The ongoing COVID-19 crisis has brought uncertainty in global trade because of disruptions in supply chains and weakening demand. South Africa’s agricultural sector, which is export orientated, is one of the sectors we had feared would be disrupted by the pandemic. So far, however, there has been minimal disruptions as the agricultural and food sector had generally remained operational across the globe.

Good news for the export market

The coming months could be even better as many countries are slowly easing restrictions on economic activity and the movement of people after widespread lockdowns. In the first quarter of the year, the period before coronavirus lockdowns were implemented across the globe, South Africa’s agricultural trade was vibrant.

The country recorded an agricultural trade surplus of $773 million (Exhibit 1). This is up by 16% year-on-year (y/y), with exports having increased at a much higher rate than imports.

Exports were underpinned by grapes, maize, wine, wool, pears, apples, plums, lemons and macadamia nuts, amongst other agricultural products. We expect these products to continue underpinning South Africa’s agricultural exports in the second quarter of 2020, but with some decline in wine exports, which was briefly impacted by domestic lockdown regulations.

Citrus will feature prominently from the second quarter onwards, with exports for this year expected to reach a record 143,3 million cartons (for Southern Africa, mainly South Africa). The export activity of citrus has also continued with minimal interruptions during the lockdown period.

Similarly, maize will dominate this year; South Africa’s maize exports are estimated at 2,7 million tons, up 89% y/y because of a higher domestic harvest. This comes at a time where increased maize needs are expected in Southern Africa, a primary market for white maize. 

Imports expected to boom

From a destination point of view, the African continent and Europe continued to be the largest markets for South Africa’s agricultural exports in the first quarter of this year, accounting for 44% and 29%, respectively, in value terms. Asia was the third-largest market, taking up 19% of South Africa’s agricultural exports in the first quarter of 2020. The balance of 8% was spread across other regions of the world. 

In terms of imports, the leading products included wheat, palm oil, rice, poultry meat, sunflower oil, and sugar. For the year, it is expected that rice, wheat and palm oil will dominate the agricultural import product list.

South Africa’s 2020 rice imports could amount to 1,1 million tons, up by 10% from 2019, according to data from the International Grains Council. Meanwhile, South Africa’s 2019/20 wheat imports could increase by 29% y/y to 1,8 million tons. We could also see an increase in palm oil in the coming months. 

Food sector might dodge pandemic’s impact

In a nutshell, while the pandemic will result in a loss of income in various regions of the world and, in turn, a decline in demand for goods, the agriculture and food sector is one of the few that might not be as hard hit. As such, South Africa’s agricultural exports could increase from the $9,9 billion of 2019.

The key catalysts this year will be the increase in grains and horticulture output and, to some extent, the weakening domestic currency. Therefore, as in the previous year, trade will continue to be a key driver of South Africa’s agricultural sector, at least in 2020. 

Agricultural product demand

The outlook for the following years will, in part, depend on the magnitude of the economic shock of COVID-19. In the event of a massive shock and slow recovery, as some analysts expect, it is plausible that the demand for high-value agricultural products could be somewhat impacted in South Africa’s traditional markets.

This also means that South Africa should, after the pandemic, continue its efforts of developing the export market for agricultural products, specifically to China and India. – 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 agricultural markets for the major commodities.

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