For many years, South Africa has prided itself as the most food-secure country in the African continent and has also ranked relatively well with its peer BRICS countries.
But disappointingly, the results of the 2020 Global Food Security Index recently released by The Economist and Corteva show that South Africa has regressed. South Africa is now ranked 69th most food-secure country out of 113 countries, from 44 (out of 113) in 2019. Technically, South Africa's scoring dropped by just a point from last year's position (scoring 57,8 down by 1,4 from 2019 in the Global Food Security Index). Still, other countries improved notably, resulting in a drop in South Africa's ranking.
The Global Food Security Index comprises four significant subindices, namely; (1) food affordability, (2) food availability, (3) food quality and safety, and (4) natural resources and resilience. The affordability and availability have a higher weighting of a combined two thirds (each 32,4%). In 2020, South Africa experienced a sharp deterioration in the food affordability subindex (a 5,5 drop), while all other subindices improved marginally. Notably, the major challenge was an overall increase in food prices and a deterioration in South Africa's food safety net programmes.
These results are unsurprising. The 'third wave' of the National Income Dynamics Study – Coronavirus Rapid Mobile Survey (NIDS-CRAM) published on 17 February also pointed to a rise in hunger in 2020. Moreover, South Africa's overall food price inflation also started rising in the last quarter of 2020, averaging 5,8% y/y, from an average of 4,3% y/y in the first three quarters of the year. This challenge speaks to the rising costs of food in an environment where more people were out of work.
Increases in staple grain prices mainly underpinned the overall rise in South Africa's food prices in late 2020. The deterioration in South Africa's measured food security was not an issue of availability, as the subindices of availability showed an improvement, reflective of higher agricultural output in 2020. The driving factor behind grain price increases was, to no small degree, the strong demand for South African grains and other agricultural products in the Southern Africa market and the broader global market. This global demand phenomenon is illustrated by agricultural exports, which reached the second-highest level on record in 2020 (see Exhibit 1 in the attached file). The weaker domestic currency was amongst the factors increasing the competitiveness of South Africa's products in the global market.
Across the rest of the continent, Morocco, Algeria, Tunisia, and Egypt are now the most food-secure countries, with South Africa trailing them. Nevertheless, within the BRICS countries, South Africa is still two positions ahead of India, 18 positions behind Brazil, 29 places behind China, and 44 behind Russia.
While South Africa's scoring in terms of food security declined only slightly in 2020, it is worth noting that this reflects the national picture. There are pockets of food insecurity within South Africa when one considers a household-level perspective. Over 6 million South Africans in low-income households are not food secure, primarily due to affordability. There is also wide variation across the different provinces. Food insecurity is significantly more prevalent in Limpopo, KwaZulu-Natal and the Eastern Cape. The affordability challenge in such regions is typically caused by higher unemployment. The rising unemployment and closure of various businesses because of the pandemic in 2020 exacerbated already challenging conditions for the provinces mentioned above. Indeed, several townships across the country experienced a similar food-insecurity challenge, as multiple studies published in 2020 and the beginning of this year have shown.
The latest data from the Global Food Security Index are a clear indication more will need to be done to improve food security, not only at national level but also through household-targeted interventions. These could include agriculture-related interventions – encouraging smallholder farming. In areas where land availability and environmental conditions permit, commercial production and other programmes that improve employment prospects should be encouraged and supported by the government, NGOs and social partners.
In terms of agriculture, Limpopo, KwaZulu-Natal and the Eastern Cape, which are amongst the most food-insecure provinces, also have vast tracts of underutilized land. These provinces should be a priority in the Agriculture and Agro-processing Master Plan. With a commercial focus where conditions permit, agriculture improvement would help in job creation and, ultimately household food security. Notably, the Master Plans' actions are the responsibility of government, the private sector and all social partners.
Weekly highlights
SA set to have its largest summer grain and oilseed harvest on record in 2020/21 production season
The data released by the Crop Estimates Committee (CEC) last week show that South Africa's 2020/21 summer grain and oilseed production could increase by 5% y/y to 18,5 million tonnes. While this is still the first production estimate for this season, with eight more to follow, this could be the largest on record if it materializes.
The crop increases are expected in all summer grains and oilseeds, except sunflower seed, whose harvest is set to fall 10% y/y, primarily on the back of a decline in area plantings. Farmers switched some typical sunflower seed hectares to maize because of favourable prices. The overall expected increase in summer grain and oilseed production is due to an expansion in area planting and expected higher yields. The weather conditions have generally been favourable since the onset of the season and thus supportive of the production conditions and subsequently the yields.
If we zoom into significant crops, the 2020/21 maize, soybeans and sunflower seed harvests are forecast at 15,8 million tonnes (up 4% y/y), 1,6 million tonnes (up 30% y/y, a record harvest), and 712 940 tonnes (down 10% y/y, as previously mentioned). The maize production estimate is slightly below our estimate of 16,7 million tonnes, while the soybean production estimate is well above our estimate of 1,5 million tonnes.
