Agriculture in South Africa: Prospects and Challenges

Transcription

1 Agriculture in South Africa: Prospects and Challenges John Purchase Monsanto 17 September 2014

2 Content for today. Introduction SA Agriculture SA Agribusiness Prospects & Challenges

3 FAO Food Price Index Source: FAO, 2014

4 FAO Commodity Price index

5 Most Crop Prices Expected to Soften Over Next 10 Years Source: USDA Baseline

6 Different Story For Red Meat and Poultry Prices Beef prices expected to continue rising while pork and poultry prices remain high Source: USDA Baseline

7 The Long-Term Outlook for Farm Sector Profitability Is Still Good But Reduced From Levels Global demand projected to keep long run U.S. net farm income strong Source: USDA Baseline & ERS Farm Income Statistics

8 Factors Impacting U.S. and Global Food and Agricultural Markets Over the Next Decade 1. Global economic growth and the rise of the middle class in developing countries 2. Value of the U.S. dollar 3. Worldwide biofuels production 4. Role of trade and trade liberalization 5. Energy and agricultural input prices 6. Additional crop land 7. Biotech developments

9 Summary -- The Bottom Line Cautious optimism is the best way to characterize our outlook The long term price and profit outlook has been reduced from last year but still looks promising. Continued growth in global food, feed, (bio)fuel, and fiber demand should overcome the effects of a strengthening U.S. dollar to keep food and agricultural prices from returning to the pre-2006 levels. Much of this new demand will be centered in emerging markets and trade opportunities appear brightest in China, Southeast Asia, Middle East/North Africa, and Latin America. However, the long term outlook for profitability has been reduced from last year. With the outlook for crop prices reduced, both the total profitability of agriculture and operating margins will come under pressure. If so, this could affect new investment into agriculture (land and new technologies). Our cautious optimism is based on no unexpected surprises in the global economy. Should emerging market economies stumble, it could undermine our price and profit outlook.

10 South African Food Security Imperative Many definitions to food security, but the one we will use is the FAO definition (World Food Summit 1996): A situation that exists when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life.

11 Components of Food Security FOOD UTILISATION Nutritional Value Social value Food safety FOOD ACCESS Affordability Allocation Preference Purchasing power key to access Food Security FOOD AVAILABILITY Production Distribution Exchange/trade Stability over TIME Complex concept: Difficult to measure and evaluate.

12 Global Food Security Index Score 0-100, 100=best environment Best performance Good performance Moderate performance Needs improvement Source: Economist Intelligence Unit/Du Pont

13 Characteristics of SA Agriculture Well developed commercial sector (~95% of supply) and subsistence oriented smallholder sector dual economy Only ~12% of land area arable, of which 22% is high potential land limited land resource base, and loss to mining/urbanisation ~1.6 million hectares under irrigation (NDP Expansion?) Water major limiting factor SA semi-arid: Policy impact? (NWRS2) Deregulation & open markets introduced in 1996 (New MAP Act?) Number of competitive advantages (OECD): - Infrastructure (relative) - Counter-seasonality to Europe (fruit exports) - Biodiversity range of agricultural products - Trade agreements - Competitive input costs - Access to latest technology & innovation

14 SA Resource Situation Land issue: Green Paper on Land Reform vs NDP Model Scarce high potential agricultural land to mining, esp. Mpumalanga, and urban development demand Water and water quality crisis NWRS2 adopted by Cabinet Climate Change effects create uncertainty Climate Smart Agri? Energy crisis and energy security situation unsure Electricity price hikes (31% in % pa over next 3 years), stabilized at inflation rate for two years, but again upward pressure. Resources for sustainable expansion in SA? Greater competition for scarce resources also a major price driver.

