• Since the start of the Russia-Ukraine war there have been rising concerns about global food security. Both Ukraine and Russia are major agricultural producers and exporters. In 2021, these countries together accounted for nearly 30% of global wheat exports, about 14% of global maize exports, roughly 32% of global barley exports, almost 60% of global sunflower oil exports, and about 14% of global fertilizer exports.[2]

    The destruction of economic infrastructure within Ukraine, combined with various shipping lines avoiding the Black Sea region and the extensive sanctions that Western countries have imposed on Moscow, mean there will be limitations on the movement of the agricultural products from these countries. This will be exacerbated by other factors, such as the agreement to exclude some Russian banks from global payment systems such as SWIFT.

    Notably, the Russia-Ukraine war occurs at a time when the global agricultural commodity prices were already elevated as a result of relatively lower grains and vegetables oils stocks.[3] The drought in South America, specifically Brazil and Argentina, which together account for 14% of global maize and 50% soybean production, has already pushed up global prices for much of the past two years.

    Additionally, the rising demand in China and India for soybeans and other vegetables oil, combined with poor palm oil produce in Indonesia, has added upside pressures to global vegetables oils prices. As the Russia-Ukraine war began, the Food and Agricultural Organization of the United Nations (FAO) Global Food Price Index averaged 141 points in February 2022, which is an all-time high, exceeding the previous peak in February 2011.[4] On a year-on-year basis, the FAO reflected an increase of 21% in February 2022.

    Given these realities, it is important that we understand South Africa’s linkages to Russia and Ukraine agricultural trade, and how the unfolding war could potentially impact domestic food supplies.

    SA’s agricultural trade with Russia-Ukraine

    South Africa has relatively weak agricultural import ties with both Russia and Ukraine. Russia is the 17th-largest agricultural products supplier to South Africa, and Ukraine the 44th. In value terms, agricultural imports from these two countries accounted for just 2.4% of South Africa’s total agricultural imports of US$5.9 billion in 2020.The major products both countries export to South Africa are wheat and sunflower oil. Over the past five years (2016-2020), South Africa imported an average of 1,8 million tonnes of wheat per calendar year, roughly half the annual wheat consumption needs. Of this, wheat imports from Russia and Ukraine averaged 34% and 4%, respectively.

    The significance of Russia in South Africa’s wheat imports basket may raise concerns about the near-term supplies. And from this perspective, in the current wheat marketing year of 2021/22 that ends in September, South Africa has already imported 40% of its estimated imports of 1,5 million tonnes. However, it will likely be able close the import gap for the remaining balance for the year from various countries such as Germany, Canada, Australia, Latvia, Argentina, and the Czech Republic, amongst others. But this will probably be at higher cost than the volumes already imported because of the upside pressure the war has added in the commodities market.

    Moreover, South Africa imported an average 174 138 tonnes[5] of sunflower oil per year from the world market between 2016 and 2020. During this period, imports from Ukraine averaged 4% of the total. Bulgaria supplied 40% of South Africa’s imported sunflower oil, Romania about 22%, and Argentina 15%.

    That said, these data do not minimize the importance of these countries for South Africa’s food basket. Russia and Ukraine may not be major supplies of agricultural products to South Africa, but they have strong ties with the global grains and oilseeds market given their large export share contribution and this has an important bearing on commodity prices.

    This means the impact of the disruption in trade will, in the near term, be felt through prices rather than through a shortage of products. The FAO Global Food Price Index, which was already at all-time high in February, could register a new high when March 2022 results are released on 07 April 2022, and remain elevated for the months thereafter, depending on the length of the conflict and market uncertainty.

    Conversely, from an export perspective, Russia is a notable market – the 13th largest. South Africa's products to Russia and Ukraine are mainly citrus, nuts, vegetables, and tobacco. Importantly, in 2020 Russia accounted for 7% of South Africa’s citrus exports in value terms, and for 12% of apples and pears exports in the same year – the country’s second largest market.

