Agricultural Market Viewpoint with Wandile Sihlobo The Xchange Platform

We appreciate that the minds of many South Africans are on national elections matters, but food matters remain vital in the midst of all.

Thus, reflecting on the latest Crop Estimates Committee's (CEC) forecasts for the 2023/24 summer crop production season is valuable. This is a fourth production estimate for the season, and the harvest across the country is underway, so we may put more weight on the accuracy of this figure than our tentative view in the previous estimates.

At the end of May 2024, the CEC placed South Africa's 2023/24 total summer grains and oilseed production forecast at 15,9 million tonnes, down 0,5% from the previous month's forecast and 21% lower than the last season's harvest.

Maize

A closer look at the data shows that white and yellow maize harvest could be 6,4 million tonnes (down 0,9% m/m) and 6,9 million tonnes (down 0,3% m/m). These revisions place the total maize production estimate at 13,3 million tonnes (down 0,6% m/m).

When viewed annually, white maize harvest is down 25%, with yellow maize down 13% from the 2022/23 season. The expected harvest of 13,3 million tonnes is down 19% from the 2022/23 season.

We are optimistic that this harvest may materialize, although we are unsure of the quality. Suppose we are correct; this harvest would meet South Africa's annual maize consumption of roughly 12,00 million tonnes, leaving the country with over a million tonnes for exports.

With that said, maize prices will likely remain elevated for some time because of potentially tighter supplies later in the season.

Oilseeds

The 2023/24 soybean harvest was lowered by 2% from last month to 1,7 million tonnes (down 36% y/y). This annual decline results from lower yields in various regions of South Africa. We now believe South Africa may not play a robust position in soybean exports like the previous season. If anything, soybean oilcake imports this new season are now a possibility.

Meanwhile, the sunflower seed harvest estimate was again lifted from last month by 6% to 649 250 tonnes (down 10% y/y). The area plantings are moderately down from the previous year, which means the primary driver of the annual decline in the harvest is the expected poor yields, especially as most of South Africa's sunflower seed is planted in the western regions that experienced dryness and heatwave in February and March.

Other grains

The 2023/24 groundnut harvest estimate is 54 440 tonnes (up 3% y/y), sorghum is at 95 830 tonnes (up 2%), and dry beans are at 52 190 tonnes (up 4%).

Concluding remarks

The current production data illustrates the scale of damage caused by the mid-summer drought to the South African agricultural sector. The complete scale of the financial impact of this drought on the farming businesses is yet to be clear.
Still, from a consumer perspective, South Africa is not in a crisis, in our view. The recent drought presents upside risks to food price inflation but not the overall basket. The challenge is primarily the white maize, especially considering the potentially more robust regional demand later in the year.

Listen to the podcast for a detailed reflection.

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/

Podcast production by Nelisiwe Tshabalala, Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli

While South Africa's agriculture has had a rough start to the year, characterised by El Niño-induced drought, the employment conditions remain encouraging.

The data recently released by Statistics South Africa shows that employment in primary agriculture lifted by 6% year-on-year to 941,000 in the first quarter of 2024. This is also up 2% from the last quarter of 2023.

Admittedly, the significant drought damage has been concentrated on the summer grains and oilseed regions, not across all agricultural subsectors, which somewhat explains the resilience in job data. Another consideration is that there could also be a lag in fully accounting for agriculture's financial pressures resulting from the drought and the impact on employment afterwards.

We can observe from the current data that jobs generally increased across most subsectors of agriculture in the first quarter compared with the corresponding period last year. The decline in employment was only in the production of organic fertilisers, fishing, and fish hatcheries. Again, this could indicate the potential delay before the subsectors heavily impacted by the mid-summer dryness fully reflected the financial impact and subsequent jobs effect. We may have a complete picture of such in the second quarter jobs data.

From a regional perspective, the Eastern Cape, Northern Cape, North West, Gauteng, and Mpumalanga were behind the annual uptick in agricultural employment. These provinces broadly comprised various agricultural commodities or value chains. Thus, the uptick in jobs is not primarily on the back of a particular value chain but spread across a range.

Surprisingly, the Western Cape, KwaZulu Natal and Limpopo are amongst the provinces that recorded a mild decline in employment in the first quarter compared to 2023. These provinces are amongst those that hold significant shares of horticulture production, which benefitted from the irrigation throughout the harsh mid-summer season.

Meanwhile, the mild reduction in employment in the Free State could be somewhat explained by the province's vast grains and oilseed production and the expected decline in production because of the drought.

As we look in years ahead, the agricultural sector remains crucial for employment creation in South Africa's rural communities.

