The African continent is far from being self-sufficient in wheat production. The 2018/19 wheat imports are estimated at 51 million tonnes, which is almost double the volume produced in the same season.

The key highlight this morning is the prospect for good rainfall of roughly 20 to 90 millimetres over most summer crop growing areas of South Africa within the next two weeks.

The 2018/19 global maize harvest could be the second largest on record, up by 3% y/y at 1.07 billion tonnes. This is underpinned by expected large harvests in the US, Brazil, Argentina, Ukraine and China.

The first Russia-Africa Summit that was held last week concluded with an announcement that urged all participants to increase cooperation in security, science, environmental protection, trade and economic matters. On this last point, the declaration highlights that participants should “make efforts to substantially expand the trade between the Russian Federation and the African States and diversify it, including by increasing the share of agricultural products in import and export operations.”

 Russia is an important player in global agricultural markets, ranked as the 13th largest importer, valued at US$28.8 billion annually, on average, over the past five years. The countries that have benefited from Russia’s agricultural import needs are Belarus, China, Germany, Brazil, Ecuador, Italy, Turkey, Paraguay, Indonesia and France, amongst others. The African countries are down on the list of key agricultural exporters to Russia. In fact, while Russia’s agricultural trade balance is negative, the country has a trade surplus with the African continent. In 2018, Russia had an agricultural trade surplus of US$2.8 billion with the African continent, according to data from Trade Map.

 Over the past five years, wheat has been the dominant product in Russia’s agricultural exports to Africa. It accounted for an average of 79% of all exports into the continent over the past five years (Figure 1 of the attached file). The other products that Africa imports from Russia are sunflower oil, soybean oil, barley, maize, and linseed. Also, this is not widespread across the continent. Nearly half of Russia’s agricultural exports into Africa go to Egypt, and it is mainly wheat. Sudan, Nigeria, Algeria and Kenya are other key markets for Russia, which when collectively added to Egypt account for about 73% value of Russia’s agricultural exports to Africa.

 Here at home, South Africa, the picture is different. South Africa enjoys an agricultural trade surplus with Russia. The products that South Africa exports to Russia include citrus, apples, pears, wine, grapes, apricots, cherries, peaches and fruit juices. These are amongst the products that Russia generally imports from the world (Russia’s top ten agricultural imports are citrus, bananas, wine, soybean, cheese, beef, palm oil, apples, pears and tobacco).

In 2018, Russia was South Africa’s 16th largest agricultural market. The call for increased agricultural trade between Africa and Russia sets a good basis for South Africa to explore the means of increasing its share within the Russian agricultural market. In terms of reciprocity, Russia is already a notable supplier of wheat to South Africa and could increase its share if it were to compete comparatively with wheat suppliers such as Ukraine and Lithuania, amongst others.

Overall, the announcement of increased agricultural trade by the Russia-Africa Summit is positive for South Africa’s agricultural sector. The growth that South Africa envisages in this particular sector will be export-led, therefore, any talks that encourage trade should be viewed positively. In 2018, South Africa’s agricultural sector exported nearly half of its production in value terms which means the sector is export-orientated. South Africa’s agricultural sector already participates within Russia’s market, although ranked as the 29th country supplying agricultural products to Russia in 2018.

The current engagements with Russia should seek to improve South Africa’s position by promoting more exports in that market. If Russia was to insist on reciprocity within the agricultural sector, wheat would be their targeted space. In there, South Africa imports roughly half of its annual consumption. An increase in Russia’s wheat would displace other suppliers rather than add pressure to the local market in the near term.

SA farmland is dry

In a normal season, by this period, farmers would be hard at work planting, especially in the central and eastern regions of South Africa. But this has not been the case because of dryness that has prevented farmers from planting. Soil moisture in South Africa’s farmland is rated very short (dry) in nearly all regions of the country with the exception of a few areas near the border of Eastern and Western Cape where soil moisture was rated marginally adequate on 25 October 2019, as illustrated in Figure 2 in the attached file.

Over the weekend, some regions in the central parts of South Africa received light rainfall, which is a welcome development. But this was not sufficient to make meaningful improvement on soil moisture. The country needs a consistent and slow rainfall which will help to replenish soil moisture and thereafter support planting and growing of the crop.

We are generally positive that such rainfall is likely. The weather forecast for the next two weeks – Figure 4 in the attached file – shows prospects of rainfall across the summer rainfall (or crop-growing) areas of South Africa. More importantly, the South African Weather Service forecasts above-normal rainfall in the central and eastern regions of South Africa between November 2019 and January 2020. As encouraging as this is, it comes with some level of uncertainty and hence it will be important to monitor the weather conditions over the coming weeks as that will influence farmers decisions to plant.

From a data front

We start off on Monday, with the US Department of Agriculture’s US crop conditions data for the week of 27 October 2019. This data should give us a sense of the US crop-growing conditions, and thereafter the potential size of the harvest.

On Tuesday, the Quarterly Labour Force Survey data for the third quarter of 2019 will be released. To recap, Quarterly Labour Force Survey data for the second quarter of this year showed that South Africa’s primary agricultural employment fell by 0.2% from the corresponding period last year to 842 000. The subsectors that faced a notable reduction were mainly field crops, the game industry and forestry. In the case of field crops, the reduction in employment was unsurprising following a reduction in activity in the fields on the back of a poor harvest in the 2018/19 season, all of which is underpinned by unfavourable weather conditions earlier in the season. From a regional perspective, a notable decline in employment was recorded in the Northern Cape, Free State and Limpopo, whilst other provinces saw a marginal uptick.

 On Wednesday, the South African Grain Information Service (SAGIS) will release the grain producer deliveries data for the week of 25 October 2019. This covers both summer and winter crops. What we will particularly be interested in, however, are data for winter crops. This provides an indication of the progress in harvest activity which recently started in parts of the Western Cape wheat-producing regions. In the week of 18 October 2019, about 93 563 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) for the week of 25 October 2019. In brief, maize exports for the 2019/20 marketing year have thus far amounted to 532 045 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 320 617 tonnes of yellow maize. About 88% from Argentina, with 12% from Brazil.

 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 third import consignment of the 2019/20 marketing year was 67 476 tonnes. This placed total imports for the 2019/20 season at 135 270 tonnes, which equates to 12% of the seasonal import forecast. This week we will receive data for activity in the week of 25 October 2019.

 Also, on Thursday, Stats SA will release the Producer Price Index (PPI) data for September 2019. In August, South Africa’s food producer price inflation slowed to 5.4% y/y, from 6.1% y/y in the previous month.

 The fears about the potential disruptions that the novel coronavirus (COVID-19) could cause global supply chains have raised questions of whether South Africa could experience food shortages in the near-to-medium term. From a national perspective, we doubt this would be the case, at least for most food products. South Africa is an agriculturally endowed country, generally a net exporter of agricultural and food products, as illustrated in Exhibit 1 (in the attached file). What’s more, there are prospects for an abundant harvest of staple grains and fruit this year, which will increase the local supplies.