    Aside from the Black Sea region, South Africa generally has stronger agricultural export ties with the African continent, Asia, the United Kingdom, and the European Union. In the third quarter of 2021, the African continent and Asia were the largest markets for South Africa's agricultural exports, accounting for 35% and 33% in value terms, respectively. The European Union was the third-largest market, taking up 23% of South Africa's agricultural exports. The balance of 9% value constitutes the Americas and other regions of the world.[6]

    Dependence on imported agricultural inputs

    Russia is also integrated in global agriculture through inputs market, and here lies a major risk for import dependent countries such as South Africa. Russia is the world's leading exporter of fertilizer materials in value terms, followed by China, Canada, the US, Morocco, and Belarus (see Figure 1). These fertilizer mixtures include a variety of complex minerals and chemicals, including nitrogenous fertilizers, phosphoric fertilizers, and potassic fertilizers.

    Figure 1: Share ranking of the world's top fertilizer exporters by value (2016 and 2020)   

                                                                 

    Source: Trade Map and Agbiz Research

     Fertilizer prices increased sharply throughout 2021 and have remained elevated since the beginning of this year. For instance, in January 2022, international ammonia, urea, di-ammonium phosphate, and potassium chloride prices were up by 220%, 148%, 90%, and 198% from January 2021, respectively.[7] There are many factors behind these sharp input cost increases, such as the supply constraints in critical fertilizer-producing countries, mainly China, India, the US, Russia, and Canada. Rising shipping costs, and oil and gas prices are also contributing factors to the price increases, along with firmer global demand from growing global agriculture.

    The Russia-Ukraine conflict will add upside pressure to these already higher fertilizer prices, particularly if Russia's exports suffer as a result of sanctions. The primary markets for Russia's fertilizer material are Brazil, Estonia, China, India, the US, Finland, Mexico, Poland, Romania, and Latvia, among others (see Figure 2). Still, even countries that have minimal direct fertilizer imports from Russia, such as South Africa, which is the 36th largest fertilizer materials market for Russia, will experience the price pressures from the international market.

    Figure 2: Russia's top fertilizer materials markets by share between 2016 to 2020 (value)     

                                                         

    Source: Trade Map and Agbiz Research

     Unlike the US and Canada, with notable domestic fertilizer production capability, South Africa's domestic fertilizer production capacity is weak, in part, because of the lack of some input minerals. South Africa imports about 80% of its annual fertilizer needs and is a minor player globally, accounting for 0.5% of total global consumption. Therefore, local prices tend to be influenced by developments in the major producing and consuming countries, such as Russia and the other major fertilizer players mentioned above.

    Much of the fertilizer imported by South Africa is utilized in maize production, accounting for roughly 41% of total consumption. The second-largest consumer is sugar-cane farming, at 18%. Fertilizer constitutes about 35% of grain farmers' input costs and a substantial share in other agricultural commodities and crops.[8] Farmers have already planted the 2021/22 summer crops with these higher input costs. They will not be procuring fertilizers until around mid-year and into the third quarter of the year when they prepare for the next season (i.e the 2022/23 production season).

    Depending on the how long the Russia-Ukraine conflict continues, and the extent of the response measures such as sanctions by other countries, fertilizer prices could still be elevated when the next planting season starts.

    In the near term, the winter-crop producing areas such as wheat, barley, canola and oats, among others, which have to start the new planting season at the end of April, are most exposed to higher fertilizer prices, along with a range of horticulture (vegetables and fruit) products.

    How the war will affect the South African consumer

    Aside from the products discussed above, South Africa is generally a net exporter of agricultural products and has sufficient supplies for domestic consumption and exports to the typical markets. Still, given the possible spike in demand for major grains such as maize, South Africa should keep a close eye on its supplies to ensure that while exports continue, the country keeps sufficient supplies for domestic use.