Listen to the podcast for a detailed reflection.

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/

Podcast production by Nelisiwe Tshabalala, Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli

April marked the end of South Africa's 2023/24 marketing year for maize. This marketing year corresponds with the 2022/23 production season, as the crop harvested mid-year in 2023 was marketed from then through to the end of April 2024. According to data from the Crop Estimates Committee (CEC), the 2022/23 production season was characterized by an excellent harvest of 16,4 million tonnes. This was because of large plantings and the favourable summer rainfall that boosted the yields.

The ample harvest allowed South Africa to maintain its position in export markets. South Africa is the world's ninth largest maize exporter, trailing the US, Brazil, Argentina, Ukraine, Romania, France, Paraguay and Poland. Data from the South African Grains Information Services shows that in the 2023/24 marketing year, the exports amounted to 3,4 million tonnes, down by 6% from the previous year. About 63% of the exported maize was yellow, with 37% being white maize.

In the past, South Korea, Japan and Taiwan were the leading markets for South Africa's maize exporters. But in the 2023/24 marketing year, Zimbabwe took the lion's share of the exports, accounting for 18% of the 3,4 million tonnes of exports. The surge in exports to Zimbabwe comes after a few years of modest exports to the country because of decent domestic harvest and the restrictions on genetically modified maize, which the government often used as a barrier to imports in certain seasons.

However, the regulations have changed, and Zimbabwe now imports genetically modified maize. Other large maize export markets in the African continent are Botswana and Mozambique, which accounted for 9% and 6% of South Africa's total maize exports, respectively. South Korea, Japan and Taiwan remained significant export markets for South African maize, accounting for 14%, 13% and 13% shares in the total exports, respectively. Another important maize export market for South Africa in the Asian region is Vietnam. Still, its exports were slightly lower than other countries, accounting for a 5% share in the overall export markets.

While the export season was a success, the coastal regions of South Africa started worrying about the maize supplies at the end of the 2023/24 marketing year, specifically pricing when considering the transport costs from central regions of the country that are the main maize producers. Disappointingly, the excellent 2022/23 maize production season is followed by a less promising season. In the 2023/24 production season (which corresponds with the 2024/25 marketing year), South Africa's maize harvest is forecast to fall by 19% year-on-year to 13,3 million tonnes. This is according to data from the CEC.

This decline in harvest is primarily due to unfavourable weather conditions in February and March, where dryness and heatwave caused widespread crop damage in various regions of South Africa.

Subsequently, the coastal areas in South Africa worry about tight supplies in the new marketing year. This led to 32 691 tonnes of yellow maize imports from Argentina in the last week of the 2023/24 marketing year. We suspect there will be additional imports in the 2024/25 marketing year, primarily for the country's coastal regions. These imports will help increase supplies for the animal feed industry.

Notably, while South Africa expects a significantly lower harvest this year, the country could remain a net exporter of maize.

With an annual maize consumption of approximately 12,0 million tonnes and a harvest of 13,3 million tonnes, South Africa will have over a million tonnes of maize for exports. We also believe there are decent carryover stocks from the past season, which will help increase the maize supplies for the new marketing year of 2024/25.

Listen to the podcast for a detailed reflection.

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/

Podcast production by Nelisiwe Tshabalala, Lwandiso Gwarubana, Richard Humph

Export opportunities for South Africa's agricultural products are opening up within BRICS+ countries. Over the past two years, China, the Kingdom of Saudi Arabia, and Egypt have widened market access for various agricultural products from South Africa.

Admittedly, Egypt and the Kingdom of Saudi Arabia have recently joined the BRICS+ grouping, and market access is part of the long-term bilateral engagements with South Africa. South Africa has access to selected fruits, wine, wool, meat and grains.

However, South Africa aims to broaden market access in BRICS+ for most of the country's agricultural products. For this reason, through the 2023 BRICS Summit in Johannesburg and the prior engagements, South Africa prioritized trade as a significant point on the agenda for discussion.

The political principals broadly agreed that deepening trade was necessary for the BRICS countries. Still, each country's trade and agricultural authorities are responsible for taking the lead and seeking market access from member countries.

The idea of a BRICS agricultural trade agreement that some argued for has not yet been thoroughly ventilated. The priority so far was for each BRICS member to work to reduce import tariffs and address the phytosanitary constraints for various products that BRICS member countries would present.

Even before adding the new members, the original BRICS countries were already significant importers of agricultural products. Between 2019 and 2022, this group's agricultural imports averaged US$255 billion annually, according to Trade Map data.

