lower than the 2019/20 harvest. This projection accounts for both commercial and non-commercial maize. Admittedly, it is too early to know where the maize harvest will be in 2020/21 as the planting intentions data for the season will only be released on 28 October 2020. That said, the projected 14.0 million tonnes is plausible in an environment that might present above- normal rainfall, coupled with higher commodity prices to encourage increased planting. Moreover, this is well above the 10-year average total maize production of 12.9 million tonnes in South Africa, and domestic annual usage of about 11.2 million tonnes.
This means, a crop of this size would enable South Africa to remain a net exporter of maize in 2021/22 marketing year, which will begin in May 2021. For domestic consumers, this would mean that we are in for a period of prolonged relatively lower food price inflation.
Exhibit 1 below illustrates South Africa’s maize optimal planting dates. In the recent past, the country hasn’t kept up with this schedule because of delayed rainfall. But the South African Weather Service has recently indicated that the country could receive rainfall from this month, which would then enable planting from the traditional dates.[2]
Exhibit 1: South Africa’s maize optimal planting dates
Source: Grain SA, Agbiz Research
Notes:
[1] Available on the USDA’s website.
[2] The view of the South African Weather Service is available here.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Sep 7, 2020 | Daily Notes
This is an important day in the South African economics calendar. At 11h30 this morning, Statistics South Africa will release GDP data for the second quarter of the year. Recent surveys of macro analysts’ forecasts of the second quarter GDP show that the South African economy could contract by around 47% q/q on a seasonally adjusted and annualised basis, largely reflecting the effects of lockdown restrictions put in place to slow the spread of the pandemic across various sectors.
The agricultural sector, however, will probably be the only shining star, in part because the sector was classified as essential and didn’t close down during the strict lockdown period, whose effect extended to the second quarter. Most importantly, because this is a boom year in agricultural output, across all subsectors (field crops, horticulture and livestock).
As I have recently highlighted in the previous blog entries, South Africa’s agriculture already had a solid start to the year with first-quarter gross value-added growing by 27.8% q/q on a seasonally adjusted and annualised basis. I noted then that the succeeding quarters would likely continue to show strong growth, a view I still maintain. But the second-quarter expansion could be somewhat milder than the first quarter, possibly at a range of 20-25% q/q on a seasonally-adjusted and annualised basis. The key drivers will remain somewhat the same as the previous quarter, which was an uptick in animal products, field crops and horticulture.
Within field crops, sugar was the main driver, while in horticulture, deciduous fruits were the primary drivers of the bounce in the first quarter. In the second quarter, however, summer grains and oilseeds will likely be the key drivers of growth as harvest processes and deliveries started gaining momentum during this quarter going into the third quarter, as the season was delayed due to dryness when the season began. Meanwhile, in the horticulture industry, citrus most likely dominated in the second quarter. I doubt that the animal products remained as robust in the second quarter as slaughtering activity softened when the country went into strict lockdown at the end of March. If anything, the animal products activity will probably recover in the third quarter, which is when restaurants started opening more widely.
With that being said, I am still quite optimistic about the performance of this sector in 2020, maintaining our forecast, at Agbiz, for the year to average at about 10% y/y (compared to a contraction of 6.9% y/y in 2019). Other institutions such as the Bureau for Food and Agricultural Policy (BFAP) are more optimistic than us, placing their agricultural growth forecast for the year at 13% y/y. This optimism is based on the bumper maize crop of 15.5 million tonnes (the second largest in history), surging export prices of major fruits (further supported by the weak exchange rate) and strong overall sales of agricultural produce in the first four months of the COVID-19 pandemic. This is, of course, with the exceptions of the wine and tobacco industries, where domestic trade has been restricted through various stages of the lockdown, and only permitted in August 2020.
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by Wandile Sihlobo | Sep 6, 2020 | Daily Notes
I’m making it a routine to use this Monday note to reflect on the two weekly data releases in the South African agricultural market, namely (1) the grain producer deliveries and (2) trade activity. For now, the focus on the producer deliveries data is on summer grains, but that will change in the coming months when the winter crop harvest begins.
