The recently concluded South Africa Investment Conference showcased a range of investment opportunities in our economy and brought back some optimism for economic prospects in a global environment focused on the Ukraine war, high inflation and rising interest rates.
One sector of the economy that was perhaps less prominent this year yet still holds potential for growth and job creation is agriculture, perhaps for a good reason, given that there are still fundamental challenges that the sector should resolve to ease the business conditions.
Highlighting the sector’s growth possibilities would have indeed lifted the sentiment. Still, the reality of fundamental constraints was going to face questions from potential investors as soon as they dug deeper into the details of the landscape in the sector. We have challenges in this sector ranging from the prevalence of animal diseases outbreaks such as foot-and-mouth disease, which are currently ravaging the cattle industry leading to a temporary suspension of exports of livestock products, which is costly to industry players. Significant infrastructure constraints, such as poor rural roads, water infrastructure, and rail system, increase transaction costs for role-players in the sector and risk the country’s exports. We cannot forget the security concerns such as stock theft, fam attacks and vandalization of rural infrastructure, which remains a major challenge in rural South Africa.
I mention these issues to highlight the fundamental realities that farmers and agribusiness struggle with, although they have persisted and saw this sector growing by 13,4% y/y in 2020 and 8,3% y/y in 2021. If the above challenges were resolved, perhaps there could have been even faster growth and transformation in the sector.
With all these challenges, there are opportunities to expand agricultural production, mainly in the provinces of Eastern Cape, KwaZulu-Natal, Limpopo and Mpumalanga, and a wide range of agro-processing possibilities across the country.
Another important long-term objective of South African agriculture that should not be neglected amid the current environment of geopolitical strife is the need for government and industry to widen and deepen export markets.
The products that most urgently need broader export markets are not the focus of the current geopolitics-led food crisis concerns. It is mainly the fruits, wine and beef industries. The products whose supply is most at risk from the ongoing Russia-Ukraine war are wheat, maize, and vegetable oils.
For wheat and vegetable oils, South Africa is a net importer, thus not wanting to widen export markets but instead boost local production. Maize, however, is the opposite and ranked third in exportable products by value in 2021. The difference between the international trade experience in maize and fruits is that South Africa has, in the case of the former (maize) established markets outside of the African continent, mainly in Asia. Therefore, it has not struggled to find export markets whenever there is a surplus, as is the case in the 2021/22 marketing year, with the largest exportable volume since the 1994/95 marketing year, with about 3,9 million tonnes.
In fruits, wine, and beef, the growing competition in destinations that South Africa already has access to in the European Union, the US, multiple countries in Asia and the Middle East have prompted the country to seek market access in several other countries.
Moreover, the growth in domestic production volumes in citrus, deciduous fruit, avocados, nuts, wine, berries, and beef, among other products, are expected to increase in the coming years. Notably, even the government policies that aim to bring underutilized land of the aforementioned provinces into full production of various commodities will require a market for the produce.
The South African farmers and agribusinesses have long identified some key markets to prioritize in addition to the existing markets. Such markets include Japan, Bangladesh, China, India, and Saudi Arabia.
This selection is based on the growing population and potential increase in demand based on economic prospects. India, Saudi Arabia and Japan are amongst the top twenty importers of agricultural products globally.
Of the three countries, Saudi Arabia is one of the countries where South Africa’s agricultural sector currently has minimal access. Over the past decade, South Africa’s agricultural exports have been on an upward trajectory, both in volume and value terms.
However, Saudi Arabia accounted for a relatively small share. In value terms, Saudi Arabia accounted for a mere 1% share of South Africa’s agricultural exports averaging US$10 billion in the past decade. The countries that have dominated Saudi Arabia’s nearly US$20 billion worth of agricultural imports are Brazil, India, the US, UAE, Argentina, Egypt, Spain, Netherlands, Turkey and Poland.
The presence of some of these countries is unavoidable because of their dominance in the global production of the agricultural products that Saudi Arabia mostly imports. The imported agricultural products include rice, poultry meat, milk, cheese, malt, bread and pastries, maize, barley, sugar, live goats, citrus, berries, and palm oil.
Some of these products are already on the list of products South Africa exports to Saudi Arabia. For instance, South Africa currently exports to Saudi Arabia citrus, apples and pears, grapes, berries, cheese and a range of other fruits and products. But these are in small volumes compared to the countries we list above.
Notably, some products such as oranges and apples currently face zero duties in Saudi Arabia. In such cases, the marketing of South African products by both industry and government during trade fairs is an important step. Such marketing activities will also assist in the identification of any non-tariff barriers that currently lead to low volumes of exports even at zero duties. For products where some duties currently apply, both industry and government can work collaboratively to open the market and promote South African products.
This past week, President Cyril Ramaphosa was in the Middle East. It is such visits that the agricultural businesses should capitalize on for the promotion of the South African produce to key markets in that region. While the local investment summits are important in stimulating a positive sentiment in the sector, a significant driver of the promotion of South African agricultural products to foreign markets should be part of the process of supporting this sector. Only when the market has widened the appetite to drive expansion in production domestically will gain even more urgency than at the present moment.
And this should be an ongoing priority for the government and agribusinesses. The current geopolitical problems are disruptive to the global agricultural markets, but this is not a uniform picture across all sub-sectors of agriculture. The products most affected are the staple grains.
Critically, an environment of geopolitical uncertainty should not detract from the important work of growing the domestic agricultural sector and expanding export opportunities. For fruits, South Africa already exports more than half of the production for many fruits. The increase in production that is expected for various plantations and the need to diversify somewhat from the EU market requires that South Africa actively engages the world’s leading agricultural importers and promote the products the country produces in surpluses, such as various fruits, beef, and maize. This should be an ongoing exercise and a government and industry collective effort.
