South African Agriculture and Agribusiness: Trends and Challenges

Kwanalu Congress 2011

15 September 2011

John Purchase

Want to Make More than a Banker? Become a Farmer! By STEPHEN GANDEL July 10, 2011

• If you want to become rich, Jim Rogers,

investment whiz, best-selling author and one of Wall Street's towering personalities, has this advice: Become a farmer. Food prices have been high recently. Some have questioned how long that can continue. Not Rogers. He predicts that farming incomes will rise dramatically in the next few decades, faster than those in most other industries — even Wall Street. The essence of his argument is this: We don't need more bankers. What we need are more farmers. The invisible hand will do its magic. "The world has got a serious food problem," says Rogers. "The only real way to solve it is to draw more people back to agriculture."

Tools of the trade surround John

Willoughby on his 800 ha plot

outside Grand Island, Neb.

Photograph by Danny Wilcox

Frazier/TIME

A Future of Price Spikes By Michael Schuman July 14, 2011

•

• Thomas Malthus lived in an era much like today's — when emerging technologies made anything seem possible. The 19th century was approaching, the Industrial Revolution was steaming along, and in intellectual circles it was popular to believe that expanding scientific knowledge could create a more enlightened, even utopian, society.

• Malthus, however, was making a more dire calculation. In 1798 he published An Essay on the Principle of Population, whose grim vision of the future haunts mankind to this day. Malthus thought we could never overcome two basic laws of nature: the planet's population grows exponentially, while food production increases arithmetically. Therefore the planet will become short on food.

Red vs. green Rising incomes give more

people a taste for meat, which is costlier

to produce than vegetables

Alexandre Severo for TIME

ABC Participation in recent Key Events GLOBAL FORUM ON AGRICULTURE

POLICIES FOR AGRICULTURAL DEVELOPMENT, POVERTY REDUCTION AND FOOD SECURITY 29-30 November 2010, Paris OECD Conference Centre, 2 rue André-Pascal, 75016 Paris

Over a billion people in the world live on less than a dollar a day and a similar number suffer from hunger and undernourishment. Indeed most of the world’s hungry are chronically hungry, chiefly because they are poor. Progress has been uneven across countries and a significant number, most notably in Africa, are not on target for achieving the First Millennium Development Goal (MDG1) of halving the incidence of poverty and hunger by 2015.

This Global Forum is concerned with identifying ways in which governments can accelerate agricultural development and tackle the twin problems of poverty and food insecurity. This means looking at common factors that explain the successes of some countries and faltering progress of others, and discerning key ingredients of the necessary policy mix. It also means looking at the specific role to be played by agricultural policy instruments, and how those instruments should be combined with other non-agricultural policies.

Content

• Introduction

• SA Agriculture

• SA Agribusiness

• Prospects & Challenges

Introduction • Well developed commercial sector and subsistence

oriented sector – dual economy • Only ~12% of land area arable, of which 22% high

potential • ~1.3 million hectares under irrigation • Water major limiting factor – SA semi-arid • Deregulation & market freedom • Number of competitive advantages - ‘World-class’ infrastructure - Counter-seasonality to Europe - Biodiversity - Trade agreements - Competitive input costs - Access to latest technology & innovation

Role of Agriculture in

SA Economy • Strategic sector – provides food, fiber, wine & beer,

satisfying two basic needs of man (+ others!)

• Has provided national food security since the start

of the 20th century (Pop: ~4,0 million), right

through to the 21st century (Pop: ~50,0 million,

~60% in urban areas)

Status and Trends

South Africa

Contribution of Primary Agriculture to GDP (Source: Statssa)