Admittedly, most people are probably not watching the producer deliveries data for summer grains closely as in the past few weeks as the harvest is virtually over and the attention is shifting towards the 2020/21 production season which commences next month. The outlook for the upcoming season is positive, with prospects of above-normal rainfall. In its Seasonal Climate Watch report which was released on 04 September 2020, the South African Weather Service noted that “the multi-model rainfall forecast for spring, late spring and early summer (Sept-Nov, Oct-Dec and Nov-Jan) indicate increased chances of above-normal rainfall over most parts of the country with the main focus being on the summer rainfall areas in the northeast of South Africa.” The northeast comprises parts of Limpopo, Mpumalanga, Free State and parts of KwaZulu-Natal provinces.
Back to the producer deliveries, the data for the week of 28 August 2020, showed that South Africa’s grain harvest activity has been delayed because of the late start of the 2019/20 season, specifically for maize which will be a primary focus in this note. Roughly 82% of the expected maize crop of 15.5 million tonnes had been delivered to commercial silos that week, and the quality of the crop is mainly good.
In terms of trade, South Africa exported 80 309 tonnes of maize in the week of 28 August 2020. About 43% of this went to Japan, 35% to Vietnam and the rest to Southern Africa markets. This placed South Africa’s total maize exports at 1.26 million tonnes, which equates to 47% of the seasonal export forecast (2.7 million tonnes). The leading markets thus far are the Southern African countries (Zimbabwe, Botswana, Mozambique, Lesotho, Eswatini and Namibia), mainly for white maize, and Japan, Taiwan, Vietnam and South Korea for yellow maize.
About 75% of all maize exports thus far is yellow maize, with 25% being white maize. As I set out in the previous blog entry, there will likely be an uptick in white maize exports towards the end of the year and into early 2021, which is when Zimbabwe’s maize stock will be low and the country will increase its import activity. We can rule out Kenya as a potential market. While Kenya will experience maize shortage towards the end of the year into early next year, South Africa is unlikely to be a country of choice for its imports because of the prohibitions on the importation of genetically modified maize, which South Africa produces roughly 80% of it.
In the case of wheat, South Africa is a net importer and brought in 9 022 tonnes from Russia in the week of 28 August 2020. This placed South Africa’s 2019/20 wheat imports at 1.61 million tonnes, which equates to 89% of the seasonal import forecast (1.80 million tonnes). The leading suppliers of wheat to South Africa in the 2019/20 marketing year include Poland, Germany, Lithuania, Russia, Ukraine and Latvia, amongst others. This marketing year ends in September 2020, which means South Africa will have to bring in an additional 193 924 tonnes of wheat within the next few weeks if we are to meet the import forecast for the season.
Best wishes for the week!
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Jul 16, 2020 | Agricultural Production
In the second week of July 2020, the Economic Transformation Committee of the African National Congress (ANC)[1] and Business for South Africa (B4SA)[2], released their respective strategy documents for the post-COVID-19 inclusive economy recovery for South Africa. Both the ANC and B4SA prioritized the agriculture sector, for its transformative potential and aligned their strategies with chapter six of the National Development Plan (NDP)[3], which reflects the commitment of both the government and private sector to the larger development agenda of South Africa.
Both plans highlight that poor infrastructure – both in the former homeland regions and in general logistics to move the produce to the ports and processing plants – is a constraint that needs urgent action; that improving agricultural finance is critical to unlocking the sector’s growth, particularly through the Land Bank; and that strengthening agriculture value chains is critical for fostering inclusive growth.
However, these ideas on how to strengthen the agriculture sector are not new. They first entered the policy arena in 2012.[4] But in the subsequent eight years, little was done on the implementation front. Covid-19 presents an opportunity to change the narrative by focusing on why implementation has lagged and how it can become more effective.
The lack of implementation of agricultural government policy and infrastructure-related constraints are down to three broad reasons. First, weak coordination and misalignment of functions and priorities between different government departments and different spheres of government. Second, a misallocation of the budget by the national and provincial governments. And finally, poor coordination between the government and private sector, which has led to a misalignment of transformation programs, incentives and in some cases, vision.
