This week, we will commemorate World Food Day on Wednesday, 16 October 2019. This event also presents an opportunity to review South Africa’s standing in the food security ladder.
Food security is achieved when three objectives are met: when food is available, accessible in the right quantities and at the appropriate nutritional levels for all citizens at all times. In 2018, South Africa was ranked 45th most food-secure country out of 133 countries measured in The Economist Global Food Security Index. This was relatively good, compared to other BRICS countries. For example, although South Africa’s average income was 25 spots behind Russia, 23 behind China and 19 behind Brazil, the county’s food security status was a relatively closer match-up, ranking just six spots behind Brazil, three spots behind Russia and one spot ahead of China (see Table 1 in the attached file).
What is worth reiterating is the fact that despite South Africa’s relatively lower average income, the country still manages to punch above its weight in terms of food security. This is a testament to the country’s competitive agricultural sector, and its ability to supply food at a relatively low cost.
Although the Food Security Index indicates South Africa is food-secure, there are pockets of food insecurity within the country when you consider a household-level perspective. This speaks to the general inequality in the country, where some households are food secure, and a sizable portion of other low-income households are not, primarily due to affordability. This scenario is more prevalent in Limpopo, KwaZulu-Natal and the Eastern Cape.
While there are a number of interventions that can assist in supporting households’ access to nutritious food, one form of intervention that can boost rural households’ income is through job creation in the agricultural sector. There is anecdotal evidence that in areas where government and private sector have collaborated in agricultural development, some level of success in terms of job creation could be achieved.
With agriculture having gained prominence as one of the sectors that could bring about rural economic development and job creation in South Africa, the government’s approach to realising this vision should be regionally focused. Meaning, the aforementioned provinces should be the key priority in resource allocation, as the frontiers of agricultural expansion. Such an approach not only makes sense in terms of reducing poverty but also in exploiting the potential of underutilised land. Limpopo, KwaZulu-Natal and the Eastern Cape arguably have about 1.6 million to 1.8 million hectares of underutilised land which can be sustainably farmed for increased food security over the long term. This is according to a 2015 study by McKinsey Global Institute.
Admittedly, the current land governance system -- communal land -- has been cited as one of the hindrances in agricultural development in these provinces, as it limits investment. But, solving such matters can take a long time and land reform policy is still being debated across the country.
The near-term practical approach that can make a difference is structuring an innovative agricultural finance instrument -- such as blended-finance -- which pulls in the capital and human capital from both private and public sectors. In parts of the Eastern Cape, agribusinesses such as The Co-op, are currently engaged in such arrangements with the provincial government and in areas where projects have been implemented there has been some level of success. These are some of the approaches that are needed for boosting households’ income so they can have access to nutritious foods in the near term, while broad development policies are yet to be operationalised or implemented.
Large global grains supplies
The United States Department of Agriculture (USDA) reaffirmed the view that the world has relatively large grains supplies this year. In its October 2019 update, the agency maintained its 2019/20 global wheat production estimate at 765 million tonnes, which is 5% higher than the previous season. As a consequence of this, the stocks could increase by 4% y/y to 287 million tonnes. This will essentially keep global wheat prices are relatively lower levels, which is beneficial for consumers in importing countries such as South Africa.
Moreover, the USDA left its 2019/20 global maize production estimate roughly unchanged from September 2019, at 1.1 billion tonnes. Admittedly, this is 2% less than the previous season because of a poor harvest in parts of the US and Argentina amongst other countries, but these are still comfortable levels in covering the world’s maize needs. The reduction in production, while consumption is relatively strong, means that the stocks could fall by 7% y/y in 2019/20 season.
Unlike the aforementioned grains, the 2019/20 global soybean production was revised down by 1% from levels seen in September 2019 to 324 million tonnes. This was largely on the back of anticipated poor yields in the US and Paraguay. The current estimate is now 6% less compared to 2018/19 production season. The poor harvest in the US because of wet weather conditions at the start of the season is central to this anticipated reduction in global soybean harvest.
Another important factor that we continue to monitor in the soybeans space is its consumption, specifically because of fears that African swine fever could have a negative impact. So far, however, global soybean demand remains solid. The consumption trend and a decline in production could be supportive of soybeans and its by-products prices in the near term. Similar to wheat, South Africa is a net importer of soybeans and a notable importer of soybean oilcake (see Figure 1 in the attached file), then an uptick in global prices could influence the domestic market and business.
Harvest activity picking up momentum in parts of the Western Cape winter crop regions Not much has changed in the Western Cape weather conditions since our previous note. But rainfall at this point would rather cause damage in some winter crop growing areas rather than help boost yields as we would have liked to see in the past couple of weeks. Farmers in parts of the Southern Cape and Overberg are in full swing with canola harvesting and at initial stages of wheat and barley harvesting. This means drier weather conditions will be ideal for the next couple of weeks, which is precisely what the forecasts for the next two weeks show – see Figure 2 in the attached file.
With that said, the drier weather conditions and heat experienced over the past couple of weeks within the Western Cape has caused yield losses. As previously highlighted, the Western Cape is a major producer of winter crops, accounting for 61% of area plantings in winter wheat and nearly all canola, hence we placed greater emphasis on crop conditions within this province.
Other major winter crop producing provinces -- Northern Cape, Free State and Limpopo, amongst others -- are mainly under irrigation and can, therefore, withstand harsh conditions as dams are at levels over 50% on average as of 07 October 2019. Farmers’ reports out of the Free State suggest that the wheat crop in the province generally appear very good. The same is true for the Northern Cape.
South Africa’s Crop Estimates Committee (CEC) currently forecasts the 2019/20 wheat, barley and canola production at 1.81 million tonnes, 389 260 tonnes and 88 800 tonnes, which is 3%, 8% and 15% down from the previous season.
Looking ahead, we see a risk that the CEC might revise down further its winter crop production estimates when the next update comes out on 24 October 2019 given that weather conditions have been harsh in parts of the Western Cape, and in turn, resulted into yield losses.
From a data front
The data calendar is quite light this week. On Monday, the US Department of Agriculture will release its weekly update of the US crop conditions data. This will give us a sense of the US crop-growing conditions, and thereafter the potential size of the harvest.
On Wednesday, SAGIS will release the grain producer deliveries data for the week of 11 October 2019. This covers both summer and winter crops. In the coming weeks, the deliveries data will give us a sense of the pace of the winter crops harvest activity.
On Thursday, we will get the weekly grain trade data (wheat and maize) for the week of 11 October 2019. In brief, maize exports for the 2019/20 marketing year have thus far amounted to 495 645 tonnes. Looking ahead, we expect South Africa to remain a net exporter of maize this marketing year, although the volume will most likely fall by half from 2018/19 to about 1.1 million tonnes. At the same time, we expect maize imports of about 450 000 tonnes, all yellow maize, mainly for the coastal provinces of the country. This is up from an estimated 171 500 tonnes in the 2018/19 marketing year. The country has thus far imported 251 708 tonnes of yellow maize, all from Argentina.
In terms of wheat, South Africa remained a net importer in the 2018/19 marketing year, although the recovery in the country’s domestic wheat production led to a decline in the volume of imports. South Africa’s 2018/19 wheat imports fell by 36% from the previous season to about 1.4 million tonnes. Looking ahead, South Africa’s 2019/20 wheat imports could increase to 1.6 million tonnes because of expected lower harvest on the back of unfavourable weather conditions in the Western Cape. The first import consignment of the 2019/20 marketing year was 32 841 tonnes, from Germany, Russia and Poland. This week we will receive data for activity in the week of 11 October 2019, which is the second week of this marketing year.
