On 13 May, Ms Thoko Didiza, Minister of Agriculture, Land Reform and Rural Development, delivered her Budget Vote Speech.
The speech touched on several important policy themes such as land reform, agricultural land leases, agricultural expansion, finance and the sectorial master plans.
On land reform, the minister’s emphasis was on redistribution and applying the beneficiary selection criteria policy that emanates from the 2019 report of the Presidential Advisory Panel on Land Reform and Agriculture. The policy prioritises women, youth, and people with disabilities in land redistribution. This cohort comprises more than two-thirds of the land beneficiaries thus far in the 700 000 hectares that the government announced for release in October 2020. Thus far, the government has allocated 436 563 hectares of the 700 000 hectares. Notably, the minister acknowledged that some of this land was already occupied, and her department only had to formalise the leases in such occupied land parcels.
On agricultural land leases, Minister Didiza recognised the frustrations that farmers have experienced over the past couple of months. Some black farmers were even threatened to be removed from productive farms such as in the Rakgase, Cloete and Zigana cases. The minister added that the aforementioned cases “had amplified the need for a complete overhaul of our system of property management as a department.” She added that “the deeds registry will also ensure that farm leases earmarked for farmers are registered to create certainty from the financial institutions and interested investors.”
In terms of land restitution, Minister Didiza committed to accelerating the resolution on old order claims and announced that her department has settled 240 claims in the past financial year, which covered both urban and rural claims. Disappointingly, there was no update on land tenure developments, which is important in strengthening land rights and necessary prerequisites for investments in agriculture.
For agricultural expansion, the minister’s speech built on the positive momentum in the sector supported by favourable weather conditions and increased plantings. There are prospects of another year of solid growth in the agricultural gross-value added, which at Agbiz, we forecast at roughly 5% y/y, from a higher base of 13,1% y/y in 2020. A significant challenge that has faced the sector, which the minister noted, is animal and plant health. South Africa has been experiencing frequent outbreaks of brown locusts, avian influenza, foot-and-mouth disease and African swine fever. These diseases tend to hinder agricultural trade and cause substantial financial losses for farmers. Unfortunately, the minister did not provide detail of the long-term plan of addressing these critical challenges, but instead noted the near-term interventions being made by the state scientists and various programmes of the Agricultural Research Council and Onderstepoort Biological Products. It is unclear if these two particular institutions can address the increasing incidence of animal and plant health diseases, perhaps brought about, in part by climate change, or if there needs to be increased reliance on the private sector to address the deteriorating situation.
The more pointed interventions on agricultural expansion were the commitment to ensure that land given to farmers and communities as part of land reform processes is cultivated. Also, the strengthening of the extension officers complement remains a priority, and the government intends to hire an additional 10 000 extension officers over the next three years. If the extension officers are well trained, they could help new entrants’ farmers in the sector. To magnify this point, Minister Didiza noted that “As committed by the Minister of Finance, the department and the provinces have crafted a Strategy on the Employment of Extension Officers, and we will employ 2 447 in this financial year. Noting the importance of regulatory services in addressing biosecurity matters in our provinces, we will employ an additional 50 animal health technicians this year.” The collaboration with private sector players who will mentor or provide value chain opportunities for new entrant farmers is also another point that came out of the minister’s speech.
In agricultural finance, the minister expressed the government’s commitment to stabilising the Land Bank, which has been experiencing liquidity challenges for months. Minister Didiza said, “Land Bank remains an important institution in supporting the agricultural sector, and we will do anything possible to secure its future. My department is working closely with National Treasury to work out a sustainable financial model to ensure that the Bank continues to fulfil its mandate. In the 2021 February budget, the Minister of Finance announced that an amount of R7 billion over the MTEF had been secured to support Land Bank. This allocation will help to resolve the Bank’s current default and re-establish the development and transformation mandate. My department will also ensure that additional resources are diverted to the Land Bank.”
Also, in line with the growth theme were the Agricultural and Agro-processing Master Plan, which we have written about in the previous viewpoints. The master plan is at its final stages, with the sector role players, which include community representatives, labour, government and the private sector, set to meet for consultation in June 2021. Another plan which we have not written much about is the national Cannabis Master Plan. The minister indicated that “An inter-departmental team comprising of representatives from various departments was established to guide the development of the National Cannabis Master Plan with DALRRD as the convener. The Cannabis Master Plan is being presented to NEDLAC before the end of May 2021. As of October 2021, the department will begin issuing and monitoring permits for the production of hemp in South Africa.”
Overall, we view the speech as generally positive as it centred on the theme of private-public-partnership for the development and expansion in the sector and emphasised various programmes that the social partners are already working collaboratively with the government on. We share the minister’s broad view that harnessing the power of public and private sector collaboration is critical for unlocking opportunities for inclusive growth in the sector.