There are, nonetheless, essential imported food products that South Africa is dependent on such as; rice, wheat, and palm oil. Key palm oil suppliers are Indonesia and Malaysia. The typical suppliers of rice are Asia and the Far East, namely Thailand, India, Pakistan, China and Vietnam, some of which are hard hit by the pandemic. In the case of wheat, the suppliers are usually Germany, Russia, Lithuania, USA and the Czech Republic, some of which are also hard hit by the pandemic. Some of the countries which have reported cases of COVID-19 have not taken drastic measures of limiting business activity (apart from Italy and China) to reduce the spread of the virus. This means the importation of some agriculture products mentioned above into South Africa could continue unabated, barring any unforeseen eventuality. Aside from the major products, South Africa also imports poultry products and sunflower oil; but these are products that can be replaced by local supplies, should there be disruptions in global supply chains.

 In the unlikely event of potential shortages, it will be due to glitches in the logistics of shipping imports rather than a decline in global essential grains supplies. For example, the 2019/20 global wheat production could amount to 764 million tonnes, up by 5% y/y, according to data from the United States Department of Agriculture. Moreover, the estimated 2019/20 global rice production is 499 million tonnes, which is roughly unchanged from the previous season.  The global palm oil market is also well supplied, with about 8.0 million tonnes, according to data from SUNSEEDMAN.

Therefore, the readiness of the domestic food supply chains will perhaps be the ones to be tested in the coming weeks and months if panic-buying arising from fears of the spread of COVID-19 were to peak to levels seen in the UK and USA, amongst other countries. So far, however, there is relative calm in local food markets at retail levels, except for the rising demand for sanitizers.  As set out in our note last week, the implications of COVID-19 on food price inflation remains unclear in the near term. We continue to monitor the consumer buying behaviour for signals of rising demand. Suffice to say, South Africa has ample food supplies for 2020, and therefore, there is no need for panic buying. Hence, we have placed our forecast for food price inflation this year at about 4% y/y compared to 3.1% y/y in 2019. The uptick in food price inflation compared to the previous year is associated with a potential increase in meat prices, rather than the COVID-19 pandemic.

 Where negative pressures of the virus are likely to hit are on farmers and agribusinesses through the potential slowdown of export demand, and a likely subsequent decline in agricultural commodity prices. As we consistently pointed out in the previous notes, South Africa’s agricultural sector is export-orientated and heavily reliant on global markets. Nearly half of the value of what the country produces, is exported. Asia and Europe, which accounted for half of the US$10 billion of South Africa’s agricultural exports in 2019, are the hardest hit areas by COVID-19 thus far. There is likely to be disruptions in supply chains in these regions as governments strive to limit the spread of the virus.

WEEKLY HIGHLIGHTS

 A mixed bag of grains

 Last week the United States Department of Agriculture (USDA) released a monthly update of its World Agricultural Supply and Demand Estimates report. The commodities we typically study in this report are wheat, maize and soybeans, for various reasons, however.

Wheat

 As South Africa is a generally net importer of wheat; hence we must monitor global wheat supplies and other market developments. As previously stated, in the 2019/20 season, South Africa’s wheat imports could increase by 33% y/y to 1.8 million tonnes. This is 13% higher than the five-year average import volume, exacerbated by the decline in domestic wheat production on the back of unfavourable weather conditions in parts of the Western Cape late 2019.

  Fortunately, there are large supplies in the global market. The USDA forecasts 2019/20 global wheat production at 764 million tonnes, up 5% y/y, as previously stated. What's more, the 2019/20 global wheat stocks are estimated at 288 million tonnes, which is also 4% higher than the previous season. This means there are sufficient supplies for importing countries such as South Africa in the global market. The main challenge for trade in the near-term, however, is likely to be COVID-19 due to potential disruptions in supply chains. With that said, we haven’t noticed any major hiccups thus far.

Maize

  What’s more, South Africa is a net exporter of maize, so one looks into the USDA data for two reasons; (1) to get a sense of their estimate for South Africa’s maize production at a particular season, (2) and for a view of global maize supplies, which partially influences domestic maize prices. With that said, the correlations between the global and South African maize prices tend to be weak in years of maize abundance in the domestic market.

 The USDA has lifted its estimate for South Africa’s 2019/20 maize production by 10% from last month to 16.0 million tonnes. This is up by 35% from the previous season. This data comprises both commercial and non-commercial production and therefore not comparable to South Africa’s Crop Estimates Committee’s number of 14.6 million tonnes released last month, which accounts for only commercial production. Nonetheless, this doesn’t change the view we expressed last month, which is; if it materialises, this could be the second-largest summer maize harvest on record after the 2016/17 season (which was 16.8 million tonnes for total maize).

Aside from a favourable food price inflation outlook, this data essentially means that South Africa would remain a net exporter in the 2020/21 marketing year which starts in May 2020 (the 2020/21 marketing year corresponds with 2019/20 production season). This is at a time where Southern African maize import needs could outpace the previous year, with Zimbabwe in need of maize supplies to an extent that the country lifted a ban on the importation of genetically modified maize, which eases access for South African maize exporters.

 Moreover, a maize harvest of 16.0 million tonnes would enable South Africa to export maize beyond the continent to other typical markets such as Japan, Taiwan, Vietnam and South Korea who are not prominent in the current marketing year. With that said, the coronavirus remains a key threat to global agricultural trade and may disrupt South Africa’s agricultural exports in various markets.

Globally though, maize production is set to fall by 1% y/y to 1.1 billion tonnes in 2019/20. This will subsequently lead to a 7% y/y decline in stocks to 297 million tonnes. While this will be supportive of global maize prices, its influence on the South African maize market is likely to remain minimal.

Soybeans 

As stated in our note last week, South Africa imports, on average, 550 000 tonnes of soybeans oilcake (meal) a year. About 97% from Argentina. Hence, we are compelled to pay close attention to global soybean market dynamics. The USDA forecasts 2019/20 global soybean production at 342 million tonnes, down 5% y/y. As a result, the 2019/20 global soybean stocks are down 8% y/y, estimated at 102 million tonnes. China, which is heavily affected by COVID-19 is the leading importer of soybeans, accounting for 58% of the global soybean import forecast for 2019/20 season. The disruptions caused by the virus there could have implications on soybean imports activity.

Concluding remarks 

Overall, this is a “mixed bag of grain market dynamics”; global wheat prices could be favourable in the near term for importing countries (and South African consumers), assuming minimal disruptions from the coronavirus. The same is true for maize but the benefit will be from the anticipated improvement in domestic supplies. Meanwhile, soybeans could be the opposit

DATA RELEASES THIS WEEK 

On Wednesday, Stats SA will release the Consumer Price Index data for February 2020. To recap, South Africa’s food price inflation was at 3.7% y/y in January 2020, while the previous month was 3.8% y/y. This deceleration, however, was not across the food basket. Only price inflation of bread and cereals; fish; and vegetables decelerated. But this was enough to overshadow the increases in meat; milk, eggs and cheese; oil and fats; fruit; sugar, sweets and desserts.

Also, on Wednesday, the South African Grain Information Service (SAGIS) will release the weekly grain producer deliveries data for the week of 13 March 2020. This covers both summer and winter crops. With summer crops still at growing stages, the focus remains on winter wheat data, whose harvest was completed in January 2020. In the week of 06 March 2020, about 4 052 tonnes of wheat were delivered to commercial silos. This placed total wheat deliveries at about 1.42 tonnes, which equates to 95% of the expected harvest in the 2019/20 season.

