Investment environment and commodity outlook. AGBIZ Information Day. 1 November 2018 Prof Ferdi Meyer

Transcription

1 Investment environment and commodity outlook AGBIZ Information Day 1 November 2018 Prof Ferdi Meyer Director: Bureau for Food and Agricultural Policy (BFAP) & University of Pretoria

2 Background: BFAP Founded in Years experience in analysing, modelling, forecasting and unpacking the agro-food, fibre and beverage sectors and value chains in Africa. Network consisting of 45 employees and associates spanning the African continent Our business model is based on adding value through long-run strategic partnerships in private sector, industry bodies, universities and government. International, regional and local analytical partners: FAPRI, FAO, OECD, BER & ReNAPRI

3 BFAP s foundation for analysing future trends Annual 10-year agricultural outlook on 52 commodities State of agriculture- & food systems across Southern Africa: Commodity Markets o Field crops o Livestock o Horticulture Consumer Economics Farming Systems & Inputs Value chains Africa Spatial Integration

4 1. Taking stock 2. Outlook for South African agriculture Presentation Overview Domestic consumer environment 1. Outlook for field crops 2. Outlook for livestock

5 Macroeconomic assumptions Ramaphoria fades to realism, emerging market sentiments compounding pressure Real GDP Growth 1,3 0,6 1,5 2,0 2,4 2,5 Exchange Rate 13,30 13,21 14, CPI Inflation (%) 5,3 4,7 4,9 5,0 5,1 5,0 Brent Crude Oil ($ per barrel) 54,0 74,7 73,5 70,3 68,0 67,0 Key factors: drought, weak Rand, oil price, cost of inputs, uncertainty & volatility Q2 GDP SA in a technical recession Land values Decrease by 30% (Agri Development Solutions) Ag GDP contracted by 29% in Q2 (Bloomberg) Trade war implication on emerging markets Source: Pienaar, BER, 2018

6 Dec 17 = 100 Exchange rate performance & risks Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Aug-18 SA rand EM benchmark* After initial change of government, Rand outperformed other emerging markets Recent uncertainty re land policy and general political sentiment has put it on the back foot Poor global sentiment toward emerging markets likely to keep it under pressure Trade war influencing Rand and other emerging market currencies

7 Disposable income per capita of households (R'000) Rate of change (%) (year-on-year) Domestic consumer confidence & income Disposable income Real rate of change Real disposable income Source: Stats SA

8 ????

9 .but there is hope!! SA farmers & agri-businesses have shown resilience

10 Outlook for South African Agriculture from an investment perspective

11 % change p.a SA s performance in the global economy Real AG GDP growth: China USA Russia Mexico Colombia Australia RSA Chile

12 R billion (real 2000) Agricultural GDP in South Africa AI, Listeria, WC Drought, High grain stocks 60% 40% % 0% 10-20% 0 % change real Ag GDP Real Agricultural GDP % Livestock Beef herd rebuilding Cycle positive with lower feed Disease impact critical Field Crops High stock, low prices Post drought cash-flow Feed crop dominance Horticulture WC drought recovery Water availability concerns Need to open new export markets

13 NDP targets BFAP s score sheet NDP Target Indicator Land reform No Jobs: High value crops Jobs: Under-utilised land, homelands etc. Agro -processing Yes No Yes

14 High-growth industries are on track

15 Citrus Grapes Wine Pomefruit Maize Nuts Wool Spirits & Liquor etc. Berries and Stonefruit Bovine Meat Other Bananas Cotton Pig Meat Coffee Soya oil & cake Sugar Wheat Palm Oil Poultry Meat Rice Billion ZAR Export performance: Agriculture SA a net exporter of agricultural products Horticulture leading export performance rapid growth in Citrus exports, nuts, wool Net Exporters Net Importers Significant imports: rice, poultry, palm oil, wheat

16 Market access for South African products SACU: Southern African Customs Union GSTP: Global System of Trade Preferences among developing countries PTN: Protocol on Trade Negotiation Source: SHAFFE, 2018 South Africa Australia New Zealand Peru Chile Argentina Uruguay China Bilateral Bilateral Bilateral Bilateral Hong Kong (China) India Indonesia SACU (Plurilateral) GSTP Bilateral Bilateral GSTP ASEAN-Australia- New Zealand ASEAN-Australia- New Zealand Japan Bilateral Bilateral Bilateral South Korea Bilateral Bilateral GSTP Malaysia Philippines Thailand Vietnam Bilateral ASEAN-Australia- New Zealand ASEAN-Australia- New Zealand Bilateral ASEAN-Australia- New Zealand ASEAN-Australia- New Zealand Bilateral ASEAN-Australia- New Zealand ASEAN-Australia- New Zealand Bilateral ASEAN-Australia- New Zealand Bilateral ASEAN-Australia- New Zealand GSTP GSTP GSTP PTN GSTP Bilateral GSTP PTN Bilateral GSTP GSTP Mercosur- India Bilateral GSTP GSTP GSTP GSTP GSTP PTN PTN GSTP GSTP GSTP GSTP Bilateral GSTP GSTP Mercosur- India Bilateral PTN PTN

17 If we get things right - R6 billion additional exports over outlook Thousand Rand 2,500,000 2,000,000 1,500,000 1,000, ,000 0 ApplesTable grapes Wine Citrus AvocadosMacademias Pecan Beef Current (2015) BFAP baseline (2025) Export Opportunity (2025)

18 Million USD Million USD Disease management is critical: Beef exports 200 Composition Origin Fresh or chilled, carcass Fresh or chilled, bone-in cuts Fresh or chilled boneless Frozen carcass Frozen, bone-in cuts Frozen, boneless Other Kuwait United Arab Emirates Jordan Mozambique Hong Kong and China Viet Nam Source: ITC Trademap, 2018

