HORTICULTURAL DEVELOPMENT PLAN FOR THE THULAMELA LOCAL MUNICIPALITY. Appendix F: Market analysis

Transcription

1 HORTICULTURAL DEVELOPMENT PLAN FOR THE THULAMELA LOCAL MUNICIPALITY Appendix F: Market analysis OABS Development (Pty) Ltd Compiled by: Dr Daan Louw (Managing Director: OABS Development) as Project Leader, in conjunction with Mr Clifford Flandorp (Project Coordinator) October Main Street, PO Box 3426, Paarl, 7622 Tel: +27 (0) Fax: +27 (0) Contact persons: Dr Daan Louw (Project Leader) Cell: Mr Clifford Flandorp (Project Coordinator) Cell: i

2 Horticultural Development Plan for the Thulamela Local Municipality TABLE OF CONTENTS TABLE OF CONTENTS... ii 1. MARKET ANALYSIS INTRODUCTION MARKET TRENDS: NATIONAL AND INTERNATIONAL National consumption National supply volumes - and price trends: Tshwane and Johannesburg Fresh Produce Markets International marketing trends Production and supply A view on possible improvement in dynamics and mechanisms A view on future market opportunities to create and idealized horticulture portfolio A view on future infrastructure development DEVELOP A MULTI-CRITERIA ANALYSIS (MCA) FRAMEWORK MCA RESULTS AND SHORT LIST OF CROPS Subtropical and nut crops MCA Results: Vegetables crops CROP ENTERPRISE GROSS MARGIN ANALYSIS Fruit crops gross margin analysis Vegetable gross margin crops analysis Value adding opportunities CHAPTER SUMMARY REFERENCES LIST OF TABLES Table 1.1: South Africa: Private consumption of food... 2 Table 1.2: Vegetable marketing Table 1.3: Fruit marketing Table 1.4: MCA for fruit and nut crops Table 1.5: MCA: Vegetables Table 1.6: Fruit crops gross margin analysis/ha ii

3 Horticultural Development Plan for the Thulamela Local Municipality Table 1.7: Vegetable crops enterprise analysis/ha Table 1.8: Value adding opportunities LIST OF FIGURES Figure 1.1: Multi-criteria framework for selection of agro processing value chains... 9 iii

4 1. MARKET ANALYSIS 1.1 INTRODUCTION This Appendix deals with a comprehensive market analysis in order to establish the current agriculture output in the area and national demand and supply factors. Finally, an assessment will be done to identify market dynamics, - opportunities (both production - and marketing -) and infrastructure development. 1.2 MARKET TRENDS: NATIONAL AND INTERNATIONAL National consumption Table 1.1 provides a view of private consumption (on a range of agricultural goods) in South Africa for the period , as supplied by Statistics South Africa, Subtract of Agricultural Statistics, The demand for fresh produce was as follows: The demand for fruit and vegetables (excluding potatoes) increased from R million in 2000 to R million in 2014 or by 292%. The demand for potatoes grow in the order of 276% from R4.339 million (2000) to R million (2014). Total demand in consumption grows from R million to R million over the period or 391%, and it will continue showing strong growth due to: Continuous growth of the middle class both in population and disposable income General population growth and associated rise in food demand Increase in demand for certain food types from Africa - particularly from South Africa The economic growth potential of Africa will open new markets and it is known that the South Africans cannot supply in the increasing African demand. New large-scale entrants are needed. The conclusion is that the food market segment will show (strong) growth in the future as well. Such a scenario will benefit any future horticulture production in South Africa. 1

5 Table 1.1: South Africa: Private consumption of food Calender Year Meat Bread and grain products Sugar Milk, milk products and eggs Oils and fats Potatoes Vegetables and fruit Total Other Coffee, tea, cocoa and substitutes Grand Total: Consumption expenditure on food R million Yr grow th 546% 348% 106% 404% 291% 276% 292% 391% 391% 391% 391% Source: DAFF Abstract of Agric. statistics SA (2016) National supply volumes - and price trends: Tshwane and Johannesburg Fresh Produce Markets Table 1.1 illustrated the national trend of a strong growing demand for food in South Africa. This section will provide a view of production volumes sold and price movements over three years ( ) in the mentioned two fresh produce markets in the economic heartland of South Africa, namely Gauteng. The Limpopo area (TLM specifically) will market a large portion of their produce at either of these two fresh produce markets over and above the produce marketed through newly establish supermarket value chains. The role of municipal fresh produce markets is important because it is an outlet for any surplus produce over and above export volumes and national supermarket value chain volumes. As such the fresh produce markets play a significant role in the price making decision of the national fresh produce crop. In order to give a view of the production (supply) trends the following two tables will provide insight on the matter focusing on the statistics of the mentioned two markets as illustrates in Table 1.2 and Table 1.3. A view on regional vegetable trends: As far as vegetables are concerned the focus is on produce from the Vhembe area. 2

