The South African agricultural sector, and specifically the expansion in the sector over the recent past, is heavily reliant on exports. In fact, South Africa exports roughly 49% of its agricultural products in value terms.

The good news of the past week in South Africa's agricultural sector was the resumption of wool exports to China after nearly four months of suspension. China had cited the foot-and-mouth disease outbreak as a reason to suspend South Africa's wool imports.  The suspension happened despite the existence of a unique protocol to handle the wool shipments and avoid any contamination during a foot-and-mouth disease outbreak in South Africa.

South Africa and China agreed on this protocol following the 2019 outbreak, which weighed on exports. China may have faced capacity constraints during the covid-19-related lockdowns in recent months, possibly leading to delays in activating the protocol. Notably, the foot-and-mouth disease outbreak has been specific to cattle farms, not sheep farming. Hence, industry role players were appropriately dismayed when China suspended wool imports from South Africa, citing this reason.

Credit for assisting in the reopening of this critical trade channel for wool must go to the practical and quiet cooperation between the Department of Agriculture, Land Reform and Rural Development, the wool industry and Agbiz, amongst others, over the past few months. The reopening of exports comes at an opportune time as the wool season has recently started. As we stated previously, China is South Africa's primary wool export market, accounting for an average of 70% of exports. Other South African wool industry markets are the Czech Republic, Italy, India, Bulgaria, Germany, the US, Malaysia, Japan, and Mexico. But these are relatively small and thus could not absorb the volume usually destined for China over the past couple of months.

Importantly, wool will likely remain a significant contributor to South Africa's agricultural export revenue and not fall off the top exportable products list as we initially feared. In the first five months of this year, wool was the eighth largest exportable agricultural product, accounting for 3% (or US$152 million) of the US$5,1 billion in total agricultural exports during this period. Germany and Italy's share in exports increased from April as the Chinese exports declined notably. In fact, Germany and Italy accounted for a larger market share than China in May. The hope is that the European market could remain vibrant as the Chinese market also opens up to South African wool.

The wool industry is also amongst the agricultural subsectors with a large share of new entrant black farmers, whom we feared would experience financial pressures if the ban had continued for longer. 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 cooperation between government, industry and organised agriculture during the wool ban challenges is yet another example of the approach that should be used to deal with challenges facing the sector. For example, foot-and-mouth disease, which continues to affect the livestock industry, needs industry and regulators' view on assembling a plan for the sector. On 16 August 2022, the Department of Agriculture, Land Reform and Rural Development aptly decided to restrict the movement of cattle for 21 days, reviewable weekly. The path forward at the end of this period requires the input and support of the cattle industry players while leaving sufficient room or flexibility for the regulators. The industry inputs will help enrich the government's understanding of the financial impact of their decisions on the industry but, importantly, collaborate on the scientific knowledge of helping to curb the spread of this disease. The industry role players might have various ideas, such as the need to issue cattle movement permits rather than a complete ban on movement or vaccination options. These are the kinds of discussion and much richer scientific insights that specialists in the field could exchange for the good of the South African cattle and, indeed, the broader livestock subsector. In the process, the wool industry should be consulted. The wool industry tends to be affected by the cattle industry developments, as has been the case with the China export ban.

Moreover, the "South Africa Inc" or collective approach between the industry and government is vital in the broader international trade terrain. Difficulties remain for long-term access in the EU for the South African citrus industry. The changes in the plant safety regulations for citrus purport to protect the EU from a quarantine organism, "false codling moth", by introducing stringent new cold treatment requirements, particularly on citrus imports from Africa, mainly impacting South Africa, Zimbabwe and the Kingdom of Eswatini. As stated before, South Africa has put rigorous measures to control false codling moth, which the EU uses as a pretext to restrict citrus imports from Africa. This is a cover to protect the EU's citrus-growing countries like Spain and will increase costs to the Southern African citrus growers. Resolving this challenge requires effective collaboration from South Africa in the engagements with the EU. This means that industry will primarily play a supporting role, and the government should take a firm and visible leadership role in engagements with their EU equals.

The same approach should apply within the Southern African region where the vegetable industry is experiencing losing access to its key markets, such as Botswana and Namibia. These countries combined account for roughly 30% of South Africa's annual vegetable exports of an average US$200 million. The majority of these vegetable products are potatoes, onions and tomatoes. The vegetable farmers in the northern regions of South Africa, and indeed, South African food businesses in these countries, generally rely on these high-quality vegetable product exports, which are now at risk. However, the approach to resolving this challenge should again not be an aggressive approach between industry and government, but a collective "South Africa Inc" approach with our neighbouring countries.

Overall, South Africa's export-oriented agricultural sector faces numerous challenges in the export markets. Still, the success of the reopening of the wool exports and the effective collaboration between government industry and organised agribusiness offers a broad approach to the nature of engagements we should have, especially when dealing with foreign stakeholders and other domestic challenges. As we continue to struggle with foot-and-mouth disease, citrus exports in the EU, and vegetable exports challenges in the region, the collaborative approach will be key to finding a productive path for the good of South Africa's agriculture. In this process, government colleagues should take the lead and be more open to exchanging ideas with the industry, and the industry should reciprocate. 

 Weekly highlights

SA agricultural jobs up marginally in Q2, 2022

While the 2021/22 production season started on a rough footing of excessive rains, various subsectors of agriculture managed to recover when the rains slowed. We saw this recovery in the decent yields in horticulture, grains, sunflower seed and even record yields in soybeans. The primary agricultural jobs data also reflect the vibrancy of the sector. 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. The increased farm activity during the harvesting process of some vegetables, fruits and field crops necessitated increased employment during the quarter. The subsectors that shaved jobs during this period were livestock and aquaculture (fish farms and hatcheries). The decline in employment in the livestock sector is understandable as the subsector faces the spread of foot-and-mouth disease, which has led to a temporary suspension of exports and numerous business activities, thus weighing on farmers' finances. Moreover, the higher feed costs are an additional challenge for the livestock industry.

