Not many agricultural subsectors are a testimony to the export-led growth ambition that the South African government is currently focusing on such as avocados.
Between the 1994/95 and 2016/17 production seasons, South Africa’s avocado output grew by 72% to 77 508 tonnes, according to data from the Department of Agriculture, Forestry and Fisheries. This production is concentrated mainly in the subtropical areas of Limpopo, Mpumalanga and KwaZulu-Natal. The improvement in production in recent years has been underpinned by growing demand from the domestic and global market. Between 1994/95 and 2016/17, South Africa exported, on average, about two-thirds of its avocado output. The leading markets were the Netherlands, the United Kingdom, Spain, Russia, the United Arab Emirates, Portugal, Russia, Namibia, Turkey, Saudi Arabia and France, which collectively accounted for 97% of South Africa’s avocado exports in 2017, and also in 2018.
• Although not amongst the top 10 global avocado-producing countries, South Africa holds a prominent place in the global export market of the product. The country was the world's eighth largest avocado exporter in value terms in 2018. The other African country that featured in the top 10 global avocado exporters was Kenya, ranked at the seventh largest exporter in 2018. But this has not always been the case, although Kenya has consistently been the continent’s leading producer of avocados, accounting for nearly 30% share, which is twice the volume produced by South Africa. Kenya only became the continent’s leading exporter of avocados in 2017, and maintained that position in 2018, as shown in
This was driven by a growing demand in the same countries that South Africa generally exports to, which are the United Arab Emirates, the Netherlands, France, Saudi Arabia, and the United Kingdom, amongst others.
• But Kenya has added another key market to its list of potential export markets – China. In the week of 26 April 2019, the country signed a Memorandum of Understanding on sanitary and phytosanitary measures to enable the export of avocados into China.2 China is an important and growing market in the global avocados sphere ranked as the ninth largest importer in 2018. China’s avocado imports grew from 4 tonnes in 2008 to 43 859 tonnes in 2018, according to data from the Trade Map. If growth continues over the coming years, Kenya stands to benefit from it. The countries that currently supply a large share of avocados to China are Peru, Mexico, Chile and New Zealand.
• This brings us to the point of South Africa, which exports avocados mainly destined to the European, Black Sea, and the Middle East regions. While these markets have served the country well over the past couple of years, it would be useful for South Africa to also explore the Chinese market given its enormous growth in the recent past. Moreover, as plantings continue to increase across South Africa, with industry players suggesting that about 1 500 hectares will be added to the current area plantings of 17 500 hectares each year within the next five years, new markets will be needed for the added supply.
All this dovetails with South Africa’s government policy ambition of achieving an exportled growth in agriculture, and should, therefore, receive attention in terms of working with the industry to open up new markets for agriculture, and avocados in this particular case.
Recap on summer and winter grains production, and food price inflation.
As discussed in our note on 25 April 2019, South Africa’s Crop Estimates Committee (CEC) painted a somewhat positive picture of the country’s summer and winter crop prospects in its recent update. In terms of the summer crop, the CEC lifted its estimates for South Africa’s 2018/19 grains and oilseeds production for a third consecutive month by 1.3% from March 2019 to 12.8 million tonnes. There were upward revisions across all summer grains and oilseeds which comprise white and yellow maize, sunflower seed, soybeans, groundnuts, sorghum, and soybeans. With that said, this is still 16% lower than the 2017/18 production season due to a reduction in area planted, and expectations of relatively poor yields in some areas,all underpinned by unfavourable weather conditions earlier in the season. From a winter crops perspective, the planting
season has started in the Western Cape, and will commence around midyear in most parts of the country, and as such, the CEC has thus far only released farmers’ intentions to plant data for the 2019/20 production season, which showed a possible 1.8% year-on-year increase to 711 950 hectares. This includes wheat, barley and canola. But the uptick is mainly on wheat and canola, while barley hectares are set to decline marginally in 2019/20 production season. In this note, we will recap only on major grains and oilseeds.
Summer grains and oilseeds third production estimates
• South Africa’s maize production was lifted by a percentage point from last month to 10.7 million tonnes. This is slightly above Reuters analysts’ consensus forecast of 10.6 million tonnes, but well below last year’s harvest of 12.5 million tonnes . Yellow maize accounts for roughly 51%, with white maize making up about 49%. The crop has 3 Fresh Fruit Portal, “South Africa anticipating improved EU avocado market conditions”,
generally matured in most areas of the country, which means that the expected harvest is more likely to materialise.
If we account for a potential opening stock of 3.0 million tonnes at the start of the 2019/20 marketing year in May 2019, in addition to the expected harvest, then South Africa could be in a comfortable position in terms of maize supplies, as that will cover the country’s annual consumption of about 10.8 million tonnes. Under this scenario, we believe that South Africa could remain a net exporter of maize in the 2019/20 marketing year, although the volume could decline by half from the 2018/19 marketing year to about 1.1 million tonnes.