 On Thursday, SAGIS will release the weekly grain trade data (wheat and maize), also for the week of 13 March 2020. In brief, maize exports for the 2019/20 marketing year have thus far amounted to 1.15 million tonnes, which equates to 87% of the export forecast for this season (1.32 million tonnes).

 At the same time, we expect maize imports of about 525 000 tonnes, all yellow maize, mainly for the coastal provinces of the country. This is up from an estimated 171 622 tonnes in the 2018/19 marketing year. The country has thus far imported 477 671 tonnes of yellow maize.

 Also, on Thursday, the United States Department of Agriculture will release the weekly export sales data. This is important data to monitor as it will give an indication of the US agriculture exports to China, and help us monitor the progress on commitments made in phase one trade deal.

Subsequent to a decline from 54 to 48 points in the third quarter of 2018, the Agbiz/IDC Agribusiness Confidence Index weakened further to 42 in the last quarter of the year. 

While rainfall late in December 2018 and early January 2019 have enabled South African farmers to start planting in the western parts of the Free State and North West, the harvest is likely to be poor, particularly for (white) maize as the optimal planting window has long passed, and even the late rains remain erratic.

Agbiz CEO Dr John Purchase on Tuesday shared the agricultural sector’s five-year business plan at the Business Unity South Africa Business Economic Indaba, held in Midrand.

The inherent uncertainty around weather conditions remains a major risk to global wheat production in the foreseeable future. Whether one looks at Europe, North America or Southern Africa, there are increasing reports of drier weather conditions. If dryness persists for a prolonged period, it could threaten wheat yields and, in turn, lead to a downward revision of the optimistic outlook of 2020/21 global wheat production of a record 768 million tonnes that the United States Department of Agriculture (USDA) currently forecasts. Over the past week, Romania, Russia and Ukraine are amongst countries which saw their 2020/21 wheat production forecasts revised down because of expected poor yields in some spring wheat-growing regions. What's more, the UK, France, Belgium, Netherlands and parts of Germany are also amongst the European regions currently experiencing inadequate moisture.

 The same is true for the US where analysts now have some doubts that the USDA wheat yields forecasts will materialise if there aren’t sufficient rains in the coming days or weeks. We now look to the USDA’s crop conditions report which will release the results of crop conditions for the week of 24th of May 2020 on Tuesday. In the week of 17th May 2020, about 52% of the US winter wheat was rated good or excellent, which is slightly behind the 66% rating in the corresponding day in the previous year.  To a certain extent, this shows the impact of dryness in some regions of the US wheat industry.

For a broader update of the 2020/21 global wheat production estimates, we look to the USDA’s World Agricultural Supply and Demand Estimates report which will be released on the 11th of June 2020. In the meantime, various crop forecasts from governments and analysts suggest that the USDA might have to revise down the optimistic estimate of a record 768 million tonnes in the next release. The magnitude of such revisions, however, will largely depend on the weather conditions in the coming weeks.

In Southern Africa, there aren’t many major wheat producers, with South Africa being the only major producer in the region. The winter wheat planting activity in the country commenced at the start of April and will continue until the end of this month or first week of June, which is when the optimal planting window closes. By the week of the 24th of May 2020, nearly two-thirds of the estimated 495 000 hectares for the 2020/21 season had been planted. Various regions of the major wheat-producing province, Western Cape, have experienced persistent dryness which somewhat slowed the planting activity. Moreover, the aforementioned intended planting area for the 2020/21 wheat season is down by 8% from the previous season.

South Africa’s Crop Estimates Committee will release its first winter wheat production forecast on the 27th of August 2020. It is only on that day that we will have a sense of how big the 2020/21 wheat crop could be. The preliminary estimates from the International Grains Council (IGC) paint an optimistic picture of 22% y/y increase in South Africa’s 2020/21 wheat production to 1.8 million tonnes. While it is still early to make a concrete judgement, we doubt if this will materialise under the expected area plantings and dryness. Perhaps, the IGC took a leaf from the South African Weather Service in drafting the underlying assumptions for this estimate.

 On the 30th of April 2020, the local weather bureau estimated an increased chance of above-normal rainfall in the south-western regions of South Africa, which included the Western Cape between May and August 2020. So far, the forecast rainfall hasn’t materialised. Notwithstanding that the rainfall forecast for this week promises widespread showers over most regions of the Western Cape, which could be a welcome relief and conducive for the planting activity currently underway.

In a nutshell, the weather remains a major risk that requires constant monitoring in the global wheat market. This means, while the fears about lower global wheat supplies have eased following the release of the 768 million tonnes production estimate for 2020/21 season, a lot will depend on weather conditions for the coming weeks. With that said, we still think there is no need for panic at this point or for major wheat-producing countries to re-consider the restrictive trade policy they had intended to implement at the start of the pandemic when they feared for wheat shortages. The current weather forecast only suggests that global production might not be as large as initially expected, but there aren’t signs of potential shortages.

WEEKLY HIGHLIGHTS

 SA maize harvest process slightly delayed

The late start of the 2019/20 maize production season because of dryness when farmers commenced planting, means that the harvest process will be slightly later than usual. This is clear from the maize producer deliveries data for the first three weeks of the 2020/21 marketing year (corresponds with the 2019/20 production season), which are down by 19% compared to the corresponding period last year, with about 277 178 tonnes delivered in the week of 15th of May 2020. This is the case, although the 2019/20 maize harvest is expected to be up by 35% y/y, estimated at 15.2 million tonnes, which is the second largest harvest on record . Essentially, the harvest process has started across all provinces, but still at very preliminary stages.

Nevertheless, with the weather outlook for maize-producing regions of the South Africa showing clears skies for the next two weeks, the harvest activity could gain momentum around mid-June 2020. This means that in the coming months, the increase in harvest activity could add downward pressure on maize prices, which at the end of the past week traded at roughly the same levels as in the previous year (21 May 2019). White and yellow maize prices were at R2 674 per tonne and R2 682 per tonne, respectively, on 21 May 2020. The downward pressure on prices is likely, particularly as the country is expecting a bumper maize harvest. The one factor that could somewhat minimise the potential decline on maize prices and other agricultural commodity prices is the weaker domestic currency, which currently shows a strong correlation (see, The recent sharp price increases in South Africa’s white maize shouldn’t be a worry: a temporary market blip, published on 25 April 2020 for maize price and USD/ZAR correlation).

 DATA RELEASES THIS WEEK

 From a global perspective, on Tuesday the United States Department of Agriculture (USDA) will release the weekly crop progress data. This is important data to monitor grains and oilseeds planting activity across the US for the 2020/21 production season, which promises to be a good one, despite the glitches caused by the COVID-19 pandemic and drier weather conditions.

There has already been enormous progress in planting activity across the US. On the 17th of May 2020, about 80% of the intended area for maize in 2020/21 season had already been planted. This compares to 44% in the corresponding week the previous year and a five-year average of 71%. In the same day, about 53% of the intended area for soybeans had already been planted, compared to 16% on the 17th of May 2019 and a five-year average of 38%. Also, worth noting is that the planting activity in the US in 2019 was far behind schedule because of excessive rains at the start of the season.

 On Friday, the USDA will release the weekly export sales data. This is important data to monitor as it will give an indication of the US agriculture exports to China, and help us monitor the progress on commitments made in phase one trade deal and impact of the COVID-19 pandemic on trade.

