South Africa’s agricultural sector and consumers are under immense pressure. This is reflected in the numbers released by Statistics South Africa yesterday, showing that in the first quarter of 2023, agriculture gross value added (GVA) sharply contracted by -12,3% quarter-on-quarter.
There are a few elements that explain this sharp contraction. First, the field crops had a tough start to the season because of excessive rains, which disrupted and delayed plantings by over a month in some areas.
Second, the cattle industry still feels the adverse effects of foot-and-mouth disease (FMD), leading to a decline in slaughtering activity. Thirdly, against the backdrop of food price inflation having reached double-digit figures, consumers are under financial strain.
What’s up with crop production?
When it comes to crops, Wandile Sihlobo, chief economist of the Agricultural Business Chamber of South Africa (Agbiz), pointed out that the summer crop season started on lousy footing.
Subsequently, the planting of some crops was delayed by roughly a month. However, despite this, the weather conditions improved in January and allowed for the completion of the planting, Sihlobo said.
Consequently, South Africa’s 2022/23 summer crops are in good shape, he added.
“For example, the 2022/23 maize harvest is estimated at 16.1 million, 5% higher than the 2021/22 season’s harvest and the third-largest harvest on record. Soybeans harvest could reach a record 2.8 million tonnes.”
Other field crops and fruits are also showing prospects for decent harvest this season.
South Africa’s maize
In the meantime, crop prices continue to soften in the global market, according to the Bureau for Food and Agricultural Policy (BFAP). This is backed by the easing of input and energy costs in combination with higher production.
South Africa is among the cheapest sources of maize globally, trading in dollar terms at $190/tonne compared to the US price of $255/tonne.
“With the latest crop estimate of 16.1 million tonnes and local demand estimated at 11.5 million tonnes, South Africa will have ample surplus of exportable maize for the coming marketing season and exports are already commencing,” BFAP said.
They also anticipate maize meal prices to decline over the coming three to four months as cheaper maize moves into the supply chain.
“However, the higher costs of transportation, processing and retailing due to load shedding and crumbling road infrastructure will absorb some of the potential reduction in maize meal prices and we expect the farm-to-retail margin to increase over time.”
What about livestock?
While crops are set to contribute to the fortunes of the agricultural sector, a slow recovery in the livestock subsector remains a critical risk to this year’s performance. Livestock accounts for nearly half of agriculture’s GVA.
According to Roelie van Reenen, supply chain executive at Beefmaster Group, livestock producers are operating under extremely difficult circumstances. The situation is likely to remain challenging for the remainder of the year, he said.
“It is a fact that we have to tighten our belts and brace ourselves for a prolonged period of challenging conditions,” said Van Reenen. “I anticipate at least six to eight months of tough times ahead. However, we must remain optimistic and focus on producing cheaper, smarter, and more market-oriented products to protect our industry.”
Additionally, herd sizes have decreased, and there has been a loss of export markets due to insufficient protection against diseases like FMD, leading to an oversupply of beef in the local market.
Implementation of the master plan
Sihlobo said it is important that plans documented in the Agriculture and Agro-processing Master Plan regarding the livestock sector, be implemented.
“Notably, the broad sector support behind the plan could wane over time if the implementation is slow, and we may again find ourselves with another “good on paper but not implemented plan,” said Sihlobo.
Getting out of this state of inertia requires the Department of Agriculture, Land Reform and Rural Development (DALRRD) to reconvene the social partners with an implementation proposal at hand to propose, Sihlobo said.
BFAP stated that beef carcass prices have declined by around 8% since January and in May 2023 were more than 10% below May 2022 levels.
“Prices are expected to dip further until mid-July due to seasonality, coupled with additional meat available in the market.
“This trend in lower prices will mainly impact cheaper cuts in the Northern parts of the country, where approximately 40% of consumption is situated,”
BFAP expects beef prices to be dampened further by weak demand, with disposable incomes under increasing pressure. Also, the continued spread of Avian Influenza globally could bring additional price risks going forward.
Impact on consumer
In the meantime, consumers are bearing the brunt of economic and market shifts.
The South African Reserve Bank recently increased the country’s interest rate by 50 basis points, bringing it to 8.25%, the highest level in 14 years. This is yet another blow for consumers who are under financial pressure.
“Increasingly, consumers have less money to spend. With financial budgets under pressure, they make significant trade-offs in their shopping choices due to financial constraints.”
“This is impacting the agricultural and beef value chains,” said Van Reenen, adding that beef prices have declined, but the price reduction has not yet reached the consumer.
Catering for price-sensitive consumers
As Van Reenen pointed out, agricultural players – farmers, food producers, and industry stakeholders – must adapt and produce a cheaper product to cater to price-sensitive consumers. “Failure to do so could have dire consequences for the agriculture industry.”
He said producers need to work closely with their clients to understand what they want and need in the current environment and then tailor offerings accordingly.
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