2

3

4

5

94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 06 07 08 09

%

Graph: ABC

SA economic growth: Tradable goods sectors lag the non-tradable goods sectors

Source: StatsSA

Graph: ABC

0

50

100

150

200

250

300

20002001200220032004200520062007200820092010

IND

EX

GDP % per Sector of Economy

GDP

Agric

Mining

Manufacturing

Construction

Trade

Transport

Finance

Source: AMT, 2011

FAO Food Price Index

Source: FAO

FAO Commodity Price Indeces

Source: FAO

Inflation

Source: AMT, 2011

Exchange rate

Source: AMT, 2010

SAARF LSM Segments: Proportion of SA adult population and average monthly household

income in 2009

Source: SAARF (2010a) & BFAP, 2010

LSM class mobility: All adults during the period 2004 to 2010

Source: SAARF AMPS data for the period 2004 to 2010, as quoted by BFAP

SA Resource Situation • Land issue: sensitive now, Green Paper released.

• Energy crisis and energy security situation

• Electricity price hikes (31% + 25% pa over 3 years)

• Scarce high potential agricultural land to mining, esp. Mpumalanga, and urban development.

• Water management and water quality crisis

• Climate Change effects create uncertainty

• Soil degradation/erosion

• Biosecurity threats (FMD, Avian Flu, etc)

• Resources for sustainable expansion?!

• Greater competition for resources – price effect?

Global warming: Effect?!

Full effects unknown, but…..

Higher incidence of more extreme weather events

Content

• Introduction

• SA Agriculture

• SA Agribusiness

• Prospects & Challenges

Commercial Agric Census 2007

Indicator 1993 2002 2007

Farming units 57 980 45 818 39 982

Gross Farm income (R x1 000 000) 19 620 53 329 79 544

Employees Remuneration (R X1 000 000) 3 637 6 216 8 611

Paid employees 1 093 265 940 820 796 806

Expenditure (R X1 000 000) (Current & Cap) 16 377 45 038 54 072

Market value of assets (R X1 000 000) 66 905 98 428 178 647

Farming debt (R X1 000 000) 15 295 30 857 37 090

Ratio between Farming Debt and GFI (%) 78,0 57,9 46,6

Source: StatsSA

Performance of Sector Gross Value of Production in R million

0

10000

20000

30000

40000

50000

60000

70000

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

Field Crops Horticulture Animal Production

R'm

illio

n

Source: DAFF, 2010.

Performance of Sector

0

20 000

40 000

60 000

80 000

100 000

120 000

140 000

2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

Ra

nd

X1

00

0 0

00

Seasons

Gross and Nett Farming Income

Gross Farm Income Nett Farm Income

Source: DAFF, 2009.

Net farm income

Source: AMT, 2011

Cost price squeeze

Source: AMT, 2011

0

50000

100000

150000

200000

250000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Value of capital assets on commercial farms

Value of capital assets on commercial farms

X R

1 0

00

00

0

Source: DAFF, 2010.

Field crops

• Maize – major importance, net exports, GM

• Wheat – also staple food, net imports

• Sugar – net exports, move into Africa

• Soya – growing importance, cake imports, GM

• Sunflower – growing importance, S/D balance

• Groundnuts – net exports, but declining

• Dry beans – net imports, also from China

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

ProductionArea (X1000 ha) Production (X1000 tons)

Years

Total RSA Maize Area (X1000 ha) and Production (X1000 tons)

Ha

& T

on

s (X

10

00

)

Data Source: DAFF, 2010 Graph by ABC

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

19

90

/91

19

91

/92

19

92

/93

19

93

/94

19

94

/95

19

95

/96

19

96

/97

19

97

/98

19

98

/99

19

99

/00

20

00

/01

20

01

/02

20

02

/03

20

03

/04

20

04

/05

20

05

/06

20

06

/07

20

07

/08

20

08

/09

20

09

/10

RSA Maize Yield (Tons/ha)

Yield (Tons/ha)

Years

Ton

s/h

a

Data Source: DAFF, 2010 Graph by ABC

SA Wheat Production

Source: AMT, 2011

Wheat production, consumption, trade and price

0

100

200

300

400

500

600Soya Production area (X1000 ha) Soya Production (X1000 tons)

Soya Production Area (X1000 ha) and Production (X1000 tons)

