Agricultural Market Viewpoint with Wandile Sihlobo

It is perhaps a reasonable choice to remain optimistic about the upcoming 2024-25 summer season in South Africa's agriculture. The global weather forecasters paint encouraging prospects of weather conditions. For example, the Australian Bureau of Meteorology and the International Research Institute for Climate and Society (IRI) at Columbia University continue to forecast La Niña occurrence.

The Australian Bureau of Meteorology states, "The ENSO Outlook is at La Niña Watch, meaning there are some signs that a La Niña may form in the Pacific Ocean in 2024". Meanwhile, the IRI sees a strong likelihood of La Niña now through January 2025, and after that, it weakens as the weather normalizes.

Overnight, the South African Weather Service (SAWS) also published a cautiously optimistic note. The SAWS stated that the "current predictions indicate the development of a La Niña state during the start of the summer season; however, there is still significant uncertainty in the predictions."

The SAWS added that "it is advised to monitor the ENSO system during the start of the summer season, as it may change the rainfall outlook for the summer rainfall regions if and when the La Niña materializes. Current predictions focus on the early- and mid-summer seasons and indicate wetter conditions over the interior of the country. The northeastern parts, however, at this stage, indicate drier conditions extending through to the mid-summer period."

What we draw from these statements is that (1) South Africa and indeed the Southern Africa region is out of an El Niño cycle, which typically brings drought and has had a devastating impact on agriculture in the 2023-24 summer season; (2) there is reason to be optimistic about the La Niña possibilities and favourable rains in the 2024-25 season (but must be mindful of the regions the SAWS suggests may be slightly dry for some time), and that (3) even if we are out of a La Niña cycle soon and in the "neutral" state, the agricultural conditions could still be favourable as the "neutral" state implies normal conditions.

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Podcast production by Richard Humphries, and Sam Mkokeli

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/ Wandile Sihlobo website

South Africa is on its eighth summer grain and oilseeds production forecast for the 2023-24 season. There are two more monthly reports to follow. Given that we are at the tail end of the season and will soon be in the optimal planting window for the 2024-25 production season from mid-October, we thought there would be no major revisions of the production figures at this late stage.

But this has not been a typical season, and the lower producer deliveries we have been observing over the past few weeks are not only a function of on-farm storage but a poor harvest. Indeed, we struggled with a mid-summer drought in February and March, undermining crop yield potential in various regions.

On October 26, South Africa's Crop Estimates Committee lowered again the 2023-24 summer grain and oilseeds production estimate by 2% from August to 15,45 million tonnes. The major downward revision was in maize, sunflower seed, and groundnut harvest. The 2023-24 summer grain and oilseeds harvest is now down 23% from the previous season.

Listen to the podcast for more details.

Podcast production by Richard Humphries and Sam Mkokeli

My writing on agricultural economic matters is available on my blog:

https://wandilesihlobo.com/ Wandile Sihlobo website

South Africa's agricultural growth in the first thirty years of the democratic era has been supported, among other things, by two pivotal interventions. The first was a deliberate and concerted strategy to invest in genetics for crops, horticulture, and livestock. The second intervention was a strong push to expand export markets. As production continues to increase, and there remains capacity for expanding production, these two levers must be accelerated.

The trade issues are not purely economic but political, which means that the South African political leadership must take a clear stand and focus on retaining the existing markets through dialogue with the political leadership of the countries where we continue to experience challenges. The Department of Trade Industry and Competition and the Department of International Relations and Cooperation must be at the forefront of these efforts, supported by scientific insights from the Department of Agriculture.

Also very important in the near term is the upcoming BRICS+ summit in October, which will take place in the city of Kazan in Russia. While this grouping is not a trade bloc, utilizing the structure to push more ambitious trade matters is vital. The agricultural sector is one of the South African economic sectors that would benefit from deeper trade relations with the BRICS+ countries. As things stand, South African agriculture has not benefited much from trade with this grouping. Before adding other members to the 15th Summit in Johannesburg in 2023, the original BRICS countries accounted, on average, for just 8% of South Africa's agricultural exports. For comparison, the UK accounts for roughly 7% of South Africa's agricultural exports.