19 Rand per USD Billion Rand Percentage change vs. baseline Recent exchange rate depreciation % % 12% 10% 8% 6% 4% 2% % June 2018 September 2018 Change Baseline vs. scenario June 2018 September 2018

20 Global competitiveness remains high Maize cost of production $/ton

21 Thousand Hectares Sustainable rotation and risk mitigation Continued decline in white maize area The rise of soybeans Sunflower as risk mitigating alternative? White maize: Commercial Yellow maize: Commercial Sunflower Soybean White maize: Non-commercial Yellow maize: non-commercial Fig 21, Pg. 32

22 Rand per hectare Rand per hectare Gross Margin: 2018 vs R4 500 R4 000 R3 500 R3 000 R2 500 R2 000 R1 500 R1 000 R 500 R- BFAP Baseline Nov 2018 Maize Soybeans Sunflower Gross Margin: 2018 Gross Margin: 2019 Overhead cost threshold low Overhead cost threshold high Investment benchmark indicator R5 000 R4 500 R4 000 R3 500 R3 000 R2 500 R2 000 R1 500 R1 000 R 500 R- 31 day price average: 15 Aug - 26 Sep 2018: March 2019 futures Maize Soybeans Sunflower Gross Margin: 2018 Gross Margin: 2019 Overhead cost threshold low Overhead cost threshold high Investment benchmark indicator Average gross margin outlook for 3 crops in 9 agro-ecological zones 2 graphs, different price assumptions: left = BFAP Baseline Nov 2018 assumptions vs. right = 31 day moving average price assumptions for March 2019 Improved outlook for maize from 2018 to 2019 Soybeans under baseline outperform maize in 2019; existing futures for stipulated period maize marginally better opposed to soybeans Sunflower remain good alternative for Western producing regions 2018 Several regions not able to cover overhead expenditure

23 Thousand tonnes USD per tonne Potential El-Nino in 2018/19 on region Production 2017 Production 2018 (Est) Production 2019 (Baseline) Production 2019 (El Nino yield) Price 2019 (Baseline) Price 2019 (El Nino yield) Fig 21, Pg. 32

24 Growth of population and GDP Population growth Real GDP growth Advanced Advanced 6,341 9,094 China China 5,780 8,147 Other emerging Other emerging 5,170 8,842 Developing Developing 733 1, Million people, 10-year increase Billion 2010 dollars, 10-year increase Population growth: Developing regions accelerating, slower for advanced, China & other emerging markets Projected income to grow in all regions, but proportionally higher in China & other EM Impact of rising incomes in advanced, emerging & developing countries? SOURCE: FAPRI,

25 Keeping growth within context of market size Poultry consumption and PC GDP

26 Thousand tonnes Major investments in Ag-processing Benchmark crush capacity (2.06 Million tonnes) (80% Utilisation of dedicated soya and dual capacity) 1500 Benchmark crush capacity (1.40 Million tonnes) (80% Utilisation of dedicated soya capacity Soybean crush Soya crush capacity (80% utilisation) Soybean full fat Soya and dual crush capacity (80% utilisation)

27 Thousand tonnes Thousand tonnes Consistent growth in SA demand % % % % 0.2% 40% 25% 21% Chicken Domestic Production Beef Net Imports Eggs Pork Sheep meat Domestic Production Cheese Butter SMP & WMP Net Imports

28 Land reform scenario matrix Inclusive economy 2: Dis-investment (0-5 years) 4: Equitable and stable growth Weak protection of property rights High risk sliding down (post 5 years) Preferred Extension of strong property rights Current 1: Chaos.. Will eventually migrate due to societal uprising (5-10 years) Concentrated economy 3: Status quo; gradual decline What is needed to move from 3 to 4? Key messages and implications to quadrant players

29 CAPEX & OPEX; R'000/ha Gross Margin R'000/ha Land Reform: One size does NOT fit all! Net revenue per hectare (National 5-year averages) Farm size Extensive livestock Grains&Oilseeds (Dryland) Grains&Oilseeds (irrigation) Vegetables (Tomatoes etc.) Orchards (Oranges etc.) CAPEX OPEX Gross Margins

30 Land Reform the portfolio approach

31 Lack of statistics Other / State 16% Co-Owned 1% CBO's 3% No Deeds 6% Individuals 31% -Current Stats SA survey misses our key target group Companies 19% Trusts 24%

32 Natural Resource Base spatial targeting 32 Source: ARC-ISCW (2004)

33 Grain SA Jobsfund Project ZoomLayers In Select

34 Farming as a source of income StatsSA 2015 Household survey 2016/17 Jobs Fund - GrainSA supported developing farmers 37% 3% 36% Salaries Business Remittances Pension 27% 41% Grants Farming Other No income 14% 6% Unspecified 32% Pension and grants Farming Other

35 Share of Respondents Share of Respondents Maize consumption & marketing Share of harvest consumed in the household Where farmers sold their 2016/17 grain 50% 45% 44% 50% 45% 44% 40% 40% 35% 35% 34% 30% 25% 20% 15% 10% 5% 0% 9% 26% 8% 4% 9% 30% 25% 20% 15% 10% 5% 0% To a commercial mill or coop In the community 14% To neighbours 6% Other 2% At pension days

36 Concluding thoughts The Go Do s : - Market-led land reform - Unlock under-utilised land.yes, it will cost direct support! - Infrastructure: water, water, water - Services collapse of municipalities - Opening of more export markets