• While we have generally been positive about South Africa’s 2018/19 soybean production prospects due to favourable weather conditions in the eastern parts of South Africa this season, we did not anticipate an upward revision in this month’s update. The CEC lifted the production estimate by 2% from last month to 1.3 million tonnes. This is, nonetheless, down by 13% from the 2017/18 production season, partly due to a reduction in area planted. Given South Africa’s growing soybean consumption, we suspect that South Africa could be a net importer of soybeans in the 2019/20 marketing year (corresponds with the 2018/19 production season). Other things being equal, we think 2019/20 soybean imports could amount to 7 000 tonnes, which is slightly higher than the 2018/19 marketing year.
• Sunflower seed production estimate was lifted by 8% from last month to 611 140 tonnes, owing to expected yields in the Free State, North West, and Limpopo. It seems that the favourable rainfall in the past few weeks has slightly benefited the late planted areas where the crop was still at early stages of development. Nevertheless, this is still 29% lower than 2017/18 harvest due to both a reduction in area planted this season and expectations of relatively lower yields in some provinces, as shown in Figure 2. If we work with these numbers, South Africa could be a net importer of sunflower seed in the 2019/20 marketing year. We estimate that imports could amount to 100 000 tonnes, up from 1 324 tonnes in the 2018/19 marketing year.
• Given that there were no major surprises in the aforementioned data, and the adjustments made were all positive, we suspect that the commodities prices will largely trade sideways to downwards this week, particularly on maize as it has been the case over the past couple of weeks. With that said, the current price levels are somewhat reflective of a lower harvest than the 2017/18 production season. On 25 April 2019, white and yellow maize spot prices were up by 27% and 18% from the corresponding period last year, closing at R2 491 per tonne, and
R2 539 per tonne, respectively. At the same time, sunflower seed and soybean prices were up by 10% and 2% from 25 April 2018, trading at R5 010 per tonne, and R4 739 per tonne, respectively.
Winter grains and oilseeds farmers’ intentions to plant
• The CEC’s April 2019 projections support our optimistic view of South Africa’s winter grains and oilseeds in the 2019/20 season, particularly on wheat and canola plantings. Farmers intend to increase the area planted to winter wheat by 2% from last year to 513 450 hectares. The upward revision is mainly in the Western Cape, Eastern Cape and Limpopo. In the case of the Western Cape, the weather prospects are supportive of farmers' optimism. On 28 March 2019, the South African Weather Service noted that between April and July 2019, the south-western parts of
South Africa could receive above-normal rainfall. This bodes well for the 2019/20 production season. The weather prospects for other provinces are expected to remain fairly favourable, also supportive of the winter crops. While it is still early to be certain of the potential harvest, the possible plantings of the aforementioned area would lead to a potential wheat harvest of 1.8 million tonnes. This is under the assumption of a five-year average yield of 3.4 tonnes per hectare, which is less than the 2018/19 yields of 3.7 tonnes per hectare, thus the overall harvest could also be marginally less. Under this scenario, South Africa could remain a net importer of wheat, with the volume roughly unchanged from the current season where imports could amount to 1.4 million tonnes.
• South Africa’s 2019/20 canola plantings could increase by 4% year on year to 80 000 hectares. Assuming favourable weather conditions, as we expect, production could lift marginally to 104 000 tonnes. Meanwhile, barley plantings could decline marginally from the 2018/19 production season to 118 500 hectares.
South Africa’s food price inflation
• The latest CEC data do not change our view on South Africa’s food price inflation outlook. Therefore, in this section, we will recap our discussion in a note published on 17 April 2019. In it, we noted that while South Africa’s food price inflation has remained relatively subdued over the past few months, having remained at 2.3% y/y for a third consecutive month in March 2019, despite the notable increases in grain-related food products (bread and cereals), which account for a 21% share of the food basket, we believe that there will be an uptick in the coming months.
The March PPI data, which showed a jump in food PPI inflation to 4.9% y/y from 3.5% y/y in February, support our view. Thus, we maintain our average annual forecast for South Africa’s food price inflation at around 5% for 2019.
• One key factor which has kept headline food price inflation at lower levels in the past few months is softer meat prices, which account for more than a third of the food inflation basket, and were actually in deflation in March 2019, registering -1.1% in March 2019. This was partly driven by expectations of an increase in domestic meat supplies asthe outbreak of foot-and-mouth disease at the beginning of this year led to a ban on South Africa’s beef in key export markets.
• But this might change in the coming months as South Africa has resumed its beef exports to Bahrain, Lesotho, Mozambique, Egypt, Qatar, Jordan, Swaziland, Seychelles, Kuwait, and the United Arab Emirates.4 This means the impact of the foot-and-mouth disease outbreak might not be as severe as initially expected.
Also worth noting is that South Africa’s cattle and sheep slaughtering activity is slowing, although it is not clear if this trend will hold in the
coming months, and this could add support to prices in the near term. Aside from red meat, poultry products prices could lift somewhat in the coming months, as there is likely to be an uptick in import tariffs. In terms of pork, prices could move sideways in the coming months, as there is no imminent threat from the recent African swine fever outbreak in North West.6 Hence, we are of the view that the lower food inflation story could soon be over.
If you want to view the Figures- Go to agribiz website.