 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 22nd of May 2020. This covers both summer and winter crops. But the focus is on summer crops since the winter crops are still at planting stages. As indicated above, in the third week of the 2020/21 maize marketing year, which was on the 15th of May 2020, about 277 178 tonnes of maize had already been delivered to commercial silos. About 58% was yellow maize, with 42% being white maize. This, however, is a small fraction of the expected harvest of 15.2 million tonnes in the 2019/20 production season (which corresponds with 2020/21 marketing year).

Unlike maize, where the harvest season is still at its very early stages, there has been progress in the soybean harvest. In the week of 15th of May 2020, about 842 428 tonnes had been delivered to commercial silos. This equates to 65% of the expected harvest of 1.3 million tonnes in the 2019/20 season. Also, on the 15th of May 2020, about 211 279 tonnes of sunflower seed, which accounts for 29% of the expected harvest in 2020/21 marketing year had already been delivered to commercial silos.

  On Thursday, SAGIS will release the weekly grain trade data. In the third week of the 2020/21 marketing year, about 59 702 tonnes of maize had already been exported, all to the neighbouring countries. This too is a small fraction of the 2.7 million tonnes of South Africa’s 2020/21 maize exports we currently forecast, which is up by 90% y/y. This notable increase is supported by the expected large harvest, which is set to be the second largest in the history of South Africa, at 15.2 million tonnes. In terms of wheat, South Africa is a net importer. In the week of the 15th of May 2020, South Africa’s 2019/20 wheat imports amounted to 1.2 million tonnes, which equates to 66% of the seasonal import forecast.

Wandile Sihlobo, agricultural economist, at Agribusiness Research at the Agricultural Business Chamber (Agbiz) of South Africa, comments on South Africa’s agricultural exports.

Building on his new approach adopted in the 2018 SONA of instilling a changed vision of hope, unity, service and prosperity, the President has already put in place action plans to address the daunting challenges that confront South Africa and its people.

Know-how is the secret sauce of productivity and prosperity A fundamental question economists ask is why people in some parts of the world are able to produce so much more value than people in other places or in the same place at earlier times. A key part of the answer economists usually give is ‘technology’. But what is this?

 The Department of Agriculture, Land Reform and Rural Development (DALRRD), agribusinesses and various social partners have been hard at work for months crafting the Agricultural and Agro-processing Master Plan and separately blended finance instruments. These aim to ignite growth and expansion in South Africa's agricultural sector as part of the government's broader Economic Reconstruction and Recovery Plan. Both these initiatives are set to be launched in the coming months whilst the first phase of the blended finance instrument has already started, as evidenced by the launch of the joint Agri-Industrial Fund of R1 billion by the Industrial Development Corporation (IDC), in partnership with the DALRRD. These are constructive programmes with the potential to ignite growth and transformation in the sector. As such, industry bodies such as Agbiz allocate most of their time and resources to pursue these goals. Sadly, much of this good work takes place behind the scenes whilst other significant policy developments that might deter the progress grabs social partners' attention and the media.

 A case in point is the renewed debate about Section 25 of the Constitution and the Expropriation Bill. Last week, the Portfolio Committee on Public Works hosted public hearings on the Expropriation Bill whilst the committee tasked to "make explicit what is implicit" in Section 25 of the Constitution continued with their public hearings. The outcome will have implications on public sentiment. We hope that it will not detract from the two initiatives above to drive growth and expansion in South Africa's agriculture. The success of any of these programmes depends on the private sector and other social partners jointly implementing the government's proposals. As such, policy actions that might be perceived as not aligned with the broader stakeholders' interests present a risk and could lead to a lack of participation and stalling the Master Plan and the blended finance implementation.

Admittedly, the discussion of the potential amendment of Section 25 of the Constitution has gone beyond the realm of agriculture as various stakeholders are engaged with the national debate led by Parliament. Yet, its outcomes will likely have direct implications on the success of the DALRRD work programme. Hence, it is prudent that Parliament decides on the Section 25 matter, mindful of the broader impact on the agricultural sector and other sectors of the economy when South Africa is at an economic reconstruction phase.

We have long argued at Agbiz that land reform is an important policy imperative, and we are in full support of it. Yet, we do not believe that an amendment of the Constitution will lead to the country's desired outcome of prosperity. Likewise, Parliament must finalize the Expropriation Bill. It provides the procedural guarantees required to bring the government and an expropriated owner or bondholder onto an equal footing if expropriation occurs. Unlike the Section 25 amendment, Agbiz is broadly supportive of the need for legislation to regulate expropriation but opposes the provisions relating to 'nil' compensation. Expropriation should always be used as a last resort and cannot substitute for well-formulated and well-implemented programmes to effect transformation in the sector. There are various private-public partnerships (p-p-p) for land reform, some of which were highlighted in the Presidential Advisory Panel on Land Reform and Agriculture and also chapter six of the National Development Plan, which the government could utilize to accelerate land reform. Importantly, there is also an ample land supply that the government has not efficiently distributed or transferred to potential beneficiaries, with estimates placing such land at over 2 million hectares.

 We are also bombarded daily with news headlines of corruption and inefficiencies at local government levels, some of which threaten the same black farmers government intends to support. Hence, the p-p-p approaches have been the desired approach to us for land reform. The ongoing Master Plan is designed in the spirit of the joint-venture or p-p-p. A continuation of this approach to policy implementation would potentially yield positive results for expansion in agricultural production and, after that, job creation in the sector.

 In sum, there is some level of unity in agriculture and agribusiness at the moment, and all stakeholders are working towards ensuring the success of the Master Plan implementation, anchored by blended finance and various regulatory support that DALRRD and multiple departments such as Water Affairs, DTIC, etc. would provide. However, the approach that will be taken in Parliament in as far as the discussions of Section 25 of the Constitution can sway the stakeholder's minds off these necessary economic reconstruction plans.

Weekly highlights

SA's 2020/21 summer grain and oilseeds harvest lifted from February estimates

 Last week, the South African Crop Estimates Committee (CEC) mildly lifted its forecast for 2020/21 summer grain and oilseeds production from the previous month by 1% to 18,7 million tonnes (this compared with 17,6 million tonnes in 2019/20 production season). The upward adjustments were on maize, soybeans and sorghum, whereas sunflower seed, dry bean and groundnut production estimates were revised. If we zoom into significant crops, the 2020/21 maize, soybean and sunflower seed harvests are forecast at 15,9 million tonnes (up 4% y/y, and second-largest harvest on record), 1,9 million tonnes (up 39% y/y, a record harvest), and 712 940 tonnes (down 12% y/y), as illustrated in Exhibit 1 (in the attached file).

The maize production estimate is slightly below our estimated 16,7 million tonnes, and the Bureau for Food and Agricultural Policy's estimated 17,0 million tonnes. Considering the optimistic yield estimates we received from farmers and observations in places we have been in, we are inclined to think that there is still room for the CEC to lift further its maize production estimates in the coming months. Hence, we are not adjusting our view for now from an assessment of 16,7 million tonnes.

The current maize production data essentially mean that South Africa would remain a net exporter in the 2021/22 marketing year, starting in May 2021 (corresponds with the 2020/21 production season). South Africa's annual maize consumption is roughly 11,4 million tonnes, which means there will likely be over 2,0 million tonnes of maize available for export markets, all else being equal.