Most provinces registered job gains from a regional perspective except for KwaZulu-Natal and North West. These are also amongst the regions that suffer from the spread of foot-and-mouth disease. The floods in KwaZulu-Natal in April this year might have also negatively affected the employment prospects in the second quarter of this year. With that said, these job losses were overshadowed by increased employment in other provinces. Hence, primary agriculture employment increased by 1% y/y (and 3% q/q), as stated above.

Looking ahead, data from the third quarter of the year could continue to show robust employment conditions, although possibly lower than the second quarter. The delayed harvest in some subsectors because of a relatively late start of the season will mean that people were in the fields harvesting for a more prolonged period than the previous year; hence we maintain a somewhat favourable view of employment conditions in the sector. Still, the financial pressures from animal disease and trade restrictions facing labour-intensive subsectors like citrus remain the major risks to job prospects. Aside from the subsector-specific issues, South Africa's agriculture faces challenges around the inadequate functioning of network industries – roads, rail, ports, water, and electricity, and poorly functioning municipalities, leading to an increase in the cost of doing business. Moreover, the challenging economic conditions in the country have, in some areas, led to labour unrest, which also requires close monitoring.

SA consumer food price inflation hit the highest level since January 2017

The higher agricultural commodity prices we’ve observed in the months since Russia invaded Ukraine continue to filter into the food price inflation data. Moreover, the higher fuel price inflation since the start of the war is an additional cost driver of food prices. The data released last week by Statistics South Africa show that in July 2022, the consumer food price inflation accelerated by 10,1% y/y, from 9,0% 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 global grains and oilseed prices for much of the first half 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 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%).

The grains and oilseeds prices, which have been the major drivers of the surge in inflation, are starting to soften and this shows in the global indices. In fact, the FAO’s Global Food Price Index averaged 140.9 points in July 2022, down by 9% from June.  This was the fourth consecutive monthly decline, led by the drop in the prices of grains and oilseeds. These global developments are starting to show also in South Africa, and the lag could also reflect on the consumer food price inflation data in the coming months. Therefore, we suspect this might be a peak in the domestic food consumer price inflation.

In the case of fruits and vegetables, 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. 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 an 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 be dependent on the developments in the beef market.

Overall, as in the previous months, various factors in the South African food market will likely push in opposing directions in the coming months. Still, South Africa will likely remain an exception from the world, with food price inflation contained at relatively lower levels than most regions of the world. Importantly, the coming months could show moderation from the level we saw in July. 

 Data releases this week

We start today with a global focus, where the United States Department of Agriculture (USDA) will publish its weekly US Crop Progress data. As always, in these data, our focus is on the US crop-growing conditions as the season progresses. In the previous release, in the week of 21 August 2022, about 55% of the maize crop was rated good/excellent, which is down by 5% from the same week a year ago. Moreover, about 57% of the soybean crop was rated good/excellent, which is up by 1% from the previous year's rating in the same week. The USDA will release the US Weekly Export Sales data on Thursday.

On the domestic front, on Tuesday, the Crop Estimates Committee will release the seventh production forecast for summer field crops for 2022. In addition, the Crop Estimates Committee will release the revised area planted estimate and first production forecast for winter cereals for 2022.

On Wednesday, SAGIS will release the Weekly Producer Deliveries data for 26 August 2022. This data will help us get insight into the progress of the maize harvesting activity. In the previous release of the week of 19 August, about 12,05 million tonnes of maize had already been delivered to commercial silos, out of the expected harvest of 14,71 million tonnes. The soybeans and sunflower seed harvest have also advanced.

On Thursday, SAGIS will publish the Weekly Grain Trade data for 26 August 2022. In the previous release on 19 August 2022, which was the 16th week of South Africa's 2022/23 maize marketing year, the weekly exports amounted to 123 131 tonnes. The key markets were Taiwan, Vietnam, Japan, and the Southern Africa region. This brought the total 2022/23 exports to 1,44 million tonnes out of the seasonal export forecast of 3,20 million. This is slightly down from 4,10 million tonnes in the past season due to an expected reduction in the harvest.

South Africa is a net wheat importer, and 19 August was the 47th week of the 2021/22 marketing year. The total imports are now 1,40 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). 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.

Addressing gender disparities in the agricultural sector is a prerequisite to increasing women and youth participation in the sector, creating much-needed employment opportunities and ensuring food security, says agricultural economist Wandile Sihlobo.

On 25 August 2019, we learned that the Zambian government has placed a price cap of $199 per tonne on maize (approximately R3 023) and has justified its actions by noting its concerns over rising maize prices, which could disadvantage many poor Zambian households.

Although donor funds have assisted with training farmers, providing inputs such as seeds and machinery, and building agriculture-related infrastructure, the sector has experienced limited growth. Ultimately, institutional reform lies at the heart of sustainable agriculture development in southern Africa.

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.

This has not been a good year for South Africa’s farming sector and related industries.

This has not been a good year for the global wool industry. The world’s top two wool-producing countries – Australia and South Africa — are experiencing different, yet growth-constraining, challenges.

The U.S. Department of Agriculture has also joined the party in forecasting a potentially big maize harvest for South Africa in 2019/20 season.

