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HOLLARD

VERSEKERING

Rainy days ahead brighten the outlook for gloomy farmers- South Africa

Statistics South Africa released second-quarter figures in September which showed seasonally adjusted gross value added in the agricultural sector fell by 4.2% quarter on quarter on an annualised basis, after a 16.8% decline in the first quarter. Could this be the new normal?

So, it’s unsurprising that trade data continue to paint a similar picture of a decline in performance from levels we saw in 2018. South Africa’s agricultural trade surplus narrowed by 30% in the second quarter of this year compared to the corresponding period in 2018, recorded at $789-million, according to data from Trade Map.

The driver was not an increase in imports, but rather a decline in export volumes of wool, edible fruits, wine and grains. This can be explained by two factors, which are animal health and climate change, which induced the aforementioned dryness in some parts of the country.

First, the foot-and-mouth disease outbreak in Limpopo earlier this year resulted in a temporary ban on South Africa’s beef and other livestock product exports. This continued for months while the authorities did inspections and applied control measures and, thus, the impact was reflected in trade data for the first half of this year.

Beef is now back in export markets, but the wool industry continues to struggle to access the Chinese market as negotiations to resume exports are still underway (the ban on wool imports also arose from the foot-and-mouth outbreak).

This is particularly important because, over the past five years, China accounted for an average of 71% of South Africa’s wool exports in value terms. A China ban has serious implications for the wool industry and significantly affects the agricultural trade balance.

Second, the drought that started in October 2018 and continued into early 2019 in some parts of South Africa led to a poor summer crop and horticulture harvest. For example, major summer crops that performed poorly in the 2018/19 production season – maize, soybeans and sunflower seed production – are down by 12% year-on-year, 21% y/y and 24% y/y, to 11.02 million tons, 1.17 million tons and 680,940 tons, respectively.

The wine-grape harvest was down 2% from 2018. All this led to lower export volumes in the second quarter of this year compared to the corresponding period in 2018.

The African continent and Europe continued to be the largest markets for South Africa’s agricultural exports, respectively accounting for 40% and 26% in value terms. Asia was the third-largest market, taking 24% in the second quarter. The balance of 10% value was spread across other regions of the world.

But the most important point is that the subdued performance has largely been underpinned by temporary problems. This means South Africa’s agricultural economy could bounce back in 2020.

The Weather Service has already indicated a possibility of above-normal rainfall in parts of the summer crop-growing areas in the 2019/20 season. If this happens, it should lead to a recovery in production.3

Government and the private sector should now prioritise animal health to minimise adverse effects in the near future.

All this gives comfort that the underperformance in the second half of this year – and probably the whole of 2019 – might be a temporary blip. BM


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