The expected large harvest could also add downward pressure on maize prices, although marginal as the global maize market remains supportive of prices. This is particularly the case as we forecast an excellent crop in South Africa and across the Southern and East Africa regions, a major importer in the previous year. For example, estimates from the United States Department of Agriculture show that Zambia's maize production could reach 3,4 million tonnes (up 69% y/y). In comparison, Malawi's maize harvest is estimated at 3,8 million tonnes (up 25% y/y), Mozambique's maize crop is estimated at 2,1 million tonnes (up 8% y/y), Kenya's maize is forecast at 4,0 million tonnes (up 5% y/y). There is optimism about the crop in other countries, including Zimbabwe.

Over the past few months, the weaker domestic currency, growing demand for South Africa's maize in the Southern Africa region and the Far East, coupled with generally higher global grain prices, provided support to the domestic maize prices. But we believe that the domestic crop conditions will matter more for price movements in the future than has been the case over the past few months. On 25 March 2021, South Africa's yellow and white maize spot prices were down 18% y/y and 3% y/y, trading at R3 220 per tonnes and R3 123 per tonne, respectively.

 In the soybean case, the price drivers are somewhat similar to maize. Nevertheless, an increase in the soybean harvest will still not change much because South Africa imports around half a million tonnes of soybean meal (although this volume will fall notably this year on the back of the large domestic harvest). The country will most likely continue being dependent on imports, even at these harvest levels, to meet the growing demand for soybean meal by the poultry sector. Hence, global soybean market dynamics will continue to influence local prices. On 25 March 2021, the domestic soybean spot price was up 17% y/y, trading around R7 670 per tonne.

In sum, the broadly large summer grain and oilseeds production estimate this season is on the back of increased area plantings for summer crops and favourable rainfall since the start of the season. We expect the maize production estimate to be adjusted somewhat in the coming month as farmers on the ground continue to express optimism about yield prospects. This will likely add downward pressure on maize prices, which bodes well for South Africa's consumer food price inflation for 2021.

SA consumer food price inflation decelerates further in February 2021

 After softening from 6,2% y/y in December 2020 to 5,6 % y/y in January 2021, South Africa's consumer food price inflation decelerated further to 5,4% y/y in February. The primary products underpinning this deceleration in price inflation are meat, fruit, vegetables, and bread and cereals. Importantly, this is in line with the price trends in agricultural commodity prices, which, while still elevated, are at lower levels than the corresponding period in 2020.

 From now on, we still expect South Africa's consumer food price inflation to remain at slightly elevated levels in the first quarter of the year, partly, because of generally higher grain and imported vegetable oils and fats prices. But from the second quarter of the year, grain prices could soften further and filter through, with a lag, on the "bread and cereals" products prices. The anticipated decline in prices is on the back of the large forecast harvest of 16,7 million tonnes mentioned in the previous section of this note. This product category also has a higher weighting of 21% in the food basket, and changes in its price inflation will be noticeable. In terms of meat, we expect a sideways price movement for the coming months. The cattle slaughtering could slightly improve in 2021, and the base effects on poultry meat, which increased in 2020 partly as a result of an import tariff hike, could also bode well for food price inflation.

Overall, it is still our view that South Africa's consumer food price inflation could remain relatively higher in the first quarter of 2021, primarily underpinned by bread and cereals products (the pass-through of current higher grain prices will persist for the first quarter). But from the second quarter, we could see food price inflation decelerating somewhat. We maintain our baseline view for South Africa's consumer food price inflation to average around 5,0% y/y in 2021. The only upside risk that we continue to monitor and assess inflation's impact is the rising petrol prices. South Africa's agricultural commodities and processed food are primarily transported by road, and the increased transport costs could impact the final product prices. For example, South Africa is transporting roughly 81% of maize, 76% of wheat, and 69% of soybeans. On average, 75% of national grains and oilseeds are transported by road. This is an area worth monitoring over the coming months.

Data releases this week

 This is a quiet week on the agricultural calendar. On Wednesday, the South African Grain Information Service (SAGIS) will release the weekly grain producer deliveries data for 26 March. This data cover summer and winter crops, although the focus is still on winter crops whose harvest has recently been completed. On 19 March, 6 327 tonnes of winter wheat were delivered by farmers to commercial silos. This placed the 2020/21 wheat producer deliveries at 1,99 million tonnes, which equates to 94% of the expected harvest of 2,11 million tonnes. From April onwards, the focus will shift to summer crops as the harvest process will soon be gaining momentum. We already see momentum in 2021/22 soybean producer deliveries. On 19 March, about 31 395 tonnes were delivered to commercial silos. This placed the deliveries for the first three weeks of the new marketing year at 42 090 tonnes. Similarly, about 17 095 tonnes of sunflower seed have already been delivered in the 2021/22 season.

On Thursday, SAGIS will release the weekly grain trade data for the week of 26 March. In the previous week of 19 March, South Africa's 2020/21 total maize exports were at 2,31 million tonnes, which equates to 86% of the seasonal export forecast of 2,69 million tonnes. In terms of wheat, South Africa is a net importer. On 19 March, imports amounted to 705 027 tonnes, which equates to 45% of the seasonal import forecast of 1,58 million tonnes.

 Globally, the notable data release will be the US weekly export sales data released by the United States Department of Agriculture on Thursday. Here, we will continue to monitor China's buying activity of US maize and soybeans.

Although we wrote about South Africa’s agricultural trade last month, the recently released data for December 2018 paint a clear picture of the full year’s agricultural trade performance that is worth highlighting.

The widespread rainfall over the past two weeks has improved summer grain and oilseed crop conditions across the country. The outlook for the next couple of weeks is positive, according to a recent report from the South African Weather Service.

AgBiz has welcomed the frank assessment by Minister Tito Mboweni, as well as the recognition that economic growth is fundamental to fiscal sustainability.

At a recent media conference, Minister of Justice and Correctional Services, Ronald Lamola, indicated that a Land Redistribution Bill was on the cards for South Africa. The High-Level Panel on Key Legislation recommended as far back as 2017 that a National Land Reform Framework Bill was required to provide coherence between redistribution, restitution and tenure and provide a clear framework for redistribution. The panel went as far as drafting a proposed Bill. The Presidential Advisory Panel on Land Reform and Agriculture supported this recommendation and proposed that the Bill should be gazetted and debated in Parliament urgently. In this article, we analyse the need for and proposals for a Land Redistribution Bill. What is redistribution, and where does it fit in? Redistribution is one of the three pillars of land reform in South Africa.

Lately, the Department of Agriculture, Land Reform and Rural Development has added a fourth pillar, namely land development. Section 25(5) of the Constitution gives the mandate for redistribution. The section provides that “The state must take reasonable legislative and other measures, within its available resources, to foster conditions which enable citizens to gain access to land on an equitable basis.” Although redistribution is only one of the pillars of land reform, which is the broader concept, there are also redistributive elements in the tenure reform programme. The Labour Tenants Act, Upgrading of Land Tenure Rights Act (ULTRA) and the Extension of Security of Tenure Act (ESTA) are aimed at tenure security and provide permanent solutions that are redistributive.