Yet, between 2019 and 2022, the original BRICS countries' agricultural imports averaged US$255 billion annually, according to Trade Map data. China accounted for 71% of all the agricultural imports into the group, followed by India at 11%, Russia at 11%, Brazil at 4% and South Africa at 3%. Despite these sizeable agricultural import figures, the intra-BRICS agricultural trade remained relatively low. Remarkably, the products these countries imported include soybeans, beef, maize, berries, wheat, palm oil, poultry meat, cotton, barley, dairy products, pork, apricots and peaches, sugar, wool, sunflower seed, nuts, sorghum, goat meat, wine, grapes, bananas, avocados, mangos, guavas, and fruit juices, among other products. South Africa produces some of these products in abundance and has surplus export volumes. Thus, South Africa championed a need to deepen trade in the 2023 BRICS Summit.

This year, the message going to Kazan should focus on building on the spirit of the 2023 Johannesburg Summit, which promoted the dialogue about deeper agricultural trade. This year, the message is even more urgent as the newly added BRICS+ members also present an opportunity for widening agricultural exports. The South African authorities should lobby for a more pragmatic approach beyond the high-level talk so that businesses can see the full benefit of BRICS+ engagements.

Listen to the podcast for more details.

Podcast production by Richard Humphries, and Sam Mkokeli

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/ Wandile Sihlobo website

By this time next month, the fields across the eastern regions of South Africa will likely be busy. Farmers will be tilling the land for the 2024-25 summer grains and oilseed production season in mid-October. It will be another month before the country's western regions start till the land, from mid-November. The variation in the optimal planting windows is mainly due to the differences in rainfall patterns.

From now on through the season, the weather outlook will remain a primary focus for the agricultural stakeholders. We are, after all, emerging from a challenging 2023-24 summer grains and oilseed season that resulted in major crop losses. The latest figures from the Crop Estimates Committee show that the 2023-24 summer crop may have fallen as much as 22% from the previous season to 15,69 million tonnes.

The 2024-25 season seems likely to be a recovery period. So far, global weather forecasters such as the International Research Institute for Climate and Society at Columbia Climate School (IRI) continue to indicate an optimistic outlook about rainfall prospects. For example, the IRI sees a possibility of La Niña occurrence from this month to April 2025. This weather event typically brings above-normal rainfall for South Africa and the entire Southern Africa region.

The critical period for rainfall for South Africa's summer grains and oilseed is between October and the end of February the following year. This is a period between planting and pollination of the crop. The months after are essential, but the crop could still have decent yields even if there is less rain after the pollination.

Listen to the podcast for more details.

Podcast production by Richard Humphries, and Sam Mkokeli

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/ Wandile Sihlobo website

It is hard to discuss global agriculture without mentioning China. The country is a dominant player in exports and imports of agricultural products. In 2023, China was a leading agricultural importer, accounting for 11% of global agricultural imports. Trailing China was the US, Germany, Netherlands, the UK, France and Japan.

Similarly, China played a notable role in exports, and it was the fifth-largest agricultural exporter in the world in 2023. The leading countries ahead of China were the US, Brazil, Netherlands, and Germany.

Commentary on China trade is under spotlight again following the Forum on China–Africa Cooperation (FOCAC) taking place in early September. Some African countries used the opportunity to advocate for deeper trade, especially in agriculture. This is understandable in view of China's dominant role in global agriculture. According to Trade Map data, China spends just over US$200 billion a year on the imports of agricultural products.

Few African countries benefit from these imports due to low productivity. The leading suppliers are Brazil, the US, Thailand, Australia, New Zealand, Indonesia, Canada, Vietnam, France, Russia, Argentina, Chile, Ukraine, the Netherlands, and Malaysia.

