South Africa's agricultural sector remains a net exporter, with exportable volumes of various commodities growing each year, weather conditions permitting.
The export value of US$10,2 billion in 2020 was the second largest on record after US$10,7 billion in 2018. Aside from the regulations and trade agreements that allow South Africa's agricultural sector to enjoy this excellent export performance, the logistics industry is at the heart of the success of the past few years. The expansion of exports in the past few years speaks to the resilience and dynamism of South Africa's logistics sector, from handling facilities, transport (road and rail) to the shipping ports. By this statement, we do not suggest that there haven't been challenges that the industry experiences constantly. However, the role players pushed through and managed to move commodities for export markets successfully.
The logistics will again be tested in 2021. South Africa is gearing up for another year of a large agricultural harvest and therefore large export volumes, especially in the horticulture and field crop subsectors. Industry estimates already suggest that the country could export 2,80 million tonnes of maize in 2021/22, which will be the largest volume since the 1994/95 season (compared to an estimated 2,79 million tonnes in the current 2020/21 season). Moreover, the Citrus Growers' Association recently noted that the "South African citrus industry would likely break all previous export season records with an estimated 158,7 million cartons in 2021, from 146 million cartons in 2020." The estimates from the wine industry also point to a slightly larger harvest in 2021 compared to the previous year. The optimism of these few crops and fruits we highlight here mirror the broader expectations of the sector, although at varying levels in terms of harvest improvement from 2020. As we have indicated in the previous notes, the favourable agricultural season is partly supported by good rainfall and higher commodities prices that have incentivized farmers to increase plantings in field crops.
Notably, industry players such as the Citrus Growers' Association and other players in horticulture have in the past few years expressed various concerns relating to the efficiency of South African logistics, specifically rail, with port congestion and a potential shortage of reefer equipment at the time. Hence, the expected harvest this year and the long-term prospects of the agricultural sector's growth as one of the critical sectors of the economy require closer collaboration between the rail industry, agriculture and agribusiness role players. Such cooperation will be crucial in addressing various operational inefficiencies that exist and anticipating some that might erupt in the future. A positive development is that the sector is in communication with key stakeholders such as Transnet, which will be instrumental in South Africa's agricultural growth drive.
South African agriculture is one of the critical sectors that still has room for expansion and opportunity for new participants. But the increase in production volumes due to the envisaged growth will need the development of export markets other than where the country's products are already present. South Africa's agriculture is export-orientated, already exporting half of its products in value terms. We have in the past discussed the key export markets that South Africa should focus on with regard to expansion to already existing markets, including the BRIC(S), Japan, and the Middle East (Saudi Arabia). In addition to the market access drive in these various countries, similar positive energy is required in the logistics sector, an integral part of the exports' market success. Also, important to note is that the success of the Agriculture and Agro-processing Master Plan hinges, partly, on an efficient and cost-effective logistics industry that will facilitate the movement of commodities, not only across South African provinces but also to the export markets.
For this reason, we viewed President Ramaphosa's recent visit to the Durban Port as positive as it shows the importance of the logistics sector and the attention being given to various challenges, which include congestion, that industry stakeholders have recently raised. In sum, Transnet and other logistics service providers do not always receive mention when we discuss South Africa's agricultural plans and celebrating success. Still, their role is key to the growth and sustainability of South Africa's agriculture. Greater focus on this area is required as South Africa moves towards the peak season for exports and imports of major staple commodities such as rice, wheat, and palm oil. Aside from the near-term demands, the long-term export-orientated growth in South Africa's agriculture also requires efficient logistics, which could be achieved through cooperation amongst all stakeholders so that challenges can be efficiently communicated and attended to. In engagements, Transnet is amongst some of the most important stakeholders.
Weekly highlights
Kenya's maize import needs to remain high, but SA will likely be a small player
Kenya is one of the few African countries that will remain significant maize importers in the 2021/22 marketing year. Several countries such as Malawi, Tanzania, Zambia, Zimbabwe, Mozambique, and Ethiopia expect a large domestic harvest, which should reduce the import needs compared to the previous season and place some at the net exporting position. A report released by the United States Department of Agriculture (USDA) last week indicates that Kenya's 2020/21 maize production would likely increase marginally from the previous season to 4,0 million tonnes (this production year corresponds with 2021/22 marketing year). Such a harvest falls short of Kenya's annual maize consumption of 4,5 million tonnes. Hence, imports are set to increase by 25% y/y to about 500 000 tonnes. This will primarily be white maize, which exporting countries such as South Africa will have in abundance for the 2021/22 marketing year.
Nevertheless, South Africa will not play a meaningful role in Kenya's maize market despite the expected white maize exports of 1,2 million tonnes in 2021/22. This is part of the expected total maize exports of 2,8 million tonnes, with 1,6 million tonnes being yellow maize. Kenya still prohibits the importation and growing of genetically modified maize. This is a significant hindrance for South Africa as roughly 80% of maize grown in the country is genetically modified. South Africa's maize export market will remain the domestic, neighbouring countries and the Far East market – the likes of Japan, South Korea, and Taiwan, amongst others. However, the neighbouring countries' maize imports demand will likely soften notably in the likes of Zimbabwe because of large domestic harvests.
For Kenya, the countries that will likely supply maize in the 2021/22 marketing year are from the Common Market for Eastern and Southern Africa and East African Community because these groups produce non-genetically modified maize. Importantly, Zambia and Tanzania will likely dominate Kenya's maize import list, as has been the case over the past decade.
Data releases this week
We are in a reasonably busy week on the agricultural calendar. From a domestic front, we start the week with the Consumer Price Index (CPI) data for March 2021, which Stats SA will release on Wednesday. As a recap, South Africa's consumer food price inflation decelerated to 5,4% y/y in February from 5,6% y/y in the previous month. The primary products underpinning this deceleration in price inflation are meat, fruit, vegetables, and bread and cereals.
We expect South Africa's consumer food price inflation could remain relatively higher in the first quarter of 2021, primarily underpinned by bread and cereals products (the pass-through of current higher grain prices will persist for the first quarter). But from the second quarter, we could see food price inflation decelerating somewhat. We maintain our baseline view for South Africa's consumer food price inflation to average around 5,0% y/y in 2021. The only upside risk that we continue to monitor and assess inflation's impact is the rising fuel prices. South Africa's agricultural commodities and processed food are primarily transported by road, and the increased transport costs could impact the final product prices. For example, South Africa is transporting roughly 81% of maize, 76% of wheat, and 69% of soybeans. On average, 75% of national grains and oilseeds are transported by road. This is an area worth monitoring over the coming months.
Still, on Wednesday, the South African Grain Information Service (SAGIS) will release the weekly grain producer deliveries data for 16 April 2021. This data cover summer and winter crops, although we only focus on summer crops for now as the harvesting process gains momentum, particularly on oilseeds. For background, on 09 April, about 188 249 tonnes of soybeans were delivered to commercial silos. This placed the soybean producer deliveries for the first six weeks of the 2021/22 marketing year at 365 785 tonnes out of the expected harvest of 1,73 million tonnes. Similarly, 69 190 tonnes of sunflower seed for the 2021/22 season had already been delivered to commercial silos in the same week, out of the anticipated crop of 696 290 tonnes.
On Thursday, SAGIS will release the weekly grain trade data for the week of 16 April 2021. In the previous week of 09 April, South Africa's 2020/21 total maize exports were 2,42 million tonnes, which equates to 90% of the seasonal export forecast of 2,69 million tonnes. In terms of wheat, South Africa is a net importer. On 09 April, imports amounted to 785 409 tonnes, which equates to 50% of the seasonal import forecast of 1,58 million tonnes.
Globally, the USDA will release the US Crop Progress report today. On Thursday, the notable data release will be the US weekly export sales data. Here, we will continue to monitor China's buying activity of US maize and soybeans.