15 New Growth Path (NGP) MTSF ( ) of Outcomes Outcome 4 - Decent Employment through inclusive growth 6 Job Drivers Outcome 7 - Comprehensive rural development and food security Outcome 10 - Environmental assets and natural resources protected and continually enhanced National Development Plan (NDP) IGDP (Policy Framewor k) Agriculture Productive Sector Forum Agric Policy Action Plan (APAP 5 yr iterative plan) Infrastr. Pres. Infra. Co. Comm. (PICC) SIP 11 Mining (Mining Policy Action Plan) Manufacturing Industrial Policy Action Plan (IPAP) Tourism Green Economy

16 Contribution of Primary Agriculture to GDP (Source: StatsSA) 5 % Graph: Agbiz

17 Ghana Tanzania South Africa

18 Index SA economic growth: Tradable goods sectors lag the non-tradable goods sectors 250 Index of % GDP growth of economic sectors GDP Agriculture Mining Manufacturing Construction Trade Transport Finance Source: StatsSA Graph: Agbiz

19 Inflation Source: AMT, 2013

20 Exchange rate Source: AMT, 2013

21 The SAARF LSM Segments: Proportion of SA adult population and average monthly household income in 2013 Source: SAARF All Media and Products Survey (AMPS) 2013 Source: 11 th BFAP Baseline, 2014

22 Figure 13.2: LSM class mobility: All adults for the period 2004 to 2013 Source: SAARF All Media and Products Surveys (AMPS) 2004 to 2013 Source: 11 th BFAP Baseline, 2014

23 Food Consumption: Growth 2012 to 2020 Source: BFAP, 2012

24 Content for today. Introduction SA Agriculture SA Agribusiness Prospects & Challenges

25 Commercial Agric Census 2007 Indicator Farming units Paid employees Ratio between Farming Debt and GFI (%) 78,0 57,9 46,6 Source: StatsSA

26 Rand X Performance of Sector Gross and Nett Farming Income Gross Farm Income Nett Farm Income / / / / / / / / / / /12 Seasons Source: DAFF, 2013 Graph: Agbiz.

27 R'million Performance of Sector Gross Value of Production in R million Field Crops Animal Production Horticulture / / / / / / / / / / /12 Source: DAFF, 2013 Graph: Agbiz.

28 Real gross income of the agricultural sector Source: 11 th BFAP Baseline, 2014

29 Real intermediate input expenditure Source: 11 th BFAP Baseline, 2014

30 Gross Capital Formation and Net Farm Income: Graph: BFAP, 2013

31 Real value of agricultural assets: (2005 Constant prices) Graph: BFAP, 2013

32 SA Agricultural Sectors 1. Field crops - Maize (Corn), wheat, sugar, sunflower, soybean, groundnuts, dry beans, etc. 2. Horticulture - Wine/Viticulture, Citrus, Deciduous fruit, sub-tropical fruit, table grapes, vegetables 3. Animal production - Poultry, beef, dairy, mutton, wool, mohair, ostrich, game/venison

33 Real gross value of field crops Source: 11 th BFAP Baseline, 2014

34 Real gross value of animal products Source: 11 th BFAP Baseline, 2014

35 Real gross income of citrus, table grapes, apples and pears Source: 11 th BFAP Baseline, 2014

36 Gross Value by Commodities Others 18% Corn 11% Citrus 4% Wine 3% Fresh milk 7% Deciduous fruit 7% Vegetables 6% Sheep 3% Potatoes 3% Cattle 11% Eggs 5% Sugar cane 4% Poultry 18%

37 Field crops Maize major staple, net exports, ~85% GM Wheat also staple food, net imports (~40% of demand) Sorghum declining significance? (Biofuel designated) Soya growing importance, cake imports, ~90% GM Sunflower growing importance, S/D in balance Groundnuts net exports, but declining Dry beans net imports, mostly from China

38 Source: Grain SA website, 15 September 2014

39 Source: Grain SA website, 15 September 2014

40 Source: Grain SA website, 15 September 2014

41 Horticulture Viticulture & Wine major export industry Citrus SA s biggest ag-export (~R7bn), growing but. Deciduous fruit major net exports Table grapes major net exports Sub-tropical fruit net exports Vegetables S/D balance, some imports/exports

42 Horticulture Gross income from horticulture (R bn) R31.39 R31.22 R40.18 Exports (2012): Citrus: Wine: Table grapes: Apples & Pears: R7.068 billion R5.494 billion R3.395 billion R3.337 billion

43 Animal Production Gross income from animals (Rbn) R58.4 R61.0 R Poultry 2. Beef 3. Mutton & Wool 4. Pork 5. Dairy

44 Content for today. Introduction SA Agriculture SA Agribusiness Prospects & Challenges

45 SA Agribusiness Strong input sector: Seed, fertilizer, crop protection and veterinary chemicals, animal feed, packaging, agricultural machinery, fuel, etc. (Technology-based) Financial sector: Major banks, DFI s, insurance companies, auditors, agribusinesses, etc., Storage, trade and agro-logistics Agro-processing and packaging Retail Sector