October 16 marked World Food Day, commemorating the founding of the United Nations Food and Agriculture Organization in 1945. Across the world, this day offers an opportunity for countries to assess their food security conditions and efforts to boost agricultural production. One of the measures that some often use to evaluate the food security condition of each country relative to the world is The Economist's Global Food Security Index, which Corteva sponsors. This latest index ranks South Africa at 59 out of 113 countries, an improvement from the 70th position in 2021. This places South Africa as the most food-secure country in the African continent, followed by Tunisia at 62nd.

This improvement is commendable. When looking at the index scoring's technical position, it becomes clear why South Africa's food security ranking has improved. South Africa's scoring came in at 61,4, up from 57,8 in 2021. This shows that South Africa's progress in the Global Food Security Index is not merely because other countries have regressed, particularly since the start of the Russia-Ukraine war, which increased global food prices but that there has been an actual improvement in its own underlying conditions.

The Global Food Security Index comprises four subindices, namely; (1) food affordability, (2) food availability, (3) food quality and safety, and (4) sustainability and adaption. The affordability and availability subindices carry a combined weighting of two-thirds of the total index. The affordability subindex includes the change in average food costs, agricultural trade, food safety net programs, and funding for food safety net programs. Meanwhile, the availability subindex includes the sufficiency of supply, agricultural infrastructure, and political and social barriers to food.

In 2022, South Africa experienced a mild deterioration in the food affordability subindex of 7 points. Meanwhile, the rest of the other subindices improved significantly. This decline in the affordability subindex is unsurprising as the country has witnessed a broad acceleration in consumer food price inflation since the start of the year. South Africa's consumer food price inflation averaged 8,0% y/y in the first eight months of 2022, from 6,5% over the same period in 2021. Still, what is worth emphasizing is that this challenge speaks to the rising cost of food in an environment of generally high unemployment.

Notably, the rise in food prices is a global phenomenon and not unique to South Africa. The dryness in South America, which negatively affected the crops in the 2021/22 production season, combined with growing demand for oilseeds and grains in China, and higher shipping costs, and recently, the Russia-Ukraine war, are some of the factors that have underpinned the global food price inflation surge. This, in turn, lifted prices in South Africa, despite the large domestic agricultural harvests in the past three seasons.

Nevertheless, global food prices have come off the levels we saw in the months immediately after Russia invaded Ukraine. For example, in September 2022, the FAO's Global Food Price Index was down by 1% from the previous month. This marked a sixth monthly decline and was underpinned by the deterioration in the prices of vegetable oils, sugar, meat and dairy products. This means that affordability for all countries has far improved from the third quarter of the year. Still, the current price levels are higher than in 2021. For example, the FAO's Global Food Price Index is still 6% up from September 2021. Another key point to emphasize is that food prices were already elevated in 2021 due to disruptions in the supply chains, drought in South America, and increased demand for grains in China, amongst other factors.

A major issue to keep in mind when observing global agricultural indices, such as the Global Food Security Index, is that subjectivity can never be fully eliminated from the authors' judgment. Resource constraints can hinder objective data collection on the ground in each country, and they sometimes rely on blueprint models that might not be site specific. Sources of bias can stem from inconsistency in data quality, frequency and reliability across all countries. The weightings and rankings are also tricky because they must be tailored to suit different socio-economic contexts.

Still, the key message is that South Africa is in a better place regarding food security and leading the continent. This does not mean there should be complacency. South Africa will need to continue improving food security through expansion in agricultural production and job creation in various sectors of the economy. As we have previously stated, at a technical level, the ideas of expanding agriculture and agro-processing capacity to boost growth and job creation were well established as far back as in the National Development Plan in 2012. They were again highlighted in the 2019 National Treasury paper and, most recently, in the 2022 Agriculture and Agro-processing Master Plan.

These include expanding agricultural activity in the former homelands and government land, enhancing government-commodity organizations' partnerships in extension services, investment in the network industries (water, electricity and road infrastructure), port infrastructure, and state laboratories. Some interventions are more regulation-focused and therefore do not require significant capital spending by the government, although these still need institutional capacity building. Such regulatory interventions include modernizing regulations such as the Fertilizers, Farm Feeds, Seeds and Remedies Act 36 of 1947, with which many role players in agriculture continue to express dissatisfaction. The Agricultural Product Standards Act's enforcement to ensure that the Department of Agriculture, Land Reform, and Rural Development leads the implementation and does not assign it to third parties is another critical intervention that could be explored. Regarding regional focus, Limpopo, KwaZulu-Natal and the Eastern Cape, the most food-insecure provinces, also have vast tracts of underutilized land. These provinces should be a priority in agricultural development plans. With a commercial focus where conditions permit, agriculture improvement would help job creation and household food security in South Africa.

Weekly highlights

Kenya’s decision to open the door to GM maize is a good omen

In the first week of October 2022, Kenya lifted the ban on the cultivation and importing of genetically modified (GM) white maize. This change is in response to growing food insecurity in the country. Kenya has struggled with drought in the recent past and remains a net importer of maize. Still, this adjustment doesn’t mean the borders are automatically open, there will be an assessment of each GM trait by the Kenyan Biosafety Authority before actual imports and cultivation can occur. Assuming some of this scientific legwork has already been done, we could see imports start in the next few months or a year.

If the work can be completed in months, this could save Kenya some trouble. In the 2022/23 season, Kenya needs to import a substantial volume of maize, estimated at about 700 000 tonnes. This is roughly unchanged from the previous season, which also posted poor domestic production. In the 2021/22 season several sub-Saharan African countries, including Zambia, Tanzania, Zimbabwe and South Africa, had ample maize harvests. This made it easy for them to meet Kenya’s import needs, with Tanzania and Zambia leading the way. However, this year things are different. Tanzania’s maize harvest is down roughly 16% year on year to 5.9-million tonnes due to sparse rainfall at the start of the season combined with armyworm infestations and reduced fertiliser usage in some regions because of prohibitively high prices.