    To be clear, this is not a call for policy intervention on the movement of crops per se. Rather, regular monitoring and publication of output and export volumes allows market pricing to adjust accordingly, as is already the usual practice for most major commodities such as grains.[9] The information about the supplies and domestic stocks will be a sufficient signal to the market, which will adjust the export volumes through price. When South Africa's stocks are stretched, the price increases will force buyers to look elsewhere, and thus ensure that there is availability of supplies in the country.

    For the South African consumer, the inescapable effect will be higher prices. The rise in agricultural commodity prices, domestically and globally, along with rising fuel costs, presents significant upside risks to consumer food price inflation. However, it should be noted that farmers do not necessarily always produce food products, but rather agricultural commodities that are inputs into manufactured food. This means that the final food-products price consumers pay is a combination of a range of factors, including labour, transport, and processing.[10] This also means that an increase in commodities prices does not necessarily mean an instant rise in retail prices. There is typically a lag, especially for grain-related products, as manufacturers usually keep several months’ worth of inventories for their production processes.

    Moreover, we are in an environment of increasing grains and vegetable-oil prices, but fruits and vegetables could come under pressure. With Russia, a key market for some fruits, temporarily disrupted, products that would have been exported there will remain in South Africa or diverted elsewhere. The meat price inflation dynamics are also uncertain, as some farmers could increase slaughtering on the back of higher animal feed costs (maize and soybeans). This means that the food basket products are not all increasing at the same rate, and there is possibility of moderation in some products. But with fuel being an underpinning product for movement of most food products, the risks to overall consumer food-price inflation are generally.to the upside.

    At the Agricultural Business Chamber of South Africa (Agbiz), we had initially thought South Africa's consumer food-price inflation would average between 4% to 5% in 2022 (compared with 6.5% in 2021). When we made the current consumer food price inflation estimates, the war was not on our radar, even though the global food prices were already relatively high. However, we now see more upside risks to these numbers, and we are currently reviewing our forecasts, a tough exercise in the current volatile environment.

    Conclusion

    Much remains unknown about the coming weeks and months. But there is little doubt that local agricultural markets and consumers will be affected by these geopolitical events, primarily through the price transmission of a range of commodities and inputs.

     

  • It is always difficult to get a good handle of Zimbabwe’s maize production data. I tend to rely more on the International Grains Council and United States Department of Agriculture for a better picture of crop conditions there, as they have their people on the ground to do the survey.

  • 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.

  • Although I use peanut butter almost daily, for some reason I had not looked at its production pipeline in the past couple of months until today when I received a call from a Zambian trader looking to export peanuts (groundnuts) to South Africa. This prompted me to do some back of the envelope calculations on the South African supplies for the 2019/20 marketing year, which starts on 01 March 2019.

  • South Africa’s agricultural sector has had two consecutive years of strong growth, with expansion in all subsectors, i.e., livestock, field crops and horticulture. This year will be a break from the 2020 and 2021 strong performance. We expect the sector’s gross value added to fall by roughly 3-5% year on year given the high base from 2021. The overall field crops harvest will likely be lower than the previous season, although some crops such as soybeans and sunflower seed promise a large harvest. But this will not be the only source of potential contraction in the sector. The livestock sector, which accounts for roughly half of the sector’s gross value added, continues to face numerous challenges. First, the generally higher grains and oilseed prices, a key feed ingredient, have presented increased cost pressures to livestock and poultry farmers since 2020. For example, yellow maize prices were up by 38% year on year on 23 June 2022, trading at R4 357 per tonne.

