If there was ever a time where incentives could help reduce the spread of animal disease in South Africa, it is probably now. Since April 2019 there have been 14 reported outbreaks of African swine fever, all of the cases are in various areas of the North West, Mpumalanga, Gauteng, and the Free State.
These outbreaks were mainly amongst smallholder farmers. A few cases in wild boars have also been reported. The local authorities responded by quarantining and controlling the movement of pigs in affected areas.
But the industry remains concerned that farmers may give in to the temptation to rush the rest of the herd to the market when they realise that some pigs within their herd are dying because of the African swine fever. This would present a risk of further spread of the disease (which spreads by contact). This leads us to the point of incentives for areas that have been affected by the disease. While government finances are constrained, farmers should be incentivised to report the outbreaks so that the disease can be successfully controlled. The incentives could take the form of government payments to farmers for a portion of the market value of pigs to be culled because of the disease as provided for in the Animal Diseases Act. While it is unclear what the costs of this exercise would be, the risk of the disease could have bigger implications for the local pig industry, as it’s the case in Asia.
Also, having observed that the most affected areas are the smallholder farmers in informal and rural areas, where pigs are kept for self-consumption and sales in informal markets, African swine fever could have social implications if pigs die or farmers are forced to cull their herds with no compensation. Aside from incentives, increased education and awareness of African swine fever should also be prioritised, specifically amongst smallholder farmers. Hence, we were encouraged to learn over the weekend that the Minister of Agriculture, Land Reform and Rural Development, Ms Thoko Didiza, has set up a task team to urgently look into ways to curb the spread of the disease to other provinces.
From a human consumption side, there is no threat posed by consuming pork products for two reasons. First, the spread has largely been in smallholder farmers whose product do not end up in the retail chains. Second, even if the commercial sector was to be affected and not detected until the meat reaches consumers, African swine fever reportedly has no effect on humans, although consumption of affected pigs is not encouraged (we have discussed the science side of the African swine fever here). Moreover, combating African swine fever is key to improving South Africa’s self-sufficiency . South Africa is currently a net importer of pork of about 26 000 tonnes a year.
Weekly highlights
South Africa’s food price inflation data for July 2019
Since the start of the year, South Africa’s agricultural commodity prices have increased notably from levels seen over the same time last year, specifically grains and oilseeds. Under normal circumstances, one would expect the price increases in agricultural commodities to translate to higher consumer prices, with a lag of roughly three to six months. But this year the consumer food inflation has been relatively contained because of a number of reasons.
One of the key factors has been the lower meat prices in the earlier part of this year because the ban on beef exports contained the headline food price inflation number at relatively comfortable levels. But the ban has now been lifted and meat prices are beginning to increase somewhat.2 Another factor contributing to the meat price increase is pork, which is influenced by lower production in Asia because of the spreading African swine fever, specifically in China and Vietnam. On the local market, the outbreaks of African swine fever have thus far been on non-commercial pork-producing zones, and thus had minimal implications on domestic pork supply.
The price inflation of food categories such as grains (cereal and bread) have consistently accelerated since the start of the year. But we suspect the passthrough of prices reflected at farm levels (+30% y/y) has been soft this time around. Hence, South Africa’s headline food price inflation slowed to 3.0% y/y in July 2019 from 3.4% in the previous month. (The cereals and bread price inflation were up by just 7.9% y/y in July. Worth noting is that under normal circumstances, there is roughly 63% price transmission between the prices of white maize and retail maize meal, with a delay of three months)
The core of our argument in this feature is best captured by Figure 2 below which illustrates the food producer price inflation (PPI) and consumer price inflation (CPI). Historically, there has always been a good co-movement in these trends, but we are now seeing a decoupling.
Week ahead
South Africa’s winter crops production
One of the important data points to look forward to this week is the winter crops production estimates which will be released on Tuesday. This will specifically be data for 2019/20 wheat, barley and canola production.
To dive into the major winter wheat crop – wheat -- last month, South Africa’s Crop Estimates Committee placed the country’s 2019/20 wheat plantings estimates at 536 950 hectares, up by 7% from the 2018/19 season. We will know this week if this number will be revised or left unchanged. Our sense is that if there are adjustments, they will probably be marginal.
If we take the aforementioned preliminary area estimate for wheat and assume an average yield of 3.45 tonnes per hectare, which would be lower than the 2018/19 yields, South Africa’s wheat production could amount to 1.85 million tonnes. This is marginally lower than the previous season, despite the increase in area plantings. Overall, this would mean that South Africa’s wheat imports could remain roughly unchanged from the current marketing year, at 1.4 million tonnes in the 2020/21 marketing year.
The crop is generally in good condition across the Western Cape and other parts of the country that are primarily under irrigation. But there is a need for follow-up rains in the Western Cape to boost soil moisture and maintain the crop in good condition. Fortunately, the South African Weather Service forecasts a possibility of above-normal rainfall over the Western Cape between August and October 2019.4 This increases the possibility of a good harvest this season.
South Africa’s summer crops production
Tomorrow, the South African Crop Estimates Committee will also release its seventh production estimates for summer crops – white and yellow maize, soybeans, sunflower seed, sorghum, groundnuts and dry beans. This will be a last update before the final estimates, and as thus, we don’t expect any meaningful adjustments from last month. Moreover, last month, the summer crop harvest process had already advanced, which means the yield estimates reported were indicative of the situation on farms.
Last month, South Africa’s Crop Estimates Committee placed the country’s 2019/20 wheat plantings estimates at 536 950 hectares, up by 7% from the 2018/19 season.
The winter crops are in good condition across the Western Cape and other parts of the country that are primarily under irrigation. But there is a need for follow-up rainfall in the Western Cape.
To zoom into the major grains, South Africa’s maize production estimates were estimated 10.98 million tonnes (white maize was about 5.57 million tonnes, with yellow maize at 5.41 million tonnes),
Our view is that South Africa will be a net exporter of maize despite the estimated 10.98 million tonnes harvest being 12% less than the 2017/18 production season (corresponding with 2018/19 marketing year). At the start of the 2019/20 marketing year in May, South Africa had an opening stock of 2.8 million tonnes. If we add the stocks to the expected harvest, the country should have sufficient maize supplies to cover its annual consumption of about 10.8 million tonnes. Moreover, South Africa is likely to remain a net exporter of maize in the 2019/20 marketing year. The exports, however, could decline by half from the 2018/19 marketing year to about 1.1 million tonnes. These exports will likely be destined to countries in the Southern African region.
Moreover, last month the Crop Estimates Committee placed South Africa’s 2018/19 sunflower seed production estimates at 655 640 tonnes, down by 24% from the previous season . We don’t expect any major changes from this estimate. In the case of soybeans, production is estimated at 1.17 million tonnes, which is also 24% lower than the previous season and implies that South Africa will be a net importer of soybeans and its by-products (oilcake) in 2019/20 marketing year which ends on February 2020. This estimate came in last month when a greater share of the local soybeans had already been harvested, and therefore the numbers were a true reflection of conditions on farmers. As a result, we don’t expect major changes on this estimate either.
Figures and Tables can be viewed at AGBIZ site.