The fall in production and firmer domestic consumption mean Tanzania will have less maize to export. Tanzania’s available maize for export is about 100 000 tonnes. This is well below the previous season’s exports of 800 000 tonnes, which saved Kenya when the country was most in need of maize. The country in the region with the most abundant supply of maize at present is South Africa, whose maize exports for the 2022/23 season are forecast at 3,5-million tonnes. South Africa struggled to access the Kenyan market for many years because of its ban on imports of GM products. But this change in regulations offers a new opportunity for South African maize exporters (provided the Kenyan Biosafety Authority gets its ducks in a row soon).

In future, the liberalisation of the Kenyan seed market should benefit its farmers in the same way as in South Africa, Brazil and the US. In fact, the sentiment towards the cultivation and importation of GM crops is changing worldwide, partly because of the global food crisis and countries’ efforts to boost domestic production. For example, at the beginning of June the Chinese National Crop Variety Approval Committee released two standards that clear the path for cultivating GM crops. Now that this hurdle has been cleared, the commercialisation of GM crops in China is a real possibility. The EU is also reviewing its regulations on cultivating and importing GM crops, an essential step in a region that has long had an anti-GM stance.

South Africa was an early adopter of GM technologies. We began planting GM maize seeds in the 2001/2002 season. Before their introduction, average maize yields in South Africa were about 2,4 tonnes per hectare. This has increased to an average of 5,6 tonnes per hectare in the 2020/2021 production season. Meanwhile, the sub-Saharan African maize yields remain low, averaging below 2,0 tonnes per hectare. While yields are also influenced by improved germplasm (enabled by non-GM biotechnology) and improved low and no-till production methods (facilitated through herbicide-tolerant GM technology), other benefits include labour savings and reduced insecticide use, as well as enhanced weed and pest control. With Kenya struggling to meet its annual maize needs, using new technologies, GM seeds and other means should be an avenue to boost production in future.

Data releases this week

We start the week with a global focus, and 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 the harvest has started. This data also helps us form a view of the crop quality in the US. In the previous release, in the week of 09 October 2022, about 54% of the maize crop was rated good/excellent, which is the same level as the previous week. Importantly, this is down by 6% from the same week a year ago. This general decline is mainly explained by the drier weather conditions in some States over a few couple of months.

Moreover, about 31% of the crop had already been harvested, slightly behind last year's pace of 39% in the same week. Meanwhile, about 57% of the soybean crop was rated good/excellent, also unchanged from the previous week. This is down by 2% from the previous year's rating in the same week. In terms of the harvest, about 44% of the crop had already been harvested, compared with 47% in the same week last year. In addition, 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 14 October 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 07 October, about 13,7 million tonnes of maize had already been delivered to commercial silos, out of the expected harvest of 15,3 million tonnes. In the same week, about 2,1 million tonnes of soybeans had already been delivered to commercial silos out of the expected harvest of 2,2 million tonnes. Moreover, 832 610 tonnes of sunflower seed had already been delivered on the same day out of the expected harvest of 845 550 tonnes.

On Thursday, SAGIS will publish the Weekly Grain Trade data for 14 October 2022. In the previous release on 07 October 2022, which was the 23rd week of South Africa's 2022/23 maize marketing year, the weekly exports amounted to 58 514 tonnes. About 42% of this went to Japan, 40% to Taiwan, and the rest to the Southern Africa region. This brought the total 2022/23 exports to 1,9 million tonnes out of the seasonal export forecast of 3,5 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 07 October was the first week of the 2022/23 marketing year. The total imports are now 44 406 tonnes, from Australia, Germany and Poland. The seasonal import forecast is 1,53 million tonnes, slightly down from 1,58 million tonnes in the previous season. In the 2021/22 season, 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.

One of South Africa's agricultural strategic objectives is the expansion of export markets. And it is with this ambition that organized agriculture, through the BRICS Business Council, went into the 2023 BRICS Summit.

The Agribusiness Working Group had four broad focus areas for discussion with BRICS countries, namely (1) a need to improve fertilizer availability and use amongst BRICS countries and the broader African continent, (2) the sharing of best practices on agricultural sustainable development among BRICS countries, (3) outlining the BRICS countries' view on the arbitrary pesticide MRLs followed by some regions such the European Union and the general use of sanitary and phytosanitary (SPS) measures as barriers to trade, and (4) deepening trade and investment amongst the BRICS countries, and broader Africa.
The BRICS Business Forum’s annual general meeting (AGM) adopted all these points, carried on the Annual Report, and presented them to the political principals for consideration. These points also found broad support at the political level, illustrating the alignment of ambition between BRICS countries' political leadership and business interests on these matters. While the conference is over and the work has been presented to the political principals, the technical work only starts from this point. This will be through the Business Councils of each BRICS member country, working directly with their governments to deliver on these broad points presented at the conference.

From a South African perspective, this would take the form of BRICS Business Council's Agribusiness Working Group engaging with both the Department of Trade, Industry and Competition and the Department of Agriculture, Land Reform and Rural Development to deliver on these broad ambitions, especially the one of trade and investments, as well as the SPS measures barriers in countries that South Africa wants to deepen its trade. The broad trade point mainly refers to lowering import tariffs in BRICS countries where South Africa wants to increase exports, which ties perfectly with the SPS matters. Ideally, this would not be a demanding task as South Africa's Minister of Agriculture, Land Reform and Rural Development chaired a meeting of BRICS Agricultural Ministers ahead of the 15th BRICS Summit and discussed similar matters as the ones presented by the Agribusiness Working Group of the BRICS Council.