Years

Ha

& T

on

s (X

10

00

)

Data Source: DAFF, 2010 Graph by ABC

0.00

0.50

1.00

1.50

2.00

2.50

Soya Yield (tons/ha) Soya Yield (tons/ha)

Years

Yie

ld (

ton

s/h

a)

Data Source: DAFF, 2010 Graph by ABC

Horticulture

• Totally deregulated market

• Viticulture & Wine – major export industry

• Citrus – 2nd biggest global exports, growing

• Deciduous fruit – major net exports

• Table grapes – major net exports

• Sub-tropical fruit – net exports

• Vegetables – S/D balance, some imports/exports

Marketing • Fresh Produce Markets (FPM’s) play major

role as basic price discovery mechanism and wholesale market

• However, reduction in trade from 64% to 53% of total production from 1994 to 2004

• Marketing following global trend of retailers (supermarkets), processors and wholesalers procuring directly from producers – shortening/integration of supply chain

SA Wine Production, Consumption & Exports

Source: BFAP, 2010

Vegetables

Value of total production in 2009: US$1.2 billion

0

100

200

300

400

500

600

2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

Tomatoes

Pumpkins

Green mealies

Onions

Cabbage

Carrots

Vegetable Production (X1000 Tons)

Tons (X1000)

Year Source: DAFF Graph: ABC

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Tomatoes

Cabbages

Onions

Pumpkins

Carrots

Average price of vegetables sold on the major FPM (R/Ton)

Year Source: DAFF Graph: ABC

Fruit Value of production (2009):

Deciduous fruit: US$0.9 billion Citrus: US$0.7 billion

Viticulture: US$0.4 billion

Exports (2009): Wine: US$728 million Citrus: US$667 million

Table grapes: US$380 million

Apples: US$365 million

0

200 000

400 000

600 000

800 000

1 000 000

1 200 000

1 400 000

1 600 000

2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08

Ton

s

Year

Oranges: Total Production, Market Sales, Exports, Processing & Other

Other

Processing

Exports

MarketSales

Source: DAFF Graph: ABC Value in 2007/08 = R3 009 610 000

0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

900 000

2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08

Ton

s

Year

Apple Production (Tons) Value in 2007/08 = R2 620 339 000

Dried

Processing

Exports

Marketsales

Source: DAFF Graph: ABC

0.0

100.0

200.0

300.0

400.0

500.0

600.0

2007 2008 2009 2010 2011 2012 2013 2014 2015

Ton

s (X

10

00

)

Year

Table grapes: Production, Domestic Consumption & Exports (x1000 Tons)

Production

DomesticConsumption

Exports

Source: BFAP

Animal Production

• Value of production in 2009:

- Broilers R22.5 billion

- Beef R13.3 billion

- Fresh milk R9.1 billion

- Eggs R6.6 billion

- Mutton R3.1 billion

- Pork R3.1 billion

- Wool R1.1 billion

SA Meat consumption

Source: BFAP, 2010

SA Chicken production, consumption & chicken:maize price ratio

Source: BFAP, 2010

SA Beef Production, Consumption & price

Source: BFAP, 2010

SA Fluid milk production & utilization

Source: BFAP, 2010

SA Consumption of dairy products

Source: BFAP, 2010

Content

• Introduction

• SA Agriculture

• SA Agribusiness

• Prospects & Challenges

SA Agribusiness • Strong input sector: Seed, fertilizer, crop

protection and veterinary chemicals, animal feed, packaging, agricultural machinery, fuel, etc.

• Financial sector: Major banks, DFI’s, insurance companies, auditors, agribusinesses, etc.,

• Storage, trade and agro-logistics

• Agro-processing and packaging

• Retail Sector

Agricultural trade trends

53

Source: DAFF/NAMC, 2009.