This variation can largely be explained by adjustments in area plantings, which for maize was revised down somewhat, and for soybeans revised up from the preliminary estimates released by the CEC on 28 January 2021. There is also a difference in the yield assumptions we had applied.
In the case of maize, the current production data essentially mean that South Africa would remain a net exporter in the 2021/22 marketing year, which starts in May 2021 (corresponds with the 2020/21 production season). This could also add downward pressure on maize prices, especially as we expect a good harvest in South Africa and across the Southern Africa region, which was a major importer in the previous year. For example, Zambia's maize production could reach 3,4 million tonnes (up 69% y/y), while Malawi's maize harvest is estimated at 3,8 million tonnes (up 24% y/y). There is optimism about the harvest in other countries, including Zimbabwe.
Over the past few months, the weaker domestic currency, growing demand for South Africa's maize in the Southern Africa region and the Far East, coupled with generally higher global grain prices, provided support to the domestic maize prices. But we think the domestic crop conditions will matter more for price movements in the future than has been the case over the past few months.
In the soybean case, the price drivers are somewhat similar to maize. Nevertheless, an increase in the soybean harvest will still not change much because South Africa imports around half a million tonnes of soybean meal. The country will most likely continue being dependent on imports, even at these harvest levels, to meet the growing demand for soybean meal by the poultry sector. Hence, global soybean market dynamics will continue to influence local prices.
SA agricultural employment down 8% y/y in Q4, 2020
Last week we also had South Africa's Quarterly Labour Force Survey (QLFS) data for the last quarter of 2020. In the case of agriculture, the data showed that South Africa's primary agricultural jobs were down 8% year on year in the fourth quarter of 2020, with 810 209 people employed. There was a decline in employment across most provinces except for the Eastern Cape, Gauteng and Mpumalanga, which registered job gains from the last quarter of 2019. The most considerable headcount losses were in the Western Cape, amounting to about 51 000 below 2019. KwaZulu-Natal followed this, with jobs down by 21 000 compared to the last quarter of 2019 (see Exhibit 3 in the attached file).
Except for the Western and Northern Cape, we suspect that social distancing measures that were enforced to limit the spread of the virus might have contributed to the decline in employment. Some farmers that would have typically employed seasonal workers around this period of the year were discouraged. We say this because the Free State, North West, KwaZulu-Natal and Limpopo are amongst provinces with a good field crop and horticulture harvest in 2020. In the Western and Northern Cape case, the constrained cash flow following the ban of wine and alcohol sales at various intervals of the lockdown has possibly contributed to the decline in employment. The producers in the provinces expressed a similar view.
From a subsector perspective, only the forestry and fisheries industries recorded an overall increase in employment in the fourth quarter of 2020, compared with the previous year. All other subsectors recorded a decline in employment. Worth noting, however, is that the dynamics from the provincial level differ, as evidenced by the Eastern Cape, Gauteng and Mpumalanga, where primary agricultural employment increased in the fourth quarter of 2020 compared with the same period 2019.
Notably, the employment data will be of interest in the coming months following the 16,1% increase in the farm minimum wage to R21,69 per hour with effect on 1 March. Various commodity groups, especially those heavily affected by the lockdown regulations, have indicated that the recent increase in the minimum wage could cause a further squeeze on cash flow and negatively influence hiring decisions. Nevertheless, the actual effects of the current minimum wage increase on jobs will be apparent later this year. From an agricultural conditions perspective, the outlook for 2021 is positive, with prospects of higher yields in horticulture and field crops and good performance in the livestock industry.
Data releases this week
The agricultural calendar this week is relatively light. On Wednesday, the South African Grain Information Service (SAGIS) will release the weekly grain producer deliveries data for the week of 26 February. This data cover summer and winter crops, although the focus is still on winter crops whose harvest has recently been completed. On 19 February, about 8 561 tonnes of winter wheat were delivered to commercial silos. This placed the 2020/21 wheat producer deliveries at 1,95 million tonnes, which equates to 92% of the expected harvest of 2,11 million tonnes. From April onwards, the focus will shift to summer crops as the harvest process will be gaining momentum.
On Thursday, SAGIS will release the weekly grain trade data for the week of 26 February. In the previous week of 19 February, South Africa's 2020/21 total maize exports were at 2,18 million tonnes, which equates to 83% of the revised seasonal export forecast (2,64 million tonnes). In terms of wheat, South Africa is a net importer. On 19 February, imports amounted to 520 334 tonnes, which equates to 33% of the seasonal import forecast of 1,58 million tonnes.
Globally, the notable data release will be the US weekly export sales data released by the United States Department of Agriculture on Thursday. Here, we will continue to monitor China's buying activity of US maize and soybeans.
