The fears about the potential disruptions that the novel coronavirus (COVID-19) could cause global supply chains have raised questions of whether South Africa could experience food shortages in the near to medium term.
From a national perspective, we doubt this would be the case, at least for most food products. South Africa is an agriculturally endowed country and is generally a net exporter of agricultural and food products, as illustrated in Exhibit 1. What’s more, there are prospects for an abundant harvest of staple grains and fruit this year, which will increase local supplies.
Importation of agricultural products
There are, nonetheless, essential imported food products that South Africa is dependent on such as rice, wheat and palm oil. Key palm oil suppliers are Indonesia and Malaysia. The typical suppliers of rice are Asia and the Far East, namely Thailand, India, Pakistan, China and Vietnam, some of which have been hard hit by the pandemic. In the case of wheat, suppliers are usually Germany, Russia, Lithuania, the United States (US) and the Czech Republic, some of which have also been hard hit by the pandemic.
Some of the countries that have reported cases of COVID-19 have not yet taken the drastic measures of limiting business activity (apart from Italy and China) to reduce the spread of the virus. This means the importation of some of the agricultural products mentioned into South Africa could continue unabated, barring any unforeseen eventuality.
Aside from the major products, South Africa also imports poultry products and sunflower oil; however, these are products that can be replaced by local supplies should there be disruptions in global supply chains.
In the unlikely event of potential shortages, it will be due to glitches in the logistics of shipping imports rather than a decline in global essential grains supplies. For example, the 2019/20 global wheat production could amount to 764 million tons, up by 5% year-on-year (y/y) according to data from the United States Department of Agriculture. Moreover, the estimated 2019/20 global rice production is 499 million tons, which is roughly unchanged from the previous season. The global palm oil market is also well supplied, with about 8 million tons, according to data from SUNSEEDMAN.
Therefore, the domestic food supply chains will perhaps be the ones tested in the coming weeks and months if panic buying arising from fears of the spread of COVID-19 were to peak to levels seen in the United Kingdom (UK) and US, among other countries. So far, however, there is relative calm in local food markets at retail level, except for the rising demand for sanitisers. As set out in our note last week, the implications of COVID-19 on food price inflation remains unclear in the near term.
We continue to monitor the consumer buying behaviour for signals of rising demand. Suffice to say, South Africa has ample food supplies for 2020 and, therefore, there is no need for panic buying. Hence, we have placed our forecast for food price inflation this year at about 4% y/y compared to 3,1% y/y in 2019. The uptick in food price inflation compared to the previous year is associated with a potential increase in meat prices, rather than the COVID-19 pandemic.
Potential slowdown of export demand
Negative pressures of the virus are likely to hit farmers and agribusinesses through the potential slowdown of export demand, and a likely subsequent decline in agricultural commodity prices. As pointed out in previous notes, South Africa’s agricultural sector is export-orientated and heavily reliant on global markets.
Nearly half of the value of what the country produces, is exported. Asia and Europe, which accounted for half of the US$10 billion of South Africa’s agricultural exports in 2019, are the areas hardest hit by COVID-19 to date. There is likely to be disruptions in supply chains in these regions as governments strive to limit the spread of the virus. – Wandile Sihlobo, Agbiz
Wandile Sihlobo, head of economic and agribusiness intelligence at Agbiz, shares highlights in his update on agricultural commodity markets. Click here for the full report on agri markets for the major commodities.