The only African country that features in China's top 30 agricultural suppliers is South Africa, ranked 28 in 2023. Accounting for a mere 0,4% (US$979 million) in China's agricultural imports of US$218 billion in 2023, South Africa remains a negligible player in the Chinese agricultural market. Sudan and Zimbabwe are other African agricultural suppliers to China, and are ranked 33 and 34, respectively.

The African continent has weak productivity and low agricultural output, which explains its underperformance in agricultural exports to China. The exceptions are South Africa and, to some extent, the Maghreb region. In light of this concerning picture, African leaders must, in future, prioritise agriculture trade in their deliberations with their Chinese counterparts.

Crucially, technology cooperation and transfer must be uppermost in those conversations as Africa’s future productivity lies in deployment of technologies that can boost productivity. Examples of the use of such technologies include on-farm solutions like irrigation technologies, better seed cultivars, and significant infrastructure challenges such as roads and rail that much of the continent still needs. The absence of functioning infrastructure will always remain a headache, even if China were to open its agricultural markets for imports from most African countries. These interventions and possible deals would essentially entail loans for developing the African continent's infrastructure.

We know a lot has been done in the past, and reviews of such engagements are mixed, but the problem remains – Africa needs better improvement in the network industries to support agriculture. Aside from this, African leaders must do their part to formalize land rights in their countries and miniminise arbitrary policy interventions, such as occasional blockage of exports by countries like Zambia. Such actions drive away private sector participation in Africa's agricultural market.

Podcast production by Richard Humphries, and Sam Mkokeli

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/ Wandile Sihlobo website

After the sharp increase in the first quarter of 2024, South Africa's agricultural exports fell slightly on a year-on-year (y/y) basis in the second quarter. According to data from Trade Map, the country's agricultural exports were at US$3.37bn in the second quarter, a 0,1% decline relative to the same period last year.

This comes after growth of 6% y/y in the first quarter of the year. The slight decrease in the second quarter reflects the moderation in the prices of some agricultural products and the decline in the volumes.

The top exported products by value include citrus, apples and pears, maize, wine, dates, pineapples, avocados, sugar, grapes, fruit juices, nuts, and wool.

Notably, while the value of the exports is down mildly from the second quarter of 2023, the efficiency at the ports this year was arguably much better than what the stakeholders experienced in 2023.

This again shows that the decline in export value is largely due to lower prices of some commodities and a decline in volumes after a challenging domestic production environment, specifically in grains and oilseed.

Listen to the podcast for more details.

Podcast production by Richard Humphries, and Sam Mkokeli

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/ Wandile Sihlobo website

On various occasions, I have highlighted South Africa's agricultural sector's gains in the first three decades of democracy. The sector has more than doubled in value and volume terms. Better seed varieties in crops, vegetables, and fruits, as well as improved genetics in livestock and poultry, have, among other interventions, been the catalyst for output growth. The opening up of export markets over the years has also created a solid demand that today, we export roughly half of what we produce in value terms. Our agricultural exports amounted to a record US$13,2 billion in 2023.

In appreciating this progress, some often ask about the black farmers' contribution. The data on this is shaky, but based on various industry research, we can state that black farmers account, on average, for around 10% of the commercial agricultural output. This gives one an indication of their contribution to exports. The matters of why black farmers account for this much produce thirty years in democracy and how we could build an even more inclusive agricultural sector are issues we discussed at length in our recent book, A Country of Two Agricultures. We encourage all caring South Africans to read the book.

However, another critical discussion is the issue of gender dynamics in South Africa's agriculture. As a country, we should continue to improve this area. The data about the current state of women's participation is also shaky. Still, one can lean on a few indicators, such as the recent census of agricultural statistics from Statistics South Africa, to make a point. The census report found that we have about 40k commercial farm units in South Africa. To be super clear, the census only considers farmers registered for VAT (the threshold is a turnover of R1 million a year). Therefore, there are many more farmers not accounted for in this figure who are involved in commercial farming as their primary source of income and those who practice farming as a secondary source of income.