46 Real agriculture debt Source: 11 th BFAP Baseline, 2014

47 SA s Agricultural Trade Balance ( )

48 SA s export markets for agro-processed products 107% export growth between Source: ITC (2014) Africa is driving most of SA s agricultural export growth

49 Exports driving growth in Africa Commodity Description Growth Rate between 2012 & 2013 Maize (corn) nes 694% Refined sugar, in solid form, nes 83% Cigarettes containing tobacco 99% Apples, fresh 49% Food preparations nes 29% Maize (corn) groats and meal 131% Animal feed preparations nes 192% Raw cane sugar, not containing added flavouring or colouring matter (excl ) 482% Sunflower-sed/safflower oil&their fractions refind but nt chem modifid 45% Fermented beverages nes (for example, cider, perry, mead, etc) 124% Wheat or meslin flour 38% Grape wines nes,incl fort&grape must,unfermntd by add alc in ctnr</=2l 107% Mixtures of juices unfermentd&not spiritd whether o not sugard o sweet 144% Wheat and meslin (excl. seed for sowing, and durum wheat) 738% Beer made from malt 144% Source: ITC (2014)

50 Primary vs Secondary Agriculture import trends ( ) Stronger growth in agroprocessing imports Source: ITC (2014)

51 Top 15 Secondary Agricultural Imports Commodity description Value in 2013 US$ ('000) Share of Secondary imports Average Annual Growth Rate ( ) Soya-bean oil-cake % 15% Palm oil and its fractions (refined but not chemically modified) % 18% Whiskies % 16% Food preparations (nes) % 12% Soya-bean oil and its fractions (refined but not chemically modified) % 38% Refined sugar, in solid form, (nes) % 64% Beer made from malt % 33% Sunflower-seed or safflower oil (crude) % 31% Raw cane sugar % 763% Raw cane sugar, not containing added flavouring or colouring matter % 373% Tobacco, unmanufactured, partly or wholly stemmed or stripped % 10% Animal feed preparations (nes) % 14% Apple juice (unfermented) % 41% Cotton (not carded or combed) % 1% Malt (not roasted) % 10% Source: ITC (2014)

52 Challenges : Government - Food security, both household and national - New Growth Path & NDP: Job creation, Shared Growth, Green Growth - Empowerment of PDI s, e.g. AgriBEE, EE, Land Reform, etc. - Land Reform & Rural Development (NDP: Chapter 6) - Industrial Policy Action Plan II: Agro-processing focus area (6 th Version) - Competitive environment (Competition Act) - Sustainable resource management, e.g. Climate Change, water quality & quantity, land use, etc. - African development.

53 Challenges : Private Sector - Profitability and competitiveness - Transparent and reliable markets (Market Integrity!) - Engage Government ito enabling policy environment: Create confidence for long term investment - Need for inclusive Strategic Framework/Plan (IGDP + APAP) - Sustainable & predictable 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

54 Overall Prospects Much greater food security awareness, both globally and locally very positive. Priority for G20, OECD, FAO, etc. Government engagement with Private Sector needs to improve. Vision 2030 awareness of the need to support both commercial and developing agriculture. Better implementation NB! Substantial markets: locally, regionally, globally, and especially to the East. Need market development, though! Typical PPP. General commodity and agribusiness infrastructure is good basis build on this & other strong institutional capacity. New technology/expertise through especially multinationals. African opportunities

55 Conclusion Relatively healthy and robust agro-food industry Relatively technologically advanced, globally competitive Challenges: Investment environment, Agro-logistics, water availability and quality, environmental sustainability, R&D, crime and security, labour relations & legislation, land reform, climate change, trade agreements, sustainable transformation, etc. Opportunities: Growing population, consumer spending trends, new markets (especially to Africa and the East), etc. Major contributor to Food Security, growth and employment in RSA. However, we live in uncertain times many risks and variables, some controllable, others not or less so. We take our agro-food system far too much for granted in South Africa. It is a national asset all should nurture and cherish.

56 THANK YOU