Notably, South Africa remains a chair of the global Agribusiness Woking Group until the end of the year, with commanding authority to bring all countries to the table for reflections and implementation of the objectives the Group had adopted. This will be the technical work that should happen between now and the end of the year and hopefully continue under the new chair in 2024. From a South African perspective, these points will remain a priority going into the new year as they will not be resolved overnight and require time.

The trade and SPS aspect is important because the BRICS countries collectively imported about US$320 billion of agricultural products from the world market in 2022 (according to data from Trade Map). About 74% of the Group's agricultural imports come from China, 12% from 12% from India, 8% from Russia, 4% from Brazil and 3% from South Africa.
The key agricultural products the BRICS grouping imports are soybeans, palm oil, beef, maize, berries, wheat, cotton, poultry, pork, apricots and peaches, sorghum, rice, and sugar. These are products that are produced at scale by some BRICS countries. Yet the imports to other BRICS members typically originate from suppliers outside the grouping. This is understandable given that importers will search for competitively priced products and not necessarily from countries where they enjoy close cooperation. The lack of competitiveness has mainly been caused by higher import tariffs that BRICS countries face amongst each other compared with their competitors in this market, along with SPS matters. This is undoubtedly the case for South Africa regarding India and China.

Another noteworthy point emerging from the 15th BRICS Summit was the invitation of the Argentine Republic, the Arab Republic of Egypt, the Federal Democratic Republic of Ethiopia, the Islamic Republic of Iran, the Kingdom of Saudi Arabia and the United Arab Emirates to become full members of BRICS. The membership will take effect from 1 January 2024.

If we consider the BRICS+ grouping from an agricultural perspective, the opportunities for increasing trade and investment from a South African perspective primarily lie in China, India, and the Kingdom of Saudi Arabia. We already have some form of agricultural trade with these countries. Still, the ambition for South Africa is to increase wine, fruits and beef exports, amongst other products, to these particular countries. Admittedly, deepening agricultural trade would bring challenges as trade is not a one-way approach. Still, we believe that South African agricultural products are of high quality, and with the lowering of tariffs and non-tariff barriers, could remain competitive prices.

The task now lies on the BRICS Agribusiness Working Group to resume its work and engage with relevant government departs domestically and other agribusiness Working Group chairs from the founding BRICS member countries to take the points mentioned above forward. From early next year, when other BRICS+ members officially join, the BRICS Business Council's Agribusiness Working will extend an invitation to them and update them on the work of the 15th Summit. Overall, we view this Summit as broadly positive for agriculture, which also was robustly spotlighted in this conference at the plenary session of the Business Forum, with all the points we highlight here presented.

Disclaimer: This year, Wandile Sihlobo chairs the Agribusiness Working Group of the BRICS Business Council (South Africa) and the global agribusiness grouping.

WEEKLY HIGHLIGHT

South Africa's consumer food inflation decelerated in July 2023

South Africa's consumer food inflation continued to slow in July 2023, recorded at 10,0% from 11,1% in the previous month. The product prices underpinning this deceleration are primarily bread and cereals; meat; fish; and oils and fats. While there are renewed risks in global agriculture, such as India's decision to ban specific categories of rice exports and the Black Sea Grain Deal Initiative that facilitated grains and oilseeds exports from Ukraine terminated, we are still optimistic that South Africa's consumer food inflation will continue to slow during this second half of the year.

The products that could underpin the slowing food inflation trend will likely remain similar to those in the past few months. Notably, red meat prices, which have softened at the farm level, should continue on this trend at the retail level in the coming months. Fruit prices should also remain affordable because of improved domestic supplies.

However, there are some risks in some food product categories. For example, the recent decline in "oils and fats" products in the inflation basket mirrored the softening price trend we saw in the global environment a few months ago. But this trend may change slightly in the coming months as we see the changes already in the global environment. In July 2023, the FAO's vegetable oil price index was at 130 points, up 12% from June. Significantly, this marked the first increase after seven months of consecutive declines. This increase was due to Black Sea concerns, mainly on sunflower oils, and the subdued production conditions on palm oil, a product South Africa imports in large volume. We will keep an eye on the global vegetable oil prices as their price trends, over time, may reflect in South Africa, but not in equal proportion as the global price changes.

Regarding the "bread and cereals" product prices, the Black Sea Grain Deal challenges and India's rice exports ban remain an upside price risk. With South Africa importing a million tonnes of rice and similarly exposed to wheat imports, the disruption in trade of these commodities and the length of it could have implications on global price and, ultimately, South Africa's "bread and cereals" component of the food inflation basket.

Still, we have not seen a material change in prices for now, and we should not be alarmed; what is essential to monitor is the extent of price changes and their duration. Importantly, there is roughly a lag between three to five months between the price changes at farm and retail levels. Hence, we expect the prices of grain-related products in the inflation basket to maintain a softening path regardless of the recent disruption in grain prices.

Beyond the global dynamics, South Africa has a favourable agricultural season. For example, the 2022/23 maize harvest is estimated at 16,4 million, 6% higher than the 2021/22 season's harvest and the second-largest harvest on record. Soybeans harvest could reach a record 2,8 million tonnes. Be that as it may, the prices of these products are influenced by global developments as we are an open economy interlinked to the world markets. Other field crops and fruits also show prospects for decent harvest this season. These increased supplies support the slowing food inflation view we expressed. However, there are now renewed upside global risks and energy costs issues in the domestic market that needs constant monitoring.
 