6 Table 1.2: Vegetable marketing Source: DAFF (2016b) 3

7 The supply volumes and price trends at these two markets are a fairly accurate picture of the national narrative, due to the size and position of the two markets being Gauteng based. The following important conclusions can be drafted, taken the identified vegetable basket into account: Production volume based on unit sales is constant in so far where Tshwane declined by -1.77% and Johannesburg increased volumes by +1.36%. The assessment is that supply to fresh produce markets has stagnated. Factors contributing hereto can be the effect of international - and regional exports and access of larger volumes into the supermarket value chains. The effect of sporadic droughts in certain supply areas must be considered as well. Units sold: Potatoes are the biggest seller at 54.4% followed by onions (17.41%) and tomatoes (12.79%). The other produce follows: Cabbage (6.11%), Butternut (5.25%), Sweet Potatoes (1.92%) and Spinach (1.07%). Green Beans and Sweet Corn are in low demand at 0.87% and 0.17% respectively. What is significant is that sales turnover increased by 25.18% (Tshwane) and 26.44% (Johannesburg) respectively over the period. Average sales price/unit increased by 27.44% (Tshwane) and 24.74% (Johannesburg). The average price/unit increase of 8.70% is fairly above the inflation rate - which can be a demand driven effect. A view on regional fruit trends The fruit basket drafted focuses on the fruit basket from the Vhembe area, as illustrate in Table 1.3. The assumption is that Macadamia is earmarked for export, although a portion is sold locally these volumes are not traded in the National Fresh Produce markets. The fruit types included in the basket are: Banana Bananas require ripening facilities to mature them for human consumption. Therefore, banana is market via fresh produce markets (equipped with ripening facilities) or to entities that are equipped with ripening facilities. Litchi a portion is sold as fresh produce and a portion is processed. Mango - a portion is sold as fresh produce and a portion is processed. Oranges - a large portion is exported, the class 2 and 3 is sold as fresh produce and a portion is processed. Avocado - a large portion is exported, the class 2 and 3 is sold as fresh produce and a portion is processed. Granadillas - a portion is sold as fresh produce and a portion is processed. The market diversification options of fruit types are evident. 4

8 Table 1.3: Fruit marketing

9 The following is of importance: Banana (61.42%), oranges (24.32%) and avocado (7.18%) are in demand and represent the ± 93% of the basket, followed by Mango sales in the order of 7%. Unit sales: Over the three-year period sales declined by % (Tshwane) and 28.05% (Johannesburg). Banana and mango sales were the main contributors: o Banana unit sales declined between 30 35% o Mango unit sales declined with 48.39% in Tshwane o Avocado unit sales declined with % (Tshwane) and 16.79% (Johannesburg) respectively. The effect of severe droughts cannot be underestimated and might be the main contributor. The strong demand for avocado contributed that larger volumes by redirected into lucrative markets, e.g. supermarket value chains. Sales turnover increased by 16.02% (Tshwane) and 9.10% (Johannesburg) respectively over the period. Average sales price/unit increased by 55.41% (Tshwane) and 51.64% (Johannesburg), which portrait a very positive outlook for certain fruit types International marketing trends The face of the industry has changed in the past decade, especially as far as fruit exports are concerned from Southern Africa. Continental Europe and the UK have traditionally been the main export destination for South African fruit during An important change taking place (especially) since 2007 has been a relative shift away from exports to Continental Europe and the UK towards growing markets in Africa, Asia and the Middle East. The rise of global value chains and production networks (GVCs/GPNs) lies at the heart of contemporary transformation in global trade, production and employment. The rise of supermarkets involved in multiple retailing (food and non-food) has been an important facet of this transformation. Leading companies increasingly coordinate their sourcing through interlinked global networks of cross-border suppliers, rather than operating through fragmented agents within market-led trade channels. Supermarkets are an important driver of changing global dynamics in agro food trade, production and employment. Supermarkets coordinate value chains that link production, processing, retail and consumers, leading to a decline in traditional wholesale and wet markets in many countries. They are consumer-oriented, and strive for quality, low cost and consistency, governing their suppliers through application of strict standards. The South African supermarkets are also leading the expansion of modern retail across Sub-Saharan Africa. Value chain development, driven by Global Value Chains and Global Production Networks, benefitted primary agriculture in the following: At primary production level, GVC / GPN s assure better and less fluctuated prices through programming of supply. Programming of supply improve logistics in particular and reduce costs. High-quality logistics affect trade even more than distance or transport costs; every extra day 6