Total

-

5

10

15

20

25

2004 2005 2006 2007 2008

R b

illi

on

Year

Primary exports Primary imports Primary trade balance

Primary

-10

-5

-

5

10

15

20

25

30

35

2004 2005 2006 2007 2008

R b

illi

on

Year

Processed exports Processed imports Processed trade balance

Processed

Agricultural trade

South African Agricultural Trade

(Source WTA & GTA, USDA-FAS)

(US$ billions) 2007 2008 2009

Agricultural exports $4.0 $5.2 $5.2

% of total SA exports 5.7% 6.5% 8.3%

Agricultural imports $4.2 $4.7 $4.2

% of total SA imports 5.3% 5.2% 6.4%

Major agricultural products exported:

(US$ millions) 2007 2008 2009

Wine $673.6 $753.9 $727.5

Citrus $613.1 $711.4 $667.1

Corn $32.1 $510.3 $444.6

Table grapes $364.5 $387.6 $379.7

Apples $329.5 $367.3 $364.7

Sugar $276.1 $217.9 $386.7

Major export destinations (2009)

United

Kingdom

Netherlands

Zimbabwe

Kenya

Mozambique

Germany

United States

China

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

Major agricultural products imported:

(US$ millions) 2007 2008 2009

Rice $302.1 $463.9 $458.8

Wheat $261.6 $444.6 $282.0

Soybean cake $209.8 $311.9 $297.1

Palm oil $195.7 $299.3 $232.1

Soybean oil $212.0 $288.5 $106.9

Whisky $212.5 $202.9 $201.6

Major countries imported from (2009)

Argentina

Brazil

Thailand

Germany

Malaysia

China

Netherlands

Indonesia

United States

0% 2% 4% 6% 8% 10% 12% 14% 16%

Content

• Introduction

• SA Agriculture

• SA Agribusiness

• Prospects & Challenges

South African Agriculture:

Prospects and Challenges

Challenges • Government: - Food security, both household and national - Access to safe, nutritious and affordable food for all - New Growth Path: Job creation, Shared Growth & Opportunities - Empowerment of PDI’s, e.g. AgriBEE, EE, etc. - Land Reform & Rural Development - Industrial Policy Action Plan II: Agro-processing - Competitive environment (Competition Act) - Sustainable resource management, e.g. CC - African development, etc.

Challenges

• Private Sector:

- Profitability and competitiveness

- Transparent and reliable markets (Integrity!)

- Engage Govt ito enabling policy environment:

Create confidence for long term investment

- Need for inclusive Strategic Framework/Plan

- Sustainable transformation

- Institutional and value chain support (R&D,

SPS matters, resource base management,

trade facilitation, training & skills development, crop

estimates, agro-logistics, Act 36 of 1947, etc.)

- African opportunities

Overall Prospects • Much greater food security awareness, both globally and

locally – very positive. Priority for G20, Paris.

• Awareness by government to work closer with Private Sector

• Greater awareness by all of the need to support both commer- cial and developing agriculture. Better implementation NB!

• Substantial markets: locally, regionally, globally, and especially to the East. Need market development, though!

• General commodity and agribusiness infrastructure is good basis – build on this & other institutional capacity.

• New technology/expertise through especially multinationals.

• New global investors looking to Africa for food production –

major development.

Conclusion • Healthy and robust agro-food industry

• Technologically advanced, globally competitive

• Challenges: ‘Nationalisation talk’, Agro-logistics, climate change, water availability and quality, environmental sustainability, food safety regulations, R&D, etc.

• Opportunities: Growing population, consumer spending trends, new markets (esp to East), etc.

• Major contributor to Food Security, growth and employment in RSA.

Conclusion • We live in uncertain times – many risks and

variables, some controllable, others not or less so.

• Must fully understand both macro- and micro-environment, and the risks and opportunities posed.

• Develop strategic plan and develop business plan accordingly.

• Must clearly articulate and live the value proposition you bring to the value chain.

• BUT, maintain flexibility and adaptability.

"Man, despite his artistic pretensions, his sophistication and many accomplishments, owes the fact of his existence

to a six-inch layer of topsoil and

the fact that it rains". - Anonymous -

THANK YOU

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