WEEK AHEAD

What we are watching this week

As always, we start the week with a global focus, and today, the USDA will release its weekly update of the US Crop Progress Report. After weeks of excessive heat, the US crop growing conditions have improved following good rains in some regions. On 20 August, about 58% of the planted maize crop was rated good/excellent, slightly above 55% in the same week in 2022. In addition, about 59% of the soybean crop was rated good/excellent, also slightly above the 57% rating in the same week in August 2022. The USDA will release its weekly US Grains and Oilseeds Exports data on Thursday.

On the domestic front, on Tuesday the Crop Estimates Committee will release South Africa’s seventh production forecast for summer field crops for 2023. We don’t expect any adjustments from the past month’s data as the harvest has progressed and the yields have been quite excellent in most regions. What will be important to monitor is South Africa’s revised area planted estimate and first production forecast for winter cereals for 2023. The weather conditions have been favourable in the winter crop growing regions, and thus, we expect decent production estimates.

On Wednesday, SAGIS will release its weekly South Africa’s Grains and Oilseeds Producer Deliveries data for 25 August. In the previous release on 18 August, South Africa's 2023/24 maize producer deliveries were about 254 502 tonnes. This placed the 2023/24 deliveries at 13,6 million tonnes out of the expected harvest of 16,4 million.

The soybean harvest activity has progressed more than maize because it was planted earlier in the season. The harvest is now close to completion, and on 18 August, about 2,6 million tonnes of soybeans had already been delivered to commercial silos out of the expected crop of 2,8 million tonnes. On the same day, sunflower seed producer deliveries amounted to 710 784 tonnes out of the expected harvest of 758 610 tonnes.

On Thursday, SAGIS will publish its weekly South Africa's Grains and Oilseeds Trade data for 25 August. In the previous release on 18 August, the 16th week of the 2023/24 marketing year, South Africa exported 84 305 tonnes of maize. Of this volume, about 63% was exported to South Korea, and the balance was to African countries. This placed South Africa's 2023/24 maize exports at 1,51 million tonnes out of the seasonal export forecast of 3,22 million tonnes.

South Africa is a net wheat importer, and 18 August was the 46th week of the 2022/23 marketing year, with a weekly import volume of 79 739 tonnes from Lithuania and Poland. This placed South Africa's 2022/23 wheat imports at 1,37 million tonnes. The seasonal import forecast is 1,60 million tonnes, roughly unchanged from the previous season.

Also on Thursday, Statistics South Africa will release the Producer Price Index (PPI) data for July 2023. Our focus on this data will be on the food category.

Farming is proving to be one of the more challenging vocations in SA because of the ever-changing risk environment. Not only must farmers monitor economic conditions, changing consumer preferences and social dynamics, but the weather is proving to be the most unpredictable aspect of all.

As we commemorate World Food Day on 16 October 2019 in honour of the founding of the Food and Agriculture Organization of the United Nations (FAO) in 1945, we should take a moment to reflect on South Africa’s standing on the global food security ladder.

The news cycle has been mainly centred around Brexit this past week as talks between the United Kingdom and European Union culminated in a Brexit deal.

Joint work by the University of Pretoria and the Agricultural Research Council (ARC) for the international Agricultural Science and Technology Indicators in 2014 estimated that South Africa in that year spent about R2,5 billion on agricultural research – by public, university, and private-sector agencies.

The Department of Agriculture transfers an annual total of R1 billion to the Agricultural Research Council to operate its various programmes to support the agricultural sector. This is roughly 10% of the total budget of the Department of Agriculture (excluding land reform).

But is this sufficient and in line with global norms? We know from previous work that South Africa's agricultural research spend as a share of the budget and value of agricultural output is the highest in Africa, with only Nigeria coming close.

There are, of course, questions about the efficiency of the spending on agricultural research: how much goes to overheads and other non-research expenditures; does the ARC focus on relevant research focus areas and appoint the best scientists, and how well does it maintain its laboratories and experimental farms? This requires detailed studies and evaluation reports to understand whether we are getting value for taxpayers' money.

Recent efforts to increase spending on R&D in agriculture

Over the years, role players in the agricultural industry realized that the funding to the ARC and the delivery of critical technical improvements have been insufficient and slow. Therefore, the various commodity organizations ask: How much do these industry bodies allocate to agricultural research?

From the National Agricultural Marketing Council's 2023 report on Statutory Levies in the agricultural industry, we learned that these organizations use R460 million (or 45%) of the R1,022 billion levy income to fund specific research programmes.

Table 1 below provides a detailed breakdown and comparison of the research spending by the top 12 industries in South African agriculture. These 12 commodities contribute a significant share to South Africa's total gross output value in 2023. Poultry, sugarcane, and maize industries fund their research activity from different sources.

Table 1: Research expenditure by the 12 largest commodity groups in South African agriculture

Source: NAMC, DoA, and various sources

Note: We could not analyse the research expenditure for maize, poultry, and sugar as this is funded outside the levy proceeds. Grain SA does however provide R11 million funding from their voluntary levy/membership fees to support research in all the grains.

Table 1 illustrates some stark realities about how the various commodity organizations focus on research. The R156 million allocation to research by the Citrus Industry via Citrus Research International (CRI) shows the industry's commitment to research.

The growth in the citrus industry in terms of area planted, production efficiency (volume/tree), combatting diseases, and how to deal with the strict demands from export markets have been the backbone of a well-funded, focused, and successful research programme.

Researchers find a new use for biochar: filtering microplastics from farm soils

This is a substantive research activity implemented mainly by universities and their scientists. The deciduous fruit, table grape, wine, and nut industries follow with similarly designed and funded programmes. Soybeans and wheat industries also spend significant amounts of the levy income on research. The soybean industry has benefited from decades of funding by the Protein Trust as well as from imported technology in seed genetics and cultivation improvements.