10 needed to ready goods for export and import could potentially reduce trade flows by up to 4%. Programming of supply allow for better production planning. Value adding (e.g. pre-packing) at source opportunities were created, where in the past value adding was done at accumulation- / distribution points. Specialization opportunities at source were created. Food safety is guarantee through strict client driven compliance requirements. Job creation at source, where in the past jobs were created in the cities at accumulation- / distribution points. The purpose and place of the old generation wet - or wholesale markets and municipal markets cannot be underestimated, due to their critical historical function in the price making decision and the selling of large volumes of excess produce not accommodated by the Supermarkets or Production Networks. In conclusion, the assessment is that GVC s / GPN s (or for that matter Regional Value Chains / Regional Production Networks) will be the focus in the medium - to long term planning of any marketing strategy and - plan. The South African supermarkets are well established and have open the African market for access at stable - and reliable prices with all the accommodating advantages as discussed. The old generation wet - or wholesale - and municipal markets will always have a role and function in the market place, although not as a value adding opportunity Production and supply The biggest concern of small scale producers is their inability to produce and supply volumes that will justify logistical- and other marketing costs. The average production unit ( ha) is too small to gain leverage in accessing markets. The small-scale producers have basic two options in marketing their excess produce: (i) selling to local buyers / shops / outlets in their immediate vicinity or (ii) selling to middlemen / hawkers / traders whom collect the produce at farmgate level. In both cases prices paid will not be on par with market prices as indicated by the national fresh produce markets. The subject of market failure that exists was discussed in Appendix D A view on possible improvement in dynamics and mechanisms The mentioned background gave an overview of the dilemmas faced by small scale producers to access markets successfully. To improve market access in the TLM area emphasis must be place on improving market dynamics and mechanisms in a two-pronged approach: Priority 1: Develop strong agricultural production based industries (and business entities) on the identified land / irrigation schemes and the downstream development of value adding agroprocessing facilities for the respective industries. These developments must lay the foundation for the agriculture development in TLM. The assessment is - based on the market analysis the following fruit types have the ability to maintain strong industry growth at both production - and processing levels: Macadamia Avocado Citrus oranges and lemons 7

11 Mango Banana As far as the vegetable types are concerned, the assessment is that the following vegetable types have potential to become strong industries in the TLM area: Potato although not known in the area it needs a second consideration Onions Tomato Priority 2: The planned strong industries / Agri Businesses will benefit the small-scale producers, downstream: to create a natural demand, pull effect in the area for produce that will fit into the industry plan open logistical access and better prices create jobs and alleviate poverty in the area dilute the market failure effect experienced by the small-scale producers A view on future market opportunities to create and idealized horticulture portfolio Sections 1.2.1, elaborated on the changing marketing environment and the local and global growing demand for fresh produce. The natural resources of the Thulamela area are conducive for production of quality produce that will fill the market demand and requirement. Market opportunities will be found at all levels of the fresh produce value chain including prepacking opportunities (value adding): Export class 1: Global export markets and South African Supermarkets Class 1: South African Supermarkets, Sub Saharan African - and Indian Ocean markets Class 2: South Africa Supermarkets, South African wholesalers and smaller outlets Processing A view on future infrastructure development The success of the development plan will depend on the establishment of following key infrastructure: Critical on farm infrastructure e.g. machinery, equipment, irrigation, utility storage and loading facilities Revitalization of the irrigation schemes Establishment of centralised machinery and equipment HUB s - where identified Establishment of centralised processing-, packing- and cooling facilities Establishment of logistical support to accommodate the small-scale producers transportation needs and to bring them into the mainstream industries. 8

12 1.3 DEVELOP A MULTI-CRITERIA ANALYSIS (MCA) FRAMEWORK In this regard the 1 GTZ Value Links Manual: The Methodology of Value Chain Promotion (1 st Revised Edition, January 2008) provides an appropriate set of pragmatic tools to achieve the desired value chain development outcome. Consider Figure 1.1 below as the point of departure for the selection of value chains with potential. There are 4 main criteria: Institutional framework criteria (15% weight) Growth potential: demand criteria (35% weight) Growth potential: supply criteria (30% weight) Economic, social and environmental: impact criteria (20% weight) It should be obvious that the demand criteria should have the highest weight since if there is not a demand for the product and if it cannot be produced competitively; there will not be a high development potential for this value chain. Similar, supply criteria must also carry a higher weight since production potential, value adding potential, innovation potential and comparative advantage is also of paramount importance for the sustainable growth of the value chain. Economic, social and environmental criteria are important from a social / government perspective. Finally, the institutional framework criteria refer to a business environment that is conducive to the development of the value chain. (30%) Figure 1.1: Multi-criteria framework for selection of agro processing value chains The framework presented is often used in the selection of agro processing value chains with a high potential