China accounted for 71% of all the agricultural imports into the group, followed by India at 11%, Russia at 11%, Brazil at 4% and South Africa at 3%. Despite these sizeable agricultural import figures, the intra-BRICS agricultural trade remained relatively low.

The products these countries imported include soybeans, beef, maize, berries, wheat, palm oil, poultry meat, cotton, barley, dairy products, pork, apricots and peaches, sugar, wool, sunflower seed, nuts, sorghum, goat meat, wine, grapes, bananas, avocados, mangos, guavas, and fruit juices, among other products.

South Africa produces some of these products in abundance and has surplus volumes for exports. Thus, the country championed a need to deepen trade in the 2023 BRICS Summit.

Admittedly, the positive reception that South Africa has received from some BRICS countries lately is not entirely because of the groupings' focus on trade. Indeed, some discussions regarding market access to China have been underway for some time. Still, when agricultural trade is prioritized in various political forums, there is naturally urgency to deliver some results.

With BRICS adding new members to form a bigger BRICS+, the agricultural trade opportunities have increased.

Listen to the podcast for a detailed reflection.

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/

Podcast production by Nelisiwe Tshabalala, Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli

Many, including myself, may have been a bit pessimistic about the 2023/24 summer crop growing conditions when we signalled a potential further downward revision of the harvest estimate this month.

The data released last week by the Crop Estimates Committee showed mild upward adjustments in the crop size from last month's figures. South Africa's 2023/24 summer grains and oilseed harvest is estimated at 16,0 million tonnes, up 1% from last month.

Indeed, this is not a cause for celebration. The figure does not change the reality that we have been through a challenging season of El Niño-induced drought and heatwave in February and March that weighed on the summer grains and oilseed harvest in various regions of the country. The current estimated harvest of 16,0 million tonnes is down 20% from the 2022/23 production season.

Maize

A closer look at the data shows that white and yellow maize harvest could be 6,4 million tonnes (up 2% m/m) and 6,9 million tonnes (roughly unchanged from last month). These revisions place the total maize production estimate at 13,3 million tonnes (up 1% m/m).

When viewed annually, white maize harvest is down 25%, with yellow maize down 13% from the 2022/23 season. The expected harvest of 13,3 million tonnes is down 19% from the 2022/23 season.

If it materializes, the expected harvest will be sufficient to meet South Africa's annual maize consumption of roughly 12,00 million tonnes, leaving the country with a small export volume. Still, we will likely see prices remaining elevated for some time because of the potentially tight supplies.

The Southern African regional demand, particularly for white maize, also remains a significant upside driver of prices.

Oilseeds

The 2023/24 soybean harvest remained unchanged from last month, estimated at 1,8 million tonnes (down 35% y/y). This annual decline results from lower yields in various regions of South Africa. We now believe South Africa may not play a robust position in soybean exports like the previous season. If anything, soybean oilcake imports this new season are now a possibility.

Meanwhile, the sunflower seed harvest estimate was lifted from last month by 4% to 615 000 tonnes (down 15% y/y). The area plantings are moderately down from the previous year, which means the primary driver of the annual decline in the harvest is the expected poor yields, especially as most of South Africa's sunflower seed is planted in the western regions that experienced dryness and heatwave in February and March.

Concluding remarks

The recent rains in much of South Africa's summer crop-growing regions are too late. The damage to the crop occurred in February and March during the heatwave and the El Niño-induced dryness. The current crop forecasts reflect this challenge, as the major crops are down notably compared to the 2022/23 production season.

Listen to the podcast for a detailed reflection.

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/

Podcast production by Nelisiwe Tshabalala, Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli

There are divergent views about the effectiveness and extent to which South Africa's agricultural policies have been implemented.

Regardless of how experts feel about the capacity of the state and the policy stance of the South African government since the dawn of democracy, the one undeniable fact is that the sector has grown tremendously. Data from the Department of Agriculture, Land Reform and Rural Development show that domestic agricultural output in 2022/23 was twice as much as in 1993/94.

Whether this growth has been inclusive and transformative is a question I will return to later in this piece.

For now, it's important to emphasize the growth of the industry and the drivers of its expansion. Significantly, this expansion was not driven by a few sectors but has been widespread -- livestock, horticulture and field crops have all seen strong growth over this period.

Of course, the production of some crops, most notably wheat and sorghum, has declined over time. This, however, had a lot to do with changes in agroecological conditions and falling demand in the case of sorghum, not policies.

These higher production levels have been underpinned, mainly by adopting new production technologies, better farming skills, growing demand (locally and globally), and progressive trade policy. The private sector has played a major role in this progress.

Listen to the podcast for a detailed reflection.

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/