     While the farmers were somewhat able to manage the rising feed costs in the past two years, the current season has presented new challenges: a vast outbreak of foot-and-mouth disease as well as continued occurrences of swine flu and avian influenza outbreaks. South Africa has had 91 foot-and-mouth disease outbreaks in previously disease-free zones. The disease has for the first time in history spread outside the demarcated foot-and-mouth disease zone and is now active in five provinces, namely, Limpopo, KwaZulu-Natal, North West, Gauteng and Free State. While the outbreak does not necessarily mean a wide slaughtering of cattle for farmers and has now, encouragingly, been quarantined in various sites or farms, the economic impact still cuts deep. The impact on livestock auctions is huge. Moreover, bans by many countries on exports of South Africa’s livestock products constrain the growth of the sector and harm the potential for black farmers to reap the benefits from an increasingly export-oriented livestock sector. South Africa’s beef industry is aggressively building its export activity, with exports having grown nearly seven-folds over the past two decades, reaching 54 334 tonnes in 2021 (see Exhibit 1 in the attached file). But we are still not able to export our top-quality beef products to the USA, UK and EU markets where the returns will be much higher than exporting to the Middle East and other smaller markets.

     The frequent outbreak of the foot-and-mouth disease risks reversing or slowing the export drive that the beef industry has embarked on. Weaker exports could also translate to softer domestic beef prices at a time when the feed costs – grains and oilseeds – are elevated. This ultimately adds financial strain on farmers. The financial pressure is not limited to the cattle industry but also to sheep, goats, pigs and poultry. For instance, China has temporarily suspended imports of South Africa’s wool for roughly three months due to the foot-and-mouth disease outbreaks. China is a significant market, accounting for roughly 70% of South Africa’s wool exports. The current export ban has a broad negative financial impact on the wool industry and the communities that rely on the industry.

     Livestock is also one of the subsectors with the deep involvement of farmers from the former homelands’ regions of South Africa. For example, the National Agricultural Marketing Council estimates suggest that black farmers account for 18%, 13% and 34% of wool, mohair, and cattle production, respectively. The accuracy of these data is debatable, but the point here is that a sizable share of agricultural output by black farmers is affected by these financial pressures. We highlight this data to note that these new entrant farmers might not have financial buffers to carry them through in a tough livestock market, as we already hear from established commercial farmers about these financial pressures.

     Keeping in mind the focus of the Agriculture and Agro-processing Master Plan on inclusive growth and employment creation in the agricultural sector, efficient prevention and management of animal diseases and maintenance of animal health is critical. Government has a critical role to play here and the legislative, budgetary and coordinating tasks of public veterinary services and animal health services are absolutely vital in protecting our national livestock herd and enabling the growth that the sector desperately needs.

     The Department of Agriculture, Land Reform and Rural Development established an Animal Biosecurity Task Team, which we understand completed its task with crucial recommendations for improving the current challenges. The report should be made public, and its recommendations implemented urgently. This could provide a platform for effective collaboration between the private sector and the government in placing measures in place to curb the spread of diseases and improve the health of all sectors of the livestock sector.

     Importantly, for key markets for the wool industry such as China, the Department of Agriculture, Land Reform and Rural Development should actively engage the Chinese authorities to resume exports, as we believe there was the framework for engagement from the previous episodes of this nature of outbreaks. The engagement is crucial as China has slowly opened its economy from the tough lockdowns. Our government should move with speed on its engagement. In the case of rising feed costs, the potential rains will be a saving grace that natural grazing veld will continue recovering well and assist the livestock, to an extent.

     Overall, South Africa’s agricultural sector faces numerous challenges, which range from network industry, and broad policy matters such as a need for increased export markets. But in the near term, resolving the constraints above facing the livestock industry would bring a slight relief.

     

    Weekly highlights

     

    South Africa’s consumer food price inflation accelerated in May

     We are in a period of elevated prices, and food is at the core of these increases. For example, in May, South Africa’s consumer food price inflation accelerated to 7,8% y/y, from 6,3% in the previous month. This is the quickest pace since March 2017. The increase was broad base on all food products in the inflation basket. This largely mirrors the uptick we have been seeing in the global agricultural commodity prices, and indeed the domestic market.

