There are preliminary indications that Southern Africa could face yet another year of poor agricultural output.
A recent report from the Group on Earth Observations Global Agricultural Monitoring Initiative (GEOGLAM) indicates a high probability of below-normal rainfall in Southern Africa between December 2019 and February 2020 (Figure 1 in the attached file).
There is, therefore, the potential for a poor output in agriculture across the region, and forward planning is key to mitigate the effects of food insecurity. To this end, there is first a need to improve the timeliness and quality of agricultural conditions data across the Southern African region, especially for the staple crop which is maize. Unfortunately, this remains a challenge for most African countries with the exception of Zambia and South Africa who frequently release data on agricultural conditions and the expected crops harvest.
What we currently know is that the maize planting season began across the region in mid-October, and some countries in November 2019, and the process has thus far disappointed because of dryness in various countries, notably; Namibia to Mozambique, and southwards from Zambia through South Africa. These countries have already experienced a double-digit decline in maize production in the 2018/19 production season, leaving Zimbabwe and Mozambique as net importers of maize and other agricultural products. As a result, the forecasts of another drought have raised fears that there might not be a recovery in general agriculture production that many had hoped for going into the 2019/20 season.
But the dearth of timely data also increases prospects of a slow response from policymakers, private sector firms that operate within the food industry and various non-governmental institutions that are concerned with food security in Southern Africa.
Although we are yet to know how crop conditions will be over the coming months and the potential size of import needed, if there is indeed a poor harvest, it is best to be warned about the impacts of below-normal rainfall beforehand rather than acting when it is too late. This then raises two important questions for consideration:
Where is Southern Africa going to find the white maize supplies?
Does the Southern Africa region have the infrastructure to move the potentially required maize imports efficiently?
First, Africa’s maize exporters in normal rainfall seasons include South Africa, Zambia and Tanzania. But in the 2019/20 production season, these countries could experience similar weather conditions as the rest of the Southern Africa region. This means their ability to export maize is limited. Under such a scenario, the focus should be to look to countries outside the African continent. To this end, the only country that can potentially supply white maize is Mexico but it is unclear if the country has sufficient supplies which could serve the whole Southern Africa region (depending on maize needs which will be clear early 2020). Therefore, depending on how crop conditions will be by the end of January 2020, the Southern Africa region might have to encourage US farmers to increase their usually very small hectares of white maize and produce for the Southern Africa market. The same message could be passed to the Mexican farmers. It might be too late to encourage South American farmers as they typically plant around the same time as Southern Africa.
Second, we think the infrastructure is not the main challenge, especially if the maize and other agricultural import needs are detected on time to plan the flow of imports. South Africa and other coastal countries such as Mozambique have in the past managed to handle large volumes of agricultural imports and thus, we are not very concerned about this point as long as needs are determined on time.
Policy considerations
We will have a better sense of crop conditions and potential size of maize imports in the coming months, but policymakers can, in the near term, consider the following options as ways of easing food insecurity concerns within Southern Africa:
Encourage white maize production under irrigation where possible in various countries.
Temporarily ease restrictions on imports of genetically white maize (this applies to the whole of Southern Africa, with the exception of South Africa which has no restrictions).
Capacitate local government institutions to improve the quality of information about agricultural conditions and flow of grain to market players.
Collaborate with private sector trading groups to ensure that required maize is sourced from various parts of the world timeously. This collaboration should include easing regulations on imports in countries where such exists.
South Africa’s 2019 wheat and barley harvest estimate down notably from the 2018/19
South Africa’s Crop Estimates Committee has lowered its estimates for the country’s 2019/20 wheat and barley production by 5% and 2% from October 2019 to 1.6 million tonnes and 358 760 tonnes, respectively. In the case of wheat, this equates to a 16% decline from the 2018/19 season and 15% y/y decline in the barley harvest.
This is unsurprising as we have stated in the previous notes that Western Cape’s winter wheat and barley, which has largely been harvested, were not in good shape as initially anticipated at the start of the season. The decline in South Africa’s overall wheat and barley harvest estimate is underpinned by lower yields in this particular province. This is largely because of drier weather conditions during the end of August into September.
To zoom into the major winter crop – wheat – which South Africa is a net importer of, this downward revision of production prospects might not have notable implications on prices. The domestic wheat prices are largely influenced by international wheat market conditions and the exchange rate.
Currently, there are large wheat supplies in the global market. In its November 2019 update, the United States Department of Agriculture estimated the 2019/20 global wheat production at 766 million tonnes, which is 5% higher than the previous season. As a consequence of this, the stocks could increase by 4% y/y to 288 million tonnes.
This will essentially keep global wheat prices at relatively lower levels, which is beneficial for consumers in importing countries such as South Africa. We currently forecast South Africa’s 2019/20 wheat imports at 1.6 million tonnes, up 14% y/y because of the aforementioned poor harvest this year. But the local farmers will be under financial pressure because of these production conditions.
With that said, the relatively weaker domestic currency has somewhat provided support to South Africa’s wheat prices which at the end of November 2019 were at R4 405 per tonne, up 3% y/y. All else being equal, we could see a sideways movement of South African wheat prices around its current levels over the next couple of months.
South Africa’s food producer price inflation slowed in October
South Africa’s food price inflation slowed to 4.3% y/y in October 2019 from 4.6% y/y in September (Figure 3 in the attached file). This was underpinned by a decline mainly in meat and dairy products prices. In the case of meat, the decline in prices is somewhat reflective of an increase in supply, cattle and sheep slaughtering activity improved by 6% and 17% from the previous months to 207 231 head and 367 633 head, respectively.
Going forward, we think meat price inflation could remain subdued over the next couple of months because of the recent reports of another foot-and-mouth disease outbreak. The disease has led to a suspension of some South African agricultural exports in certain markets which would then lead to an increase of meat supply in the local market and thereafter a decline in prices. In terms of dairy products, producer prices are likely to slow in the coming months as supply typically improves in summer when grazing veld has recovered. Moreover, global dairy products prices are somewhat under pressure and that too could influence the domestic market.
Data releases this week
This is a relatively quiet week on the agricultural data front. On Tuesday, Stats SA will release the GDP data for the third quarter of this year. To recap, after a strong contraction (16.8% -- revised numbers) during the first quarter of 2019, South Africa’s s agricultural economy contracted further by 4% q/q saar in the second quarter. While we expect a mild recovery in the third quarter numbers, South Africa’s agricultural economy will underperform this year because of poor harvest of major summer crops on the back of drier weather conditions in most parts of the country in the 2018/19 season.
On Wednesday, the South African Grain Information Service (SAGIS) will release the grain producer deliveries data for the week of 29 November 2019. This covers both summer and winter crops. But we particularly monitor winter wheat data as farmers continue with the harvest process in the Western Cape. In the week of 22 November 2019, about 704 266 tonnes of the expected 1.8 million tonnes of wheat in the 2019/20 season had been delivered to commercial silos.
On Thursday, we will get the weekly grain trade data (wheat and maize), also for the week of 29 November 2019. In brief, maize exports for the 2019/20 marketing year have thus far amounted to 661 650 tonnes, which equates to 60% of the import forecast for this season. 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 359 057 tonnes of yellow maize.
In terms of wheat, South Africa’s 2019/20 wheat imports could increase by 14% y/y to 1.6 million tonnes because of expected lower domestic harvest on the back of unfavourable weather conditions in the Western Cape. The eighth import consignment of the 2019/20 marketing year was 48 142 tonnes. This placed total imports for the 2019/20 season at 406 813 tonnes, which equates to 25% of the seasonal import forecast.