To solve these challenges, the task largely lies on the government through its various Sector Master Plans to continue working with the private sector and civil society to address the aforementioned challenges. Agricultural growth and job creation will be stimulated through the development of under-utilised land, especially in former homeland areas and underperforming land reform farms (about 400K jobs); the expansion of export-led high growth areas (250K jobs); and investment in agro-processing with integrated up-and downstream linkages (350K jobs).[5]
Additionally, the ANC’s strategy has highlighted the importance of collaboration, by noting that the state should mobilise development partners, including the World Bank, the African Development Bank, the private sector and impact funders to contribute towards developing a thriving rural economy centred on agriculture. This has become more important than ever. The 2015 Development Committee paper ‘Billions to Trillions: Transforming Development Finance,’ highlighted that the Sustainable Development Goals marked a shift from needing billions of dollars in official development assistance, to needing trillions. While the largest supply of development resources remained domestic public spending, the greatest area for expansion was unlocking the transformative potential of the private sector.[6]
There is evidence that partnerships between the private sector and government have, in some cases, piloted successful programmes to drive transformation. Some of these include projects of the Sernick Group, the Humansdorp Co-op and the Mohair Trust, amongst others.[7]
Three common themes run throughout these programmes: first, public-private-partnership structured finance, to help meet development goals; second, supporting market linkages to help agriculture play its part in creating a more inclusive South Africa and third, upgrading skills and technology through farmer training and the adoption of technology in production practices.
The task ahead, particularly the agriculture and agro-processing Master Plans, should focus on upscaling and replicating these strategic partnerships in various value chains across the country. As we have previously argued, incentives for agro-processing could be in a form of tax incentives for various agricultural hubs which will be determined by the type of agricultural activity. For agricultural production, the selection of the value chains to prioritise should follow the NDP’s view of higher growth and labour-intensive value chains, such as horticulture. In regions where this is not possible, livestock and field crops remain key subsectors for agriculture expansion.
Points of deviation
The one important point of deviation between the ANC and B4SA is land reform, which is central to actualizing agricultural expansion. To create more policy certainty for the private sector, B4SA advocated for strengthened property rights and the extension of secure tenure or tradable leases in government land to attract investment, and by extension, stimulate long-term growth. Meanwhile, the ANC, in its efforts to reduce inequality and promote equitable land distribution, advocated that the state should release land to individuals but is not clear on whether on tradable leases or another form of tenure rights will be afforded to the holders and occupiers of these land parcels. The ANC also advocated to acquire land for redistribution, the programme to expropriate land in line with the existing legal and constitutional prescripts should be continued. To further accelerate land redistribution consideration should also be given to the taxation of unused land. A position which was not shared by B4SA.
Concluding remarks
Overall, the ANC and B4SA agricultural development plans have more areas of alignment than a diversion. However, focusing on implementation, rather than just ideas, is crucial to creating inclusive growth and delivering a million jobs envisaged in the NDP. Given the current fiscal constraints, development in the sector will be private-sector driven as acknowledged by both the ANC and B4SA, but the private sector involvement will require clear policy guidance on land reform and more assurance on property rights. The release of the land the ANC argued for, will need to be on long-term tradable leases so that investment could flow, particularly in areas with better infrastructure.
Notes:
[1] ANC,” Reconstruction, Growth and Transformation: Building A New, Inclusive Economy”, June 9, 2020. Available: https://www.scribd.com/document/468680698/ETC-Document-FINAL-8-July-2020#from_embed
[2] B4SA, “A New Inclusive Economic Future for South Africa: Delivering an Accelerated Economic Recovery Strategy”, June 10, 2020. Available: https://www.businessforsa.org/wp-content/uploads/2020/07/B4SA-A-New-Inclusive-Economic-Future-for-South-Africa-Presentation-10-July-Final.pdf
[3] NDP, “An integrated and Inclusive Rural Economy”, August 15, 2020. Available: https://www.nationalplanningcommission.org.za/assets/Documents/NDP_Chapters/devplan_ch6_0.pdf
[4] These appeared in the NDP, chapter six in 2012.
[5] This is generally a view carried in Chapter six of the NDP. Available here: https://www.nationalplanningcommission.org.za/assets/Documents/NDP_Chapters/devplan_ch6_0.pdf
[6] For more information, here is a full document: http://pubdocs.worldbank.org/en/622841485963735448/DC2015-0002-E-FinancingforDevelopment.pdf
[7] I have previously narrated The Co-op work in this article: https://www.news24.com/fin24/opinion/wandile-sihlobo-a-sleeping-giant-the-eastern-cape-20191005
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