The 1997 White Paper on South African Land Policy provided, with regard to redistribution: “The purpose of the Land Redistribution Programme is to provide the poor with land for residential and productive purposes in order to improve their livelihoods.” A big debate over the past 20 years has been what the focus of the redistribution programme should be – simply pro-poor as the White Paper suggested, aimed at creating a class of black commercial farmers as the Land Distribution for Agricultural Development (LRAD) programme intended, or maybe both? And a critical question that needs to be answered is whether the state ownership of land can be regarded as redistribution at all? How successful were past attempts at redistribution? There have been various programmes over the years that were intended to facilitate redistribution. The first one was the so-called Settlement Land Acquisition Grant (SLAG) programme from 1997 to 1999. A state grant of R15 000 was way too little to purchase any land, so beneficiaries had to come together in large groups to buy land, and the numbers were then very often unsustainable.

Then in 2001, Minister Thoko Didiza introduced a new redistribution programme called LRAD (Land Redistribution and Development Programme). This programme was geared more toward establishing black farmers. In this programme, grants were made available to beneficiaries on a sliding scale of between R20 000 and R100 000. All beneficiaries were required to make their own contribution, either in cash or in kind.

The LRAD programme did deliver some successes. Many people who would never otherwise have had a chance to acquire land for farming had the opportunity to do so. A number of these beneficiaries took to farming on the LRAD farms. In 2006 the Proactive Land Acquisition Strategy (PLAS) was launched to replace LRAD. This strategy aimed to speed up the transfer of land through the government's proactive acquisition of the land in the market for redistribution purposes. The implementation manual of the PLAS programme stated that it was primarily pro-poor. It was implemented using the Provision of Land and Assistance Act, Act No. 126 of 1993, as amended.

The land was directly acquired and warehoused within the government. In theory, the beneficiaries could get ownership after a period; in practice, anecdotal evidence seemed to point to permanent state ownership of the land acquired. It seemed that state ownership of land in terms of PLAS and the accompanying State Land Lease and Disposal Policy undermined agricultural investment and productivity as the beneficiaries felt insecure with tenure arrangements under which the state exercised undue influence over their activities. Private sector investment was basically excluded as the commercial banks required tradable tenure rights so that the land could be put up as collateral for loans. Beneficiaries we forever dependant on the state, not only for tenure security but also for production finance. What will a Land Redistribution Bill deal with? The presidential advisory panel recommended that such a Bill should operationalise ‘equitable access’ and provide a framework for all aspects of land reform; establish guiding principles for redistribution, restitution and tenure with land administration included as the fourth element of land reform; set legal criteria for beneficiary selection; land acquisition and the choice of land for redistribution; to set in place measures to ensure transparency and accountability; enable allocation of secure long-term use and benefit rights, and to provide for alternative dispute resolution.

The proposed National Land Reform Framework Bill contains several land redistribution principles. These include things such as:

• Reasonable measures to ensure that land is made available on an equitable basis, which means giving priority to people who are landless and poor.

• A primary focus on the poor and disadvantaged.

• A land redistribution programme that considers the capacity of institutions responsible for implementing the programme and is balanced and flexible.

• A coherent and comprehensive land redistribution programme that is sufficiently resourced and able to secure equitable and secure access to land and related resources including water.

• Planning for land redistribution that must happen at both national level and local level. • An equitable balance between the expressed demand for land for agricultural and non-agricultural purposes, including settlement, as well as multiple uses of land for both commercial and non-commercial purposes.

• The promotion of gender equality.

• State resources for land redistribution must be allocated and used in a manner designed to ensure that large numbers of poor and vulnerable South Africans benefit, and thus promote equitable access, taking due account of the need for postsettlement support and other relevant factors.

• Redistribution must be designed to overcome the legacy of apartheid and apartheid geography.

• Racial integration in rural areas is to be promoted, as is the provision of opportunities for poor and landless people to gain access to land in areas previously dominated by the wealthy.

• The land redistribution programme must guide the uses of land in rural and periurban areas to promote equitable access to land in such areas in a manner that contributes to the overcoming of the legacy of apartheid geography around the urban centre. The proposed Bill also deals with target groups, prioritisation and beneficiary selection. It proposes a focus on women and the very poor. It requires that beneficiary selection happen transparently and should consider the demand for land. A land demand register should be developed. The selection of beneficiaries must be informed by the outcomes of substantial public and broad community engagement. The Bill further proposes that the state must develop a land reform implementation framework for every district municipality, which framework must, amongst other things, reflect the needs for land, the socio-economic profile of people expressing a need for land, an assessment of competing needs and demands for land. Land demand shall guide the acquisition of land.

Such land can then be purchased or expropriated. What are the elements required for successful redistribution? Tiernan Mennen comments in an article entitled “Land Reform Revisited: Can Latin America Get It Right and Should It Even Try?”12on the difference in approach between the Asian countries that had successful land reform programmes (Taiwan, Japan and South Korea) 1 Land Reform Revisited: Can Latin America Get It Right and Should It Even Try? T Mennen: http://www.iargwu.org/node/62: International Affairs Review versus the Latin American countries that were less successful (Peru, Bolivia and El Salvador). He states, amongst other things: “Successful land reforms in Japan, Korea, and Taiwan have been credited with spurring the economic success and shared growth models of the past forty years.

Latin America, meanwhile, has failed to achieve this same success despite its own attempts at land reform and economic restructuring. The previous analysis reveals five major differences between the two regions’ models of reform.

1. Inclusive policies. The political models behind the land reform programmes employed in Latin America are striking. Throughout Latin America, land reform was used as a political tool for constituency building and incorporated the Marxist ideologies of the new political class. In contrast, Asian reforms incorporated the landowners that were displaced, either by involving them in the local land committees that valued and redistributed their land or, in the case of Taiwan, through active economic restructuring from inefficient agricultural production to shareholder interests in new industries. Asian reforms were also implemented on purely economic and shared growth rationale rather than political constituency building, even though they succeeded in the latter.

2. Individual ownership rights. The communal ownership and collective production aspects of Latin American reforms were not found in the successful Asian models. Instead, Asian reforms focused on individual ownership and family farm production. 3. Clear, marketable title to land. The market-based model of Asian land reforms leads to the third important difference between the two land reform camps. The vesting of clear, unhindered title to the land was a priority and occurred much more frequently in Asia than in Latin America.

4. Democratic redistribution mechanisms. One of the more interesting aspects of the successful Asian land reform model was the decentralisation of land committees and the focus on mass democratic participation and local control.

5. Post-distribution extension support. An important part of land reforms is the extension of technical agricultural services to beneficiaries post-redistribution. Redistribution is not enough in itself but must be reinforced by technical capacity building. Latin American reforms, hampered by a lack of decentralised reform institutions, could not respond to beneficiaries’ technical needs.” These points all hold for redistribution in South Africa as well. Beneficiary selection and land donation The Department of Agriculture, Rural Development and Land Reform (DALRRD) published a beneficiary selection and land allocation policy in 2020.

The policy aims to ensure household food security and food sovereignty. It proposes to cater for diverse land needs, not only agriculture. It envisages independent beneficiary selection panels and a land application register. The policy proposes that women, youth, disabled people and military veterans should be prioritised in the beneficiary selection process. 50% of all land acquired will be allocated to smallholders, and no less than 50% of this land should be allocated to women, while not less than 40% to youth, and 10% to persons with disabilities. The over-regulation of beneficiary selection for farming purposes is problematic. The policy is very prescriptive in terms of percentages from certain categories of persons. Different criteria should apply to land that is earmarked for farming beneficiaries as certain character traits such as perseverance and passion for farming, as well as aptitude, experience and access to financing, are likely to determine a person’s success in farming. The policy does not state how the independent selection panels are going to be constituted. These panels must contain farming and financing experts. Corruption will have to be guarded against. Land donations can also contribute to redistribution. DALRRD also accepted a land donation policy in 2021. This policy is intended to guide the donation of land for land reform purposes.