Still, if we go with the 40k farming units, about 20% are owned or operated by women. However, we also know anecdotally that women's participation in the subsistence farming sector is perhaps much larger in various areas.

In such cases, the question remains: what can we do to ensure mobility where women can progress to the commercial level if they aspire to do so?

Another vital aspect is jobs, where women accounted for roughly a third of the 896k jobs in the second quarter of 2024. More could be done to improve women's participation, particularly in agro-processing.

Let's all agree that agriculture, as an important sector of the economy, could still deliver more jobs and expand in underutilized land. This makes the gender discussion even more valuable.

The South African government has about 2,5 million hectares of land acquired through the Pro-Acitive Land Acquisition Strategy. This land should be released to beneficiaries with title deeds and help boost inclusion in the sector and growth, such as growing the South African agricultural pie.

In selecting the beneficiaries of the land, the government will have to be guided by the existing Beneficiary Selection and Land Allocation Policy. One important aspect of this policy that is less talked about is its focus on boosting women's participation in agriculture. It states that 50% of land redistributed must be transferred to (black) women. If we follow this approach as a country, along with ensuring that there are financial instruments to assist, perhaps we could improve in the coming years in racial and gender inclusiveness in the sector.

There are many young women interested in agriculture that one sees online, and some even write to me enquiring about a range of agricultural matters. This means there is interest amongst women in joining agriculture and playing a meaningful role in addition to the gains we have made as a country. The policy environment is also supportive. Wandile Sihlobo website

The effects of the recent El Niño-induced mid-summer drought are starting to show in South Africa's agricultural jobs data. For example, the Quarterly Labour Force Survey data shows that employment in primary agriculture was down 5% quarter-on-quarter to 896k in the second quarter of 2024. From an annual basis perspective, the performance is also weak, although up 0,2% from the second quart of 2023. Still, the primary agricultural employment of 896k people remains well above the long-term jobs of 799k and generally reflects the harsh summer season we are leaving behind.

Some subsectors showing a decline in employment include field crops, livestock, and forestry. The job performance in these subsectors is unsurprising as the mid-summer drought has notably impacted them, specifically field crops. Moreover, the livestock industry faces relatively higher feed costs and lingering animal disease, which all explain these subdued job data in the subsector.

The Western Cape, Northern Cape, North West, and Gauteng are the provinces that showed significant quarterly job losses. Meanwhile, other provinces showed a mild improvement, which was insufficient to change the overall picture of a decline in employment in South Africa's agriculture.

The Western and Northern Cape provinces do not have significant summer crop production, which means that the quarterly job losses in these particular provinces mirror the generally financially constrained environment in the farming businesses. The mid-summer drought primarily added pressures in the country's northern regions.

Listen to the podcast for more details in other commodities.

Podcast production by Richard Humphries, and Sam Mkokeli

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/ Wandile Sihlobo website

On August 10, we drove across the Swartland region of the Western Cape from the Karoo side of the Northern Cape. As we entered the Western Cape, I couldn't miss the excellent sight of the wheat fields from a distance.

And yes, I appreciate that the Western Cape has received excessive rain recently; the picture certainly is not all rosy. Some fields have puddles of water, which may undermine the crop's growth potential. Our members in the area tell me that the southern regions of Swartland may be too wet, and the northern regions should do well.

South Africa's Crop Estimates Committee will release the area planted estimate and first production forecast for this season's crop on August 28. We will know more about the production prospects then.

What we know at the moment is that South Africa's preliminary area plantings for wheat are at 502k hectares, down by 7% from the 2023/24 season. This is the lowest area planting in seven years. The sharpest declines in area plantings are in the Free State and Limpopo.

The Western and Northern Cape provinces show a minor decline in area plantings. Other provinces, which are relatively small producers, such as the Eastern Cape, KwaZulu-Natal and Mpumalanga, also show a mild decrease in area plantings.

