The barley industry is set to face some market demand slump. This slump emanates from a COVID-19-induced alcohol ban on the one hand and a predicted record 2020/21 harvest on the other. South Africa could produce an estimated 505 215 tons in 2020/21, which is up by 46% from the previous season. This is a result of increased area plantings and expected higher yields following favourable rainfall in the Western Cape.

Such a record harvest means that South Africa could remain a nett exporter of barley. The key export markets for South Africa’s barley over the past five years were on the African continent, including primarily Uganda, Namibia, Zambia, Botswana, Lesotho and Togo.

The ban on alcohol sales

Meanwhile, the 2020/21 marketing season has also been affected by the COVID-19 lockdown regulations, which led to a temporary ban on alcohol sales for an extended period. The first ban was implemented from 27 March to 1 June, and the second from 12 July to 17 August.

These bans could lead to a decline in the domestic beer industry’s demand for barley. The irony of such a large barley output amid a predicted fall in demand from processors creates new market uncertainty. Where are producers going to sell their barley? South Africa might have to explore export opportunities for its surplus beyond traditional markets. It would be worth considering key barley-importing countries in the global market such as China, Iran, Saudi Arabia, the Netherlands and Belgium.

Accessing new markets

Data trends show that South Africa has not exported barley to any of the world’s largest importing countries. The country has, nonetheless, exported various agricultural commodities such as maize, citrus, beef and wine to these countries.

This indicates that there is an existing agricultural trade movement between South Africa and these countries. The existence of trade flows with regard to other agricultural products is not, however, a sufficient predictor of whether barley exports could follow a similar path. Hence, barley producers and exporters could consider key additional factors such as tariff and non-tariff barriers associated with exporting to these countries.

The full scope of the latter is a matter that requires further analysis and technical support from the Department of Agriculture, Land Reform and Rural Development (DALRRD), which will provide perspectives on plant health regulations that would need to be met to access these markets.

South African barley exports to the EU

From a tariff perspective, South African barley exports to the European Union (EU) (i.e. the Netherlands, Belgium, Germany, Spain, etc.) remain duty-free under the preferential Southern African Development Community Economic Partnership Agreement. The picture for markets in the Middle and Far East is mixed.

South African barley exporters will face tariffs in Japan (175%), Brazil (10%), Iran (5%) and China (3%). Some Middle Eastern markets such as Jordan and Saudi Arabia are duty-free.

To identify the feasibility of accessing these markets, the Department of Trade, Industry and Competition (the dtic) should begin to arrange trade missions, which should predominantly have private-sector representation. These missions should aim to visit these markets and engage in business-to-business sessions to understand the product and client specifications and requirements.

The dtic, as well as the DALRRD, need to work together with industry in a co-ordinated effort to access these markets. The public-private partnership effort of developing a market entry strategy should ideally form part of a longer-term market development strategy designed to provide strategic alternative options in the event of a decline in domestic usage of barley, as many in the market anticipate. It is an opportunity for closer co-operation between the private sector and government, and a model that can be used in other sectors.

Competitors in the global barley market

With the domestic barley crop now at advanced stages and set to reach the harvesting stage by the end of this year, efforts towards expanding market access for South Africa’s barley in these countries need to begin immediately.

We recommend that the top ten countries in Table 1 are prioritised. The competitors that South Africa will potentially face in the various markets are France, Russia, Argentina, Australia, Canada, the United Kingdom (UK), Kazakhstan, Germany, Denmark and Estonia. In key markets such as China, which accounted for 21% of global barley imports by volume in 2019, Australia was a major supplier of roughly half of the imports, followed by Canada, France, Ukraine and Argentina.

China, however, has since placed import tariffs of 80,5% on Australia’s barley, which provides a window of opportunity for other competitive suppliers. South Africa could be one such supplier to China, and this is a path the South African government and industry should explore and prioritise in addition to other key markets.

We think that Australia might also be looking for markets for its barley, which could present tough competition, to a certain extent, for South Africa. China should therefore be prioritised.

Iran, which accounts for 10% of the world’s barley imports, typically receives supplies from Russia, the UK and Germany. In the case of Saudi Arabia, the key suppliers are usually Argentina, Russia, Ukraine and Estonia.

These are all suppliers that South Africa will have to compete against in these markets. It will be crucial to assess the extent of the country’s competitiveness against these suppliers and determine if lower tariffs present a meaningful competitive advantage for South Africa to attempt access to these markets.

If this is done speedily, it could prove to be an alternative outlet for the excess barley that South Africa will likely have in the 2020/21 marketing year. – Wandile Sihlobo, Agbiz

Wandile Sihlobo, chief economist at Agbiz, shares highlights in his update on agricultural commodity markets. Click here for the full report on the agricultural markets for the major commodities.

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