It aims to address some obstacles to land donation, such as the subdivision of agricultural land or the payment of donations tax. It proposes that beneficiaries of donated land should get title to the land. In this sense, it can simplify the process for those landowners who have made up their minds that they want to donate land for altruistic purposes. Expectations should be tempered as the policy does not, however, provide for clear incentives that could prompt current landowners to consider a land donation. It also places quite an administrative burden on landowners who want to donate to pre-selected beneficiaries. There may, however, be an opportunity to explore incentives for land donation further. Conclusion We are likely to see a Land Framework Bill this year, with a strong focus on redistribution. It is likely to contain elements of the draft Bill proposed by the high-level panel and endorsed by the presidential advisory panel. It is also likely to incorporate beneficiary selection and land donation policies elements. It may also include expropriation powers for redistribution purposes. Hopefully, it will help curb corruption, improve land delivery, and provide sensible selection criteria for beneficiaries.

By Annelize Crosby, Agbiz head of Legal Intelligence

We spent time this past week engaging with some of our members in the Free State. The conversations focused on broad policy themes such as land reform, agriculture and agro-processing master plan, biosecurity, rural rejuvenation, trade policy and challenges in the network industries (water, electricity, roads, rail, and ports). Generally, the spirit is upbeat about this sector but, as with other provinces, agribusinesses are troubled by the deteriorating infrastructure in the above-mentioned network industries and the poorly functioning municipalities. These are all themes that the Agbiz office continues to focus on, amongst other activities. In terms of agricultural conditions, we shared our downbeat view of the sector for this year, which we will paraphrase in this issue of the Agricultural Market Viewpoint.

South Africa’s agricultural sector was one of the bright spots of our economy during the Covid-19 lockdown period. This was the only sector that showed robust growth as other sectors of the economy were constrained by the lockdown restrictions, various supply chain disruptions and reduced consumer activity due to fear of contagion. But this year, the predominant message South Africans will hear and read regarding the growth performance of the agricultural sector will likely be more downbeat compared with the last two years.

We are already in the camp of those that forecast a mild contraction in South Africa’s agricultural sector this year. There are a number of things that concerns us. For example, the livestock industry, which accounts for roughly half of South African agriculture's gross value added, continues to suffer from foot-and-mouth disease outbreaks and rising feed costs. Meanwhile, some field crops' harvests are not as robust as the 2020/21 season due to heavy rains at the start of the season. It is worth acknowledging that while some of these harvests will be lower than in the previous season, they are well above the long-term harvest levels. That said, these reduced harvests and the challenging in livestock farming will likely overshadow the robust activity we have seen in field crops such as soybeans, sunflower seeds, and various fruits.

These challenges are also mirrored in the sentiment indicators of this sector. For example, the Agbiz/IDC Agribusiness Confidence Index deteriorated further by 7 points to 53 in the third quarter following a 2-point decline in the second quarter of 2022. Moreover, on a slightly more technical note, the exceptionally high base created by two years of solid growth where the sector expanded by 14,9% y/y in 2020 and 8,8% y/y in 2021, will also be a major factor to likely lead to a mild contraction in the sector’s performance this year.

Respondents to the third quarter Agbiz/IDC Agribusiness Confidence Index survey provided more details about some of the challenges the sector is currently experiencing. Aside from the aspects we noted above, the higher input costs, friction in some export markets, rising interest rates, intensified geopolitical risks which disrupted supply chains, and ongoing weaknesses in municipal service delivery and network industries were some of the factors that survey respondents cited as the key concerns.

But as usual, one has to treat these sentiment indicators with care and realize that moderation is something to monitor but does not necessarily signal that the sector is in terrible shape. To this end, a level of the Agbiz/IDC Agribusiness Confidence Index above the neutral 50-point mark implies that agribusinesses remain cautiously optimistic about operating conditions in South Africa. With this line of thought, the third quarter of 2022 results still reflects broadly favourable agricultural conditions, albeit not as strong as the previous seven quarters.

One other aspect worth monitoring is jobs, as many of us view agriculture as a key employer. Here, we are not as concerned as we are about the broad growth numbers. For example, in the second quarter of this year, there were 874 000 people in primary agriculture, up by 1% year-on-year (and up 3% quarter-on-quarter). Notably, this is well above the long-term agricultural employment of 780 000.

When we observe the activity on the ground and chat with farmers and agribusinesses, we do not get a sense that there will be a notable fall in employment despite the downbeat view we hold about the sector’s broad growth performance for this year. In fact, the Agbiz/IDC Agribusiness Confidence Index has a subindex that also assesses the sentiment about employment conditions in the sector. In the third quarter, that subindex was robust, measured at 61 points (performed much better than the overall composite index).

In sum, while we anticipate some moderation in South Africa's overall agriculture growth prospects this year, we are not suggesting that the sector is in bad shape per se. The output in a range of commodities is well above the long-term levels, and the contraction that we project is largely a reflection of the exceptional performance of the past two years rather than the depressed production conditions in the current year. Notably, the sector can return to a positive growth path if the livestock disease is controlled and if we get a favourable rainy season in 2022/23 summer. This means that to get this sector back into a positive growth path, the Department of Agriculture, Land Reform and Rural Development, together with organized agriculture should accelerate the collaborative efforts of resolving the animal disease challenge, as we have previously argued.

We would add to this list the issue of trade, where various agribusinesses and farmers continue to highlight the need for expansion of export markets to markets such as China, South Korea, India, Saudi Arabia, Bangladesh and Japan. These are countries with strong economies and can be key buyers of our high-value products such as beef, wine and fruits. Simultaneously, we need to maintain the existing export markets such as the EU, the African continent and some Asian markets, which are instrumental for our growth path. This is a long-term endeavour that requires active engagement by the South African authorities in consultation with other role-players in the sector.

Regarding the upcoming 2022/23 agricultural season, the prospects of a weak La Niña provide a good foundation for an excellent rainy season. This is notwithstanding the lingering challenges of higher prices of critical farm inputs such as fertilizer, agrochemicals, and fuel, which will put pressure on farmers’ and agribusinesses' finances when the summer crop season starts in October.

From a policy position, South Africa’s agricultural sector recently launched an Agriculture and Agro-processing Master Plan, a social compact development plan, which should help drive long-term inclusive growth and unlock barriers that constrain performance, if implemented fully. Some barriers require collaboration with various line departments and state-owned companies, specifically concerning the efficiency of municipalities and the network industries (mainly roads, rail, ports, water, and electricity). Aspects of agricultural finance such as Blended Finance are also key ingredients of the growth agenda of this important sector of the South African economy.   

Weekly highlights

South Africa’s consumer food price inflation accelerated further in August 2022

South Africa’s consumer food price inflation accelerated further to 11,5% year-on-year (y/y) in August 2022, from 10,1% y/y in the previous month. This is the fastest pace since January 2017, which was a drought period in agriculture where costs were driven by higher agricultural commodity prices. The higher agricultural commodity prices we’ve observed in the months since Russia invaded Ukraine continue to filter into the consumer food price inflation data. Moreover, the higher fuel price inflation since the start of the war is an additional cost driver of food prices.

More specifically, the higher global grain and oilseed prices for much of this year have been the drivers of the costs of “bread and cereals” and “oils and fats” in the consumer food price inflation basket. These were also amongst the key drivers of the price inflation in August, alongside vegetables, sugar, sweets and desserts. Notably, these are also products with a relatively higher weighting within the food basket. For example, within the food basket, the key products are meat (35%); bread and cereals (21%); milk, cheese and eggs (17%); vegetables (8%); sugar, sweets and desserts (4%); oils and fats (3%); and fruit (2%).

 In the case of fruits and vegetables, the uptick registered in August was a monthly blip caused by a temporary decline in volumes in the fresh produce markets across the country. Generally, South Africa has a sizable harvest, and the disruption in fruit exports within the Black Sea and the EU could add downward pressure on domestic prices. This bodes well for the consumer in the near term (and the opposite is true for the farmers).

The one essential product whose price trend remains uncertain is meat, although its prices moderated somewhat in August. The outbreaks of foot-and-mouth disease have led to the temporary closure of some key export markets for the red meat industry. Ordinarily, this would add downward pressure on prices as it implies that we would see an increase in domestic meat supplies. But this time around, the spread of the outbreak is vast, to the extent that we might see a decline in slaughtering in major feedlots, which would ultimately keep red meat prices at relatively higher levels; the opposite of what we initially anticipated.

This remains uncertain, and we will closely monitor the monthly slaughtering activity. Positively, the suspension of the anti-dumping duties for poultry products could help contain the potential price increases in this product, at least in the near term. Still, the broad meat price trend will depend on the developments in the beef market.

In sum, the global grain and oilseed prices, which have been the major drivers of the surge in inflation, are starting to soften, which shows in the global indices. The FAO’s Global Food Price Index was 138 points in August 2022, down by 2% from July and registering its fifth consecutive monthly decline led by a price drop in all products.  These global developments are also showing in South Africa, and this could also reflect on the consumer food price inflation data in the coming months. Therefore, we continue to expect the domestic consumer food price inflation to start moderating towards the end of 2022. 

Agbiz/IDC Agribusiness Confidence Index deteriorates further in Q3, 2022

The Agbiz/IDC Agribusiness Confidence Index (ACI) deteriorated further by 7 points to 53 in the third quarter following a 2-point decline in the second quarter of the year. Higher input costs, friction in some export markets, persistent animal disease challenges, rising interest rates, intensified geopolitical risks which disrupted supply chains, and ongoing weaknesses in municipal service delivery and network industries remained the key factors that survey respondents cited as the key concerns. Still, a level of the ACI above the neutral 50-point mark implies that agribusinesses remain cautiously optimistic about operating conditions in South Africa. Therefore, the third quarter results still reflect broadly favourable agricultural conditions, albeit not as strong as the previous seven quarters. This survey was conducted in the first two weeks of September 2022 and covered agribusinesses operating in all agricultural subsectors across South Africa.

Broadly, the Agbiz/IDC ACI's third-quarter results present a picture of a sector that remains on a sound footing, but one that is also confronted with a range of challenges. This moderation in sentiment suggests that 2022 could show a contraction in South Africa’s agriculture gross value added, as we stated in the opening section. Still, this does not mean the sector is in terrible shape. The base in 2021 is high and we see slightly lower harvests in some field crops this year.

Looking ahead, the prospects of a weak La Niña provide a good foundation for an excellent rainy season. This is notwithstanding the lingering challenges of higher prices of critical farm inputs such as fertilizer, agrochemicals, and fuel, which will put pressure on farmers’ and agribusinesses' finances when the summer crop season starts in October. 

For the long-term growth of this sector, the need to improve the efficiency of ports, electricity supply and water, quality of roads, curbing crime that devastates the rail network, and improve biosecurity should be prioritised by both government and the private sector.

Data releases this week

As always, we start with a global focus. Today, the United States Department of Agriculture (USDA) will publish its Weekly US Crop Progress data. In these data, our focus is on the US crop-growing conditions as the season progresses, and some regions have started with the harvest process. In the previous release, in the week of 18 September 2022, about 52% of the maize crop was rated good/excellent, which is down by 7% from the same week a year ago. This decline is mainly explained by the drier weather conditions over a few couple of weeks. Meanwhile, about 55% of the soybean crop was rated good/excellent, which was down by 3% from the previous year's rating in the same week. Moreover, the USDA will release the US Weekly Export Sales data on Thursday.

On the domestic front, on Wednesday, SAGIS will release the Weekly Producer Deliveries data for 23 September 2022. This data will help us get insight into the size of the crop as harvesting has been recently completed in most regions of the country. In the previous release of the week of 16 September, about 13,4 million tonnes of maize had already been delivered to commercial silos, out of the expected harvest of 15,0 million tonnes. The soybean and sunflower seed harvests have also advanced.

Also on Wednesday, the Crop Estimates Committee will release the eighth production forecast for summer field crops for 2022. On the same day, the CEC will release the second production forecast for winter cereals for 2022. We don’t expect major adjustments on summer crops. However, the winter crops could show mild upward revision as the weather conditions in the winter-producing regions of the Western Cape have generally been favourable over the past couple of weeks.

On Thursday, SAGIS will publish the Weekly Grain Trade data for 23 September 2022. In the previous release on 16 September 2022, which was the 20th week of South Africa's 2022/23 maize marketing year, the weekly exports amounted to 28 166 tonnes. About 53% of this went to Japan, and the rest to the Southern Africa region. This brought the total 2022/23 exports to 1,6 million tonnes out of the seasonal export forecast of 3,4 million. This is slightly down from 4,1 million tonnes in the past season due to an expected reduction in the harvest.

South Africa is a net wheat importer, and 16 September was the 51st week of the 2021/22 marketing year. The total imports are now 1,58 million tonnes, far surpassing the seasonal import forecast of 1,48 million tonnes (and the 2020/21 marketing year imports of 1,51 million tonnes). We will likely see additional imports before the end of this marketing year this month. The major wheat suppliers are Argentina, Lithuania, Brazil, Australia, Poland, Latvia and the US.

As we stated in our previous notes, if one looks into South Africa's wheat imports data for the past five years, Russia was one of the major wheat suppliers, accounting for an average share of 26% yearly. The suppliers mentioned above have now replaced this.

Also, on Thursday, Statistics South Africa will release the Producer Price Index (PPI) data for August 2022. Our focus on these data will be on the food category. The higher agricultural commodity prices we have observed in the months since Russia invaded Ukraine continue to filter into the food producer price inflation data.

The suspension of South Africa’s wool imports by the Chinese authorities because of the foot-and-mouth disease outbreak earlier in the year is a key concern. Wool is an important commodity in the South African agricultural sector, ranked the sixth largest exportable commodity after oranges, grapes, wine and apples in 2018. In the same year, wool accounted for 4% of South Africa’s agricultural exports of US$10.6 billion.

The Kingdom of Saudi Arabia is an important player in global agricultural trade, ranked the world’s 20th largest importer of agricultural products in 2017.