The major decline in winter wheat plantings in the Free State and Limpopo is unsurprising. The northern regions of South Africa experienced a harsh mid-summer drought, which led to significant crop losses. The farmers in some of these regions are under financial strain and, thus, understandably reluctant to increase the winter wheat plantings.

Moreover, the wheat prices have moderated this year, down by roughly 5% year-on-year. Therefore, in an environment with reduced soil moisture because of the mid-summer drought, lower wheat prices, and some financial pressures, farmers are likely focused on utilising more area plantings for the 2024/25 summer crop plantings that start in October 2024.

If weather conditions, particularly in the Western Cape, remain favourable for the rest of the season and we achieve a five-year average yield of 3,78 tonnes per hectare in the area of 502k hectares, then we could have a winter wheat harvest of 1.89-million tonnes. This would also be down 7% year-on-year and well below the five-year average winter wheat harvest of 2.02-million tonnes.

Podcast production by Richard Humphries, and Sam Mkokeli

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/ Wandile Sihlobo website

South Africa's agriculture is part of the global agricultural market. Therefore, we must consistently pay attention to the production conditions of agricultural commodities globally as they impact our domestic prices and consumers.

The world endured elevated food prices in the past few years for various reasons, ranging from drought in the major agricultural-producing regions of South America to the Black Sea wars. But in recent months, global agricultural prices and consumer food prices have softened. Food prices globally are roughly 25% less than the peak levels reached in March 2022, which was right after Russia invaded Ukraine and caused much disruption and panic in the agricultural markets.

At the moment, the global agricultural observers are shifting their focus to the new production season, which is 2024/25, of grains and oilseeds. The production has recently started in the northern hemisphere, which is in the summer season.

Farmers may begin tilling the land in the southern hemisphere around October 2024.

Still, as early in the season as we are, and a lot yet to unfold, the International Grains Council (IGC) forecasts a decent harvest. For example, in their latest update, the IGC placed the 2024/25 global grains and oilseed production forecast at 2.3-billion tonnes, up mildly from the previous season. The stocks are expected to be healthy, around 582-million tonnes, although having declined somewhat from the 2023/24 season because of the expected increase in the industrial use of grains.

We see an encouraging outlook if we consider the significant grains such as rice, wheat, maize and soybeans. For example, the IGC forecasts a 1% year-on-year increase in the 2024/25 global rice production to 528-million tonnes.

This is based on an anticipated large crop in all the major rice-producing regions, such as India, Vietnam, Thailand, the US, China, Pakistan, Indonesia, Bangladesh and the Philippines. Subsequently, the stocks could also increase by 1% to 175-million tonnes.

The production prospects for 2024/25 global soybeans are also positive, estimated at 415-million tonnes, up by 6% year-on-year. This is based on the expected large harvest in the US, Brazil, Argentina, India, and Paraguay.

Still, given that nearly half of the production is by the southern hemisphere producers, specifically South America, we view these data as tentative until the start of the season in the region in about two months.

Assuming the current estimates materialise, the 2024/25 global soybean stocks would lift by 16% year-on-year to 79-million tonnes. Such an increase in the harvest and supplies would add downward pressure on worldwide soybean prices, which is favourable for the animal feed industry.

A less optimistic view is in the major grains such as wheat and maize, although their supplies will still remain at levels above average. For example, the IGC forecasts the 2024/25 global wheat production at 793-million tonnes, slightly lower than the 2023/24 season's crop of 804-million tonnes. This is due to the expected production declines in the EU, UK, Ukraine and Russia. These overly wet weather conditions in these countries during the season are the reason for the anticipated poor yields.

With food and industrial use of wheat expected to remain strong, the IGC placed the 2024/25 global wheat stocks at 261-million tonnes, down 3% year-on-year. Be that as it may, international wheat prices have not reacted to these expectations and have remained on a moderating path in recent weeks, which is a welcome development from a consumer perspective.

Listen to the podcast for more details in other commodities.

Podcast production by Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/ Wandile Sihlobo website