Drought and biosecurity matters will weigh on South Africa’s agricultural trade activity in 2019. South Africa’s agricultural exports could fall by 4% y/y in 2019 to $10,2 billion, according to latest estimates from the United States Department of Agriculture (USDA). At the same time, agricultural imports are set to soften by 3% y/y to $6,8 billion. This means South Africa’s agricultural trade balance could narrow by 13% y/y in 2019 to $3,4 billion (Figure 1).
Although the data for the full year is not yet available, the first three quarters of the year’s data supports the USDA’s view of a decline in trade activity. South Africa’s agricultural exports for the first three quarters of 2019 are down by 8% y/y, with imports having declined by 5% y/y over the same period. From an export perspective, lower sales of wine, grain, edible fruit and wool were among the key drivers of the decline. Meanwhile, the decrease in import values was mainly underpinned by relatively lower imports of palm oil, poultry products, fish, live cattle and pork products.
Brief agriculture export analysis
Being an export-orientated sector, it is worth taking a closer look at the impact of biosecurity and drought on exports. Firstly, in terms of biosecurity, the primary challenge this year has been foot-and-mouth disease, which still remains a threat following the recent outbreak in Limpopo. However, the first three quarters of the year were affected by the outbreak that occurred in Limpopo earlier this year, which resulted in a temporary ban of livestock product exports, including wool. China, which imports on average 71% of South Africa’s wool, placed a temporary ban on imports. This weighed on the industry’s export activity, and thus subdued wool export values in the first three quarters of this year. The ban has since been lifted, and we suspect that South Africa’s wool export figures could increase in 2020.
Secondly, the drought that started in October 2018 and continued into early 2019 in some parts of South Africa led to a poor summer crop and horticulture harvest. For example, the major summer crops performed poorly during the 2018/19 production season. Maize, soya beans and sunflower seed production are down 10% y/y, 24% y/y and 21% y/y, to 11,3 million tons, 1,2 million tons and 680 940 tons, respectively. Moreover, the wine grape harvest was down 2% from 2018. This subsequently led to relatively lower export volumes in the first three quarters of this year, compared to the corresponding period in 2018.
From a destination point of view, the African continent and the European Union were the largest markets for South Africa’s agricultural exports in the first three quarters of this year, respectively accounting for 39 and 27% in value terms. Asia was the third-largest market, taking up 25% of South Africa’s agricultural exports over the same period. The balance of 9% was spread across other regions of the world.
The South African government and private sector players have embraced a vision of expanding labour-intensive sub-sectors as part of a broader agricultural development strategy. These sub-sectors are mainly in horticulture and, to a certain extent, field crops. Fortunately, the most valuable agricultural exports over the past five years were also within these sub-sectors, which means South Africa is on the right path in terms of its agricultural development strategy.
With that said, while a notable share of South Africa’s agricultural exports goes to Asia, there is still potential to expand participation in that market. With India and China headlining the growth potential in Asia and the Far East, this region is significant enough to warrant more attention, especially since there is currently no preferential market access for South Africa’s agricultural sector in this region. South Africa has to compete with the likes of Australia and Chile. These countries have secured trade agreements that have afforded them a significant competitive advantage, which could end up threatening South Africa’s market share and future growth.
South Africa should therefore continue to engage these countries for greater market access in terms of agricultural products. As highlighted in our note on 4 November 2014, if India and China – as Asia’s leading agricultural importers – are to be focus areas for South Africa’s export growth, then a new way of engagement will be essential to soften the current barriers to trade. Most importantly, all three countries are members of BRICS – a platform which should help improve economic activity across its member countries. – 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.