South Africa’s trade policy is underpinned by an export-led growth strategy. This means that the country essentially looks to grow its economy by deepening and expanding its agricultural export markets.

Such efforts can be seen through South Africa’s participation in trade negotiations which seek to increase market access with traditional trading partners such as the European Union (EU) and penetrate new markets in Africa through the African Continental Free Trade Agreement (AfCFTA).

A key growth frontier

The focus on these two key regions comes as no surprise since they represent a significant portion of South Africa’s export revenue, specifically in the case of the agricultural sector. More than two-thirds of South Africa’s agricultural exports are concentrated within the African continent and the European Union (EU).

More recently, Asia and the Far East (particularly India and China) have become a key growth frontier that presents South Africa with new opportunities to expand its exports. Overall, Asia has accounted for a quarter of South Africa’s agricultural exports, with indications that South Africa can potentially increase its market presence substantially in the future.

Growth potential

In Asia and the Far East, India and China are especially interesting because they account for 36% of the world’s population, whose economic sizes are US$3,2 trillion and US$15,5 trillion respectively.

With India and China headlining the growth potential in Asia and the Far East, this region overall is significant enough to warrant more attention, especially given that there is currently no preferential market access for South Africa’s agricultural sector in this region.

South Africa is having to compete with the likes of Australia and Chile, who have secured trade agreements that have afforded them a significant competitive advantage. This could end up threatening South Africa’s market share and future growth.

India

India’s agricultural imports have nearly doubled over the past decade – from US$11,2 billion in 2009 to US$21,2 billion in 2018 – but is currently not on the list of Asian countries that import a reasonably large value of agricultural products from South Africa. Yet, if one looks into Asia’s leading agricultural product importers, India is ranked the second importer after China.

The products that underpinned this tremendous growth in India’s agricultural and food imports included palm oil, soya bean oil, sunflower seeds, coconuts, cashew nuts, cotton, sugar, apples, dates, greasy wool, whiskies, coffee and grapes.

South Africa, although a key producer and exporter of some of the aforementioned products (namely greasy wool, sugar, apples and grapes), doesn’t feature even in the top 40 countries supplying agricultural products to India. In 2018, South Africa was ranked the 46th-largest supplier of agricultural products to India by value, accounting for a mere 0,3% of the US$21,2 billion worth of India’s agricultural imports. The key agricultural products that South Africa exported to India were pears, dog and cat food, greasy wool, oranges, apples, maize seed for sowing, cotton, and mandarins, among other products.

A preferential trade agreement

South Africa, together with its Southern African Customs Union (SACU) partners, have been negotiating a preferential trade agreement (PTA) since the mid-2000s. However, 15 years of on-and-off negotiations have not amounted to a favourable outcome. India is known for its highly protectionist policies, especially in agriculture, and exceptionally complex and high technical barriers to trade.

Negotiations for opening India’s market have inevitably come with difficult conditions, especially given their substantially larger tariff book. However, given the market size and India’s potential, it is important that further considerations be made to allow South African agriculture to capture its export market opportunities.

China

In the case of China, its agricultural imports increased from US$70,7 billion dollars in 2009 to US$129,7 billion in 2018, and South Africa is down on the list of the supplying countries, at number 32. South Africa’s agricultural exports account for 0,5% in China’s agricultural imports.

The key agricultural products that China imports include soya beans, cotton, malt, beef, palm oil, wool, wine, strawberries, pork, citrus and barley. South Africa’s presence within the Chinese market is mainly wool, citrus, nuts, sugar, wine, beef and grapes. But within these products, South Africa’s share remains negligible, with the exception of wool.

Growth constraints

What has constrained South Africa’s growth in these markets over the past few years is not only the fact that the products in demand are not produced in South Africa, but rather trade barriers. In part, this is because of the way China facilitates agricultural trade agreements – mainly focusing on one product line at a time – which ultimately slows trade. – 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.

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