     Importantly, we are now also starting to see the spillover the Russia-Ukraine war had on agricultural commodity prices transmitted into retail food prices. In fact, for the grain-related and vegetable oils products, we will likely see a continuous mild uptick in the coming month or two, which could push up mildly the headline food consumer price inflation number further. Since the Russia-Ukraine war began and disrupted the global grains market, the global agricultural commodity prices have increased significantly, with the FAO's Global Food Price Index in May averaging 157 points, which is up 22% y/y, coming from a record high seen in March.

     The disruption in the palm oil market, and indeed the entire vegetable oils market, the ban on wheat exports by India, and the expected lower wheat harvest in the 2022/23 production season are added upside risks that could sustain prices at higher levels. We, however, don’t see potential further increases in the global agricultural commodity prices, but that prices could hover at current elevated levels for some time. South Africa, which is interlined with global agricultural markets, has also experienced increased agricultural commodity prices. The result of these developments is the recent uptick in the cereals, and oil and fat products prices in the consumer food price inflation basket. These could remain elevated, in line with our expectations of agricultural commodity prices.

     Nevertheless, we still think the outlook on food product prices will remain mixed, despite the recent broad increase in product prices. In the case of fruits and vegetables, South Africa has a sizable harvest and the disruption in fruit exports within the Black Sea region could add downward pressure on domestic prices; Therefore, we hold a generally favourable view of these product price directions for the coming months.

     The one essential product whose price trend remains uncertain is meat. The recent outbreaks of foot-and-mouth disease have led to the temporary closure of some key export markets for the red meat industry, thus potentially adding downward pressure on prices. Still, this will be dependent on the cattle and sheep slaughtering activity, which for now remains robust, with 197 712 head of cattle slaughtered in April 2022 (-2% y/y), and 318 155 head of sheep slaughtered in the same month (-10% y/y). Conversely, there are fears of a potential increase in poultry product prices, which could lessen the benefit of softer red meat prices.

     Overall, various factors in the food market will likely push in opposing directions in the coming months. Thus, we believe that South Africa's consumer food price inflation could average just above 6,0% y/y in 2022 (from 6,5% in 2021). The base effects, along with meat, fruits and vegetables, will likely provide a constructive price inflation path ahead. With that said, the next month or two will likely show elevated consumer food price inflation, with moderation in much of the second half of the year.        

      

    Data releases this week

     We start the week with a global focus, where, today, the United States Department of Agriculture (USDA) will publish its weekly US Crop Progress The planting activity has been completed, and thus we now focus on the crop-growing conditions. In the previous release, in the week of 19 June 2022, about 70% of the maize crop was rated good/excellent, compared with 65% in the corresponding week in 2021. Moreover, about 68% of the soybean crop was rated good/excellent, compared with 60% in the same week last year. On Thursday, the USDA will release the US Weekly Export Sales data.

     On the domestic front, on Tuesday, the Crop Estimates Committee will release its fifth summer crop production estimates. We don’t expect any major adjustments from the current estimates, aside from a marginal uptick in the soybeans harvest estimates.

     On Wednesday, SAGIS will release the maize Weekly Producer Deliveries data for the week of 24 June 2022. This data will help us get insight into the progress of the maize harvest activity. In the previous release of the week of 17 June, 2,7 million tonnes of maize had already been delivered to commercial silos, out of the expected harvest of 14,7 million tonnes. Moreover, the soybean harvesting process is nearly complete. In the week of 17 June 2022, about 1,9 million tonnes had already been delivered to commercial silos. The data for 24 June 2022 will likely show additional small volumes of deliveries. In terms of sunflower seed, in the week of 17 June 2022, about 594 236 tonnes had already been delivered, against an expected harvest of 963 000 tonnes (second largest on record).

