The suspension of South Africa’s wool imports by the Chinese authorities because of the foot-and-mouth disease outbreak earlier in the year is a key concern. Wool is an important commodity in the South African agricultural sector, ranked the sixth largest exportable commodity after oranges, grapes, wine and apples last year. In the same year, wool accounted for 4% of South Africa’s agricultural exports of US$10.6 billion (R147.5 billion).
What makes the Chinese decision to suspend South African wool imports particularly concerning is its share contribution to the domestic exports. Over the past five years, China accounted for an average of 71% of South Africa’s wool exports in value terms. So, if the current trade friction is not soon resolved, the South African wool industry could be negatively affected as over 90% of production is exported either as greasy wool or in semi-processed form as scoured wool and wool top.
Under such a scenario, the impact would ultimately be reflected in the agricultural trade balance. The other markets for South African wool industry are the Czech Republic, Italy, India, Bulgaria, Germany, and the United States, among others. These markets are all smaller than that of China, the world’s leading wool importer, taking more than two-thirds of the world’s wool imports in 2017.
Leading suppliers of wool to China are typically, Australia, South Africa, New Zealand, Uruguay, Argentina, Turkey and the United Kingdom, among others. Media reports coming out of Australia already suggest that local woolgrowers in that country could take advantage of the temporary suspension of South African wool to the Chinese market and increase their market share. Be that as it may, we are yet to see how long the suspension will be in place; the industry is currently engaging with the local authorities. South African wool exports to China were suspended because of a foot-and-mouth disease outbreak was in 2011, but the impact then on export values was minimal, as the matter was resolved in a space of a few months. We will closely monitor the developments on the current suspension in the coming weeks, in order to ascertain its impact on the agricultural trade balance. –Wandile Sihlobo
Wandile Sihlobo, head of economic and agribusiness intelligence at Agbiz, shares highlights in his weekly update on agricultural commodity markets. Click here for the full report on agri markets for the major commodities.