Weekly highlights
Both the USDA and IGC paint a positive picture of the 2021/22 global grains and oilseed crop
Last week the United States Department of Agriculture (USDA) released its preliminary forecasts for the 2021/22 production season. The estimates were broadly in line with the International Grains Council (IGC) view we shared last week for all major grains and oilseeds. For example, if we start with maize, both the USDA and IGC forecast global production at 1,2 billion tonnes, which is up by 5% from the 2020/21 production season. This optimism is underpinned by expectations of a large crop in the US, Brazil, Argentina, Ukraine, China, EU and Russia. As was the case with the IGC data release a week earlier, the reaction to the release of this data was generally muted. Some market participants are currently more focused on the near-term issues affecting the crop, such as persistent dryness in Brazil, which negatively affects the country’s 2020/21 second maize crop. The 2021/22 maize crop will only be planted towards the end of the year across the Southern Hemisphere and is therefore not an immediate focus. Another concern in the market is dryness in parts of the US and Canada, threatening and slowing the 2021/22 maize crop. Nevertheless, the USDA and IGC maintain a reasonably positive view of maize production estimates of all the countries mentioned above, as they are evidently amongst those underpinning the expected 1,2 billion tonnes of maize in 2021/22, as we previously stated.
There are, however, differences in the USDA and IGC 2021/22 global maize stocks forecasts. The IGC estimates global maize stocks at the end of 2021/22 to be the smallest in nine years, at 264 million tonnes (down 3% y/y), in part, due to rising global consumption. Meanwhile, the USDA sees a 3% y/y potential improvement in global maize stocks to 292 million tonnes.
Moving to wheat, the USDA forecasts a 2% y/y increase in global production to 788 million tonnes. This is slightly below the IGC forecast of 790 million tonnes. The general improvement in crop prospects is primarily attributed to better outlooks in Europe and North Africa, the US, Ukraine, China, UK, and India, amongst other countries. The USDA forecasts stocks at roughly unchanged levels from the 2020/21 season, at around 294 million tonnes. Ideally, the reasonably large stocks would lead to a softening in prices and be beneficial for importing countries such as South Africa. We are yet to see if such will unfold in the coming months.
The USDA forecasts a 6% increase in 2021/22 global soybeans production to a record 386 million tonnes (this is slightly higher than the IGC forecast of 383 million tonnes). The major contributing countries to this USDA forecast are the US and South America. For the Southern Hemisphere countries, as we said in last week’s note, we will only know if the optimism in plantings holds at the end of this year, which is when plantings will start. Significantly, if everything were to go as the USDA estimates, the 2021/22 global soybeans stocks would recover by 5% y/y to 91 million tonnes. Such a recovery would have slight downward pressure on prices which have remained relatively elevated primarily because of strong Chinese demand.
In rice, the USDA forecasts 2021/22 global production at 503 million tonnes, up by 1% y/y. Nevertheless, the stocks could fall by 1% y/y to 176 million tonnes because of growing consumption. This could add upward pressure on prices, which is not conducive for importing countries such as South Africa.
In sum, we maintain the same view as the previous week, which is that the initial global production forecasts for the 2021/22 grains and oilseeds production paint a slightly better picture than initially feared. If more on-the-ground evidence emerges in the coming months to support these forecasts, then the global agricultural prices would potentially cool off from the current higher level. Such a price trend would filter into the South African grains market.
Data releases this week
We start the week with the US Crop Progress report on the agricultural data calendar, which will be released by the USDA today. The previous report of 09 May showed that US maize planting is gaining momentum, with over two-thirds of the intended area already planted in maize, with soybeans and other crops nearing 50%, and ahead of last year’s pace on the same day. The US Weekly Export Sales data is due for release on Thursday.
On the domestic front, on Wednesday, Stats SA will release the Consumer Price Index (CPI) data for April 2021. As a recap, South Africa's consumer food price inflation accelerated to 5,9% y/y in March 2021 from 5,4% y/y in the previous month. The product prices underpinning the uptick were mainly bread and cereals; fish; milk, eggs and cheese; and oils and fats. The increase in prices of these products is unsurprising and reflects the elevated farm-level prices we observed at the end of 2020 and into 2021.
Still, on Wednesday, the South African Grain Information Service (SAGIS) will release the Weekly Grain Producer Deliveries data for 14 May. 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. To recap, on 07 May, about 116 463 tonnes of soybeans were delivered to commercial silos. This placed the soybean producer deliveries for the first eight weeks of the 2021/22 marketing year at 1,53 million tonnes out of the expected harvest of 1,79 million tonnes. Similarly, 274 218 tonnes of sunflower seed for the 2021/22 season had already been delivered to commercial silos in the same week, out of the expected crop of 696 290 tonnes.
On Thursday, SAGIS will release the Weekly Grain Trade data for the week of 14 May. In the week of 07 March, which is the first week of South Africa's 2021/22 maize marketing year, total maize exports amounted to 38 329 tonnes, destined for Spain and the regional markets. The seasonal export forecast is 2,8 million tonnes (up 10% y/y), because of the expected large domestic harvest. In terms of wheat, South Africa is a net importer. On 07 May, imports amounted to 936 179 tonnes, which equates to 59% of the seasonal import forecast of 1,58 million tonnes.