     On Thursday, SAGIS will publish the Weekly Grain Trade data for the week of 24 June 2022. In the previous release on 17 June 2022, which was the seventh week of South Africa's 2022/23 maize marketing year, the weekly exports amounted to 99 019 tonnes. The key markets were Japan, Taiwan, Vietnam and the Southern Africa region. This brought the total 2022/23 exports to 563 796 tonnes out of the seasonal export forecast of 3,2 million tonnes. 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 importer of wheat, and 17 June was the 38th week of the 2021/22 marketing year. The total imports are now at 1,17 million tonnes out of the seasonal import forecast of 1,48 million tonnes (slightly below the 2020/21 marketing year imports of 1,51 million tonnes because of a large domestic harvest). About 25% is from Argentina, 23% from Lithuania, 18% from Brazil, 14% from Australia, 13% from Poland, 4% from Latvia and 3% from the US.

     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% a year. This has now been replaced by the above-mentioned suppliers.

     Also on Thursday, Statistics South Africa will release the Producer Price Index (PPI) data for May 2022.     

  • Last month I painted a bleak picture of SA’s grain and oilseed crop conditions due to the dryness of the central and western parts of the country. So it is only fair that I present an update after good rains in the first two weeks of February.

  • 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.

  • One of the less discussed, yet an important agricultural commodity is wool. But it has now surfaced as a key concern following the suspension of South Africa’s all greasy wool imports by the Chinese authorities because of the foot-and-mouth disease outbreak earlier in the year.

  • Behind some of the policy proposals and discussions on land redistribution in South Africa is a persistent notion that the country should establish 'small-scale farms' so that there could be more participants, and increase in productivity.

  • The numbers released on February 27 by SA’s crop estimates committee underscores the message of optimism about agricultural conditions carried in my column on February 20.

  • I see that the Saudis were in town this week, and seemingly had an interesting engagement with South Africa’s Minister of Agriculture, Forestry, and Fisheries.

  • 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.

  • Behind some of the policy proposals and discussions on land redistribution in SA is a persistent notion that the country should establish “small-scale farms” so there can be more participants and an increase in productivity. This view was shared by some participants at a conference organised by the Institute for Poverty, Land and Agrarian Studies at the University of the Western Cape on February 4-5.

  • The World Bank recently released an interesting book titled Agriculture in Africa: Telling Myths from Facts. It covers a wide range of topics from smallholder land access, post-harvest losses, financing of agricultural inputs, agricultural labour productivity and women’s work in agriculture amongst others.

  • Today, I discussed black farmers’ contribution to South Africa’s agricultural production. You can watch the 12-minute-long clip here.  I remarked that South Africans are a very inquisitive nation. Each time I post a tweet about South Africa’s agricultural fortunes, there is always someone who asks about proportions of that particular product in racial terms.

  • My first blogpost this year was titled — Can South Africa’s sorghum industry be revived? In it, I highlighted the decline in the production of this crop, with area plantings having reached 28 800 hectares in the 2017/18 production season – the smallest area on record in a dataset starting from 1936/37.

  • If I were to be asked to name one word, I used more extensively than any other this week, it would be – confidence. I participated at the Citrus Growers’ Association Summit held in Port Elizabeth on 13 March, and the South African Feedlot Association’s Cattlemen’s Annual Conference in Bloemfontein on 14 March.

  • In about a month’s time from now, South African farmers will start preparing soils for winter crops plantings in the Western Cape, as the 2019/20 production season approaches. Meanwhile, other winter crop growing areas such as the Northern Cape and Free State, amongst others, will commence with plantings around midyear.

  • After declining to the lowest level since 2009 in the last quarter of 2018, the Agbiz/IDC Agribusiness Confidence Index improved by 4 points in the first quarter of this year to 46. While the improvement in sentiment is a welcome development, the Index remains below the neutral 50-point mark, implying that agribusinesses are still downbeat about business conditions in South Africa.

  • If I were to be asked to name one word I used more extensively than any other this week, it would be confidence.