More revealing is the column in the table that shows research funding by the industry expressed as a share of total gross value. The deciduous fruit industry spends almost 1% of Gross Value on research, followed by citrus with 0.4%.

It is worrying that the red meat industry allocates only R6,8 million to research – about 0.01% of the industry's total value. Given this industry's many issues and problems, one would expect a much bigger research fund. Just one decent research experiment would take about half of the budget. If one takes the example of citrus fruit and spend at least 0.5% of the value of the industry on research, then there should be about R233 million available for red-meat research. This is substantially more than the current R6,8 million and could stimulate the much-needed growth in the industry.

Conclusion

Overall, we deduce from this data that South Africa needs to review its budget allocations for research and ensure increased spending. Climate change has brought new diseases and various challenges for agriculture. There is also a need for better production methods and breeding programmes, all of which will require careful and well-funded research. This is the responsibility of both the government and the private sector.

The news cycle has been mainly centred around Brexit this past week as talks between the United Kingdom and European Union culminated into a Brexit-deal.

I spent my day in Free State where I participated in the South African Stud Book and Animal Improvement Association AGM.

South Africa’s trade policy is underpinned by an export-led growth strategy. This means the country essentially wants to grow its economy by deepening and expanding its export markets.

South Africa has a diverse agricultural sector, from grains, oilseeds, sugarcane, vegetables, fruits, livestock, and more. In appreciation of the sector's diversity, we decided to place some emphasis on the Karoo region in this offering.  Why is this important? Consider the distribution of South Africa’s agricultural land and its land potential. Commercial agriculture typically takes place on freehold land in South Africa. Freehold (private title deeds) farmland makes up 77.5 million hectares of South Africa’s surface area – or roughly 63%. Of this farmland area, 44.5 million hectares (or 57%) are in the semi-arid Karoo and the Kalahari. It is here that extensive livestock production takes place (mutton, lamb, wool, mohair and cattle – largely in the Kalahari). For this reason, rainfall, the timing of rainfall, and the quality of natural grazing are critical to the financial well-being of farmers in this vast part of South Africa.

• The Karoo and Kalahari do get periods of good rainfall. Still, generally, farming in these areas must cope with regular droughts and the resulting poor grazing, leading to financial hardship for farmers. However, this year, as in much of South Africa, has brought favourable rainfall to the Kalahari, where the Kuruman River has begun to flow after being dry for many years. In the Karoo region, we saw pictures of excessive rainfall in the Koup region (Beaufort-West, Laingsburg), in the Graaff-Reinet and Middelburg area, while the upper Karoo from Britstown to Carnarvon and Victoria-West has also been blessed with record rainfall. Even the Western regions past Williston, to Brandvlei and Sutherland, did not miss out, although rainfall totals are much lower.

• But there is something special about this year’s rainfall in the Karoo beyond the record totals that most farmers have highlighted. It was the timing and frequency. Regular (weekly) rainfall between 10 and 25 mm in March, April, May, and June is fantastic and has a much bigger impact on grazing quality than 100mm in January or February. Those months are just too warm, causing much of the moisture to disappear quickly. This is exactly what happened this year – good regular rainfall from March to May and even into June. The benefits are clear in the sheep industry. The ewes are producing many lambs, the udders of the ewes are full, and the lambs gain weight very quickly.

• The only other year in recent history with similar fantastic conditions was 1974/75, which remains the wettest on record. On some farms, we see fountains, springs and rivers running for the first time in the lifetime of these farmers. This is a very interesting observation and suggests that water tables and soil moisture have been replenished beyond previous levels. If we experience an El Niño next year, the farmers in the Karoo should be in a good position and not be dramatically impacted for a while.

• To put these things in a scientific perspective, we have received a report from AridEco. The data used in their report cover the period from the beginning of May 2026 and consist of weather station data, reference farm data, satellite-derived NDVI data, and supporting information. The NDVI (Normalised Difference Vegetation Index) is the most used index in vegetation monitoring. It is a simple graphical indicator that can be used to analyse remote sensing measurements and provides an index of plant “greenness” or photosynthetic activity (see Exhibit 1). 
• Vegetation Condition is indicated by the vigour of vegetation cover (as a function of NDVI minimum and maximum) compared to the long-term mean. It splits the short-term weather-related signal from the long-term climatological signal and is an accurate indicator of water stress in vegetation. These images are supported by ground-truthing processes involving physical screening surveys and reference farm data comparing rainfall with NDVI signals.

• Exhibit 1 (in the attached file) shows the vegetation observed at the end of April from 2022 to 2025. April 2022 seemed to be much better than the following three years. But our earlier point about the rainfall pattern in 2026 is reinforced by Exhibit 2 (in the attached file), which shows NDVI for April 2026. This is exceptional, and even more so, since the report was compiled, much more good rain has fallen in May and into June 2026. This is why the farmers are extremely happy and positive, especially with good wool and lamb prices.

• The biggest benefit of such good vegetation conditions is that farmers do not have to buy any feed. Considering the current good wool and lamb prices, we expect farm profits in the Karoo to get a well-needed boost. Something they really need after many years of suffering.

• What is more important is to note that all lambs produced and slaughtered in the Karoo will have natural Karoo veld vegetation only this year. So, every lamb produced in 2026 should automatically have complied with the requirements for the Karoo Lamb Geographical Indication (Karoo Lamb GI), provided the farm is in the Karoo region and registered with the Department of Agriculture and SAMIC. This is therefore an ideal time for abattoirs in the Karoo to capitalise on the good grazing conditions and make sure their lamb is marketed, sold and labelled as Karoo Lamb.

• Overall, as with some fruits and field crops, 2026 is going to be a good year for Karoo farmers and Karoo lamb.

WEEKLY HIGHLIGHT

SA’s consumer food price inflation is at its lowest level in 17 months

• South Africa’s consumer food price inflation continues to slow. The figures released by Statistics South Africa last week show that the consumer food price inflation slowed to 1.6% in May 2026, down from 2.8% in March. This is the lowest level in 17 months.

• There was a broad deceleration across the various food products. At the core of moderating consumer food price inflation are lower prices for grains and oilseeds, fruit, and vegetables, driven by ample domestic and global supplies. We continue to believe that meat poses minimal risks to inflation, and meat price inflation has slowed in recent months. Base effects on meat prices, along with continued cattle slaughter, have helped ease price inflation. Poultry production conditions are also favourable.

• On cereal products price inflation, we are in yet another better grain production year. South Africa’s summer grains and oilseeds production is forecast at a record 21.1 million tonnes, up 2% from the 2024-25 season. This figure comprises maize, sunflower seed, soybean, groundnuts, sorghum, and dry beans. This ample harvest adds to already large stocks from the past season, keeping grain prices under pressure. Global grain prices are also under pressure from large harvests, adding to the downward pressure from domestic factors. The expected El Niño will only affect the 2026-27 crop, which comes to market in mid-2027.

• In fruits, while the recent floods are destructive in parts of the Eastern and Western Cape, the country’s fruit harvest is ample. We are even seeing strong exports of citrus, table grapes, and stone fruits, among others, due to a large domestic harvest. Solid exports also don’t necessarily reduce local supplies; they are key, and the local market remains well supplied. The production conditions for vegetables remain broadly favourable, supporting increased field activity.

• Regarding meat, the pace of cattle slaughter has declined somewhat, though not notably. Another fact worth keeping in mind is that during foot-and-mouth disease outbreaks, the country is typically temporarily closed to some export markets, leading to increased domestic supplies, even if slaughter has declined somewhat.

• Overall, the fundamentals of agricultural supply remain solid and point to a moderation in consumer food price inflation in 2026. The recent U.S.-Iran deal to reopen the Strait of Hormuz will further help in easing fuel costs, which bodes well for food price inflation. Fuel accounts for a substantial share of the distribution costs of food products. Notably, over 80% of staple food products are transported by road.

• Looking ahead, the medium-term risk is the forecast El Niño drought, but this may only affect the direction of 2027 food price inflation, as it affects the next season’s crop. For now, we are experiencing moderate food price inflation in South Africa.

• South Africa’s headline inflation was 4.5% in May 2026, from 4.0% in April.

What are we watching this week?

• We start the week by looking at the global front, and today, the U.S. Department of Agriculture (USDA) will release its weekly U.S. crop progress report, which provides insight into the crop growing conditions, mainly maize, sorghum, soybeans, and other major grains for the 2026-27 production season. The plantings have been mostly complete, and the crops are in good condition. For example, on June 14, 2026, about 67% of the maize crop was rated good or excellent. While excellent, this is slightly below the rating in the same week last year, where 72% of the maize crop was rated good or excellent. Also worth noting is that 65% of the soybean crop was rated good or excellent on June 14, 2026, which is slightly below the 66% rating in the same week last year.

• On the domestic front, on Wednesday, the South African Grain Information Services (SAGIS) will publish its weekly data on South Africa's Grain and Oilseed Producer Deliveries. We have recently started the new 2026-27 marketing year, and the harvest for this new year is still in its early stages. In the first seven weeks of the new marketing year, the farmers delivered 3.2 million tonnes of maize to commercial silos. This season is running slightly behind last season's pace. Deliveries are 7% behind what was delivered to commercial silos this time last year. The delays in the start of the season and the longer rainfall period are among the key reasons for this. Still. South Africa is poised to harvest an ample 17.1 million tonnes of maize, the largest harvest on record.

• The 2026-27 soybean marketing year soybean harvest is towards completion. The first 15-week deliveries were 2.6 million tonnes, a record, out of an estimated crop of 2.9 million tonnes. For sunflower seeds, the first 15 weeks of producer deliveries in the new 2026-27 marketing year totalled 717,307 tonnes. There is still a long way to go, as the forecast harvest for the season is 877,680 tonnes.

• South Africa's 2025-26 winter wheat harvest is complete. Some farmers continue to deliver the small volumes of the crop to commercial silos. In the first 36 weeks of this 2025-26 marketing year, farmers have delivered about 1.83 million tonnes of wheat to commercial silos. This is 97% of the expected season harvest of 1.89 million tonnes (down 2% y/y).

• SAGIS will also publish its weekly South Africa's Grains and Oilseeds Trade dataonly on Thursday. Last week, South Africa exported 57,593 tonnes of maize, with about 74% going to South Korea. The rest went to the neighbouring countries. In the 2026-27 marketing year, we recently started, in May 2026, South Africa could export roughly 3 million tonnes of maize. This would be up from 2 million tonnes in the past season. South Africa has ample maize supplies on the back of robust production. South Africa’s maize exports so far in the 2026-27 marketing year total 493,167 tonnes, out of the expected 3.0 million tonnes.

• South Africa is a net wheat importer, and June 12 marked the 37^th week of the new 2025-26 marketing year. Cumulative imports to date total 1.3 million tonnes from Germany, the United States, Latvia, Canada, Australia, Brazil, Romania, Lithuania, Russia, and Poland. We expect South Africa's 2025-26 wheat imports to reach 1.85 million tonnes, roughly the same as the 2024-25 marketing year.

Over the past few months, I have written a few essays arguing that we shouldn’t worry much about the current heatwave in South Africa and that rainfall could soon provide some relief.