The move to ‘level 1’ of the lockdown is a welcome step from a broader macroeconomic perspective, as this ensures that economic activity in the country continues to normalize gradually across more sectors of the economy.
Within agriculture, the only segment that will likely benefit the most from this move is agritourism, which has been hard hit by the pandemic, along with the wider tourism industry. The agritourism industry comprises, amongst others, hunting tourism, rural tourism, wine tourism, nature-based tourism, cultural heritage tourism, and adventure tourism. These activities provide additional income to farming businesses and create jobs in rural areas.
One of the most common forms of tourism in South Africa has mainly been wine tourism and hunting tourism. The former has been hard hit, not only by the temporary ban on interprovincial and international travel during various stages of the lockdown but by also the temporary prohibition on alcohol sales which has recently been lifted. Wine producers and farmers, specifically small farms, rely, to a certain extent, on agritourism to diversify income and to boost the sales of their produce. Hence, the impact of the temporary ban on sales and limited movement of people was quite pronounced despite exports having been permitted for the greater part of the lockdown.
Rural Limpopo also stands to benefit from the increased wider opening of the economy through hunting and wildlife tourism (game farms and game lodges). While there is no clear measurement of the value of agritourism in South Africa, studies from the Western Cape Department of Agriculture suggest that accommodation, wine cellars, tours and tastings, restaurant; hiking, conferences and functions, weddings, picnics and fishing are amongst the key offerings in that province as illustrated in Exhibit 1 (attached file). Accommodation, hiking and hunting are likely to be one of the common offerings in other provinces in the country.
Although international tourists, who generally have a higher average spend when compared to local tourists, might remain limited, even with the move to level 1 of the lockdown, we suspect that there might be an uptick of locals exploring the country. This is partly because consumers’ confidence and appetite are likely to slowly return as the spread of the pandemic continues to slow. With respect to international tourists, studies from the Western Cape’s Department of Agriculture show that 29.8% of the international market’s average spend on wine tourism was between R501 to R1 000 per day in 2017. The local tourists will most likely spend less than that, especially during the current tough economic times.
Nevertheless, we are already starting to observe anecdotal evidence on social media and other platforms that various establishments are offering special prices and local tourists are showing uptake of such offerings. While local tourists might not boost the rural economy to vibrant levels as before the pandemic, there will nonetheless be an improvement from weeks of limited business activity. The key challenge is that local tourists will likely be cautious about spending, given the poor domestic economic outlook, which means that various businesses that generally derived great value from agritourism will remain under pressure, to a certain extent, over the near-to-medium term. We also suspect that establishments with hiking and hunting facilities will most likely gain from local tourists as individuals may prefer nature which offers social distancing.
Aside from the agritourism, the broader agricultural sector has been open from the onset and was classified as essential and did not close during the strict lockdown period. As we have repeatedly pointed out, the wine, tobacco and floriculture industries are amongst the subsectors whose sales were temporarily banned and therefore hard hit by the lockdown relative to other products and broader subsectors of agriculture. The vibrancy of the sector is evident from the recent GDP data which showed that agriculture’s gross value-added expanded by 15.1% q/q on a seasonally adjusted and annualised basis following an expansion of 27.8% q/q in the first quarter.
In a nutshell, the shift to level 1 of the lockdown will have limited impact on a sector that was already largely open – agriculture. But related industries such as agritourism and small farms that depend on agritourism stand to benefit. This will largely be in provinces such as the Western Cape, Limpopo and other provinces that have various rural offerings that we have listed above.
WEEKLY HIGHLIGHTS
SA’s winter crops are in good condition
The Western Cape, which is a major producer of all South Africa’s winter crops – wheat, barley and canola – has had favourable rainfall and the crop in the province is in good shape. On 29 September 2020, the Crop Estimates Committee (CEC) will release its second production forecast for winter crops, which will be un update from last month’s assessment of the crop. Last month, the CEC data showed that South Africa’s 2020/21 wheat, barley and canola production could increase by 28% y/y, 46% y/y and 29%, respectively, to 1.96 million tonnes, 505 215 tonnes and 122 820 tonnes. The is the largest wheat harvest in a decade and a record harvest in the case of barley and canola.
In this month’s assessment, we believe that the CEC will keep these estimates roughly unchanged from August 2020 as the weather conditions have remained generally favourable over the past couple of weeks. Parts of the Western Cape received rainfall this past weekend and will likely receive additional rains in the coming days going into next week, according to near-term weather forecasts.
Moreover, the weather outlook for the coming months for the province is also favourable. In its Seasonal Climate Watch released on 24 July 2020, the South African Weather Service indicated an increased likelihood for above-normal rainfall over the south-western regions of South Africa through October. The winter crop planting was delayed which means that the crop will require moisture for a longer period than the usual months. We think for the current expected large harvest to materialize, the Western Cape and other winter crop-producing provinces will need sufficient moisture until the end of October, which is in line with the rainfall forecast period by the local weather bureau.
DATA RELEASES THIS WEEK
This is a fairly quiet week on the data front. From a global calendar, today we have the US weekly crop progress data which will be released by the USDA. The previous report of 13 September 2020 showed that maize and soybean crop conditions were rated in a better condition compared to the corresponding period in 2019. Moreover, the harvest process had started in some states, but only for maize. The soybean crop is still at maturing stages of growth. Overall, there is optimism about the US maize and soybean harvest this year, albeit the recent reports of crop damage in Iowa.
On Thursday, the USDA will release the US weekly export sales data, which also help in tracking the agricultural trade activity between the US and China. In the past few weeks, China has embarked on aggressive buying of US agricultural products, in part due to the growing domestic demand with the pig industry recovering from the huge knock caused by the African swine fever outbreak in 2019. Having said that, the available data show that China is behind the levels agreed on as part of “phase one” trade agreement between the two countries.
On the domestic front, on Wednesday, the South African Grain Information Service (SAGIS) will release the weekly grain producer deliveries data for the week of 18 September 2020. This data covers both summer and winter crops. But the focus is on summer crops where the harvesting process has recently been completed. In terms of maize, in the week of 11 September 2020, about 86% of the expected 15.5 million tonnes of harvest had already been delivered to commercial silos. While for oilseeds, the harvesting process has been completed and the majority of the crop delivered.
On Thursday, SAGIS will release the weekly grain trade data also for the week of 18 September 2020. In the previous week of 11 September 2020, about 1.42 million tonnes of maize had already been exported, mainly to Southern African countries, as well as Vietnam, Ethiopia, Japan, Taiwan and South Korea. This equates to 53% of the seasonal export forecast of 2.70 million tonnes, which is up by 89% from the 2019/20 marketing year because of a large harvest. In terms of wheat, South Africa is a net importer, and in the week of 11 September 2020, about 96% of the expected 1.80 million tonnes of imports in the 2019/20 season had already landed on domestic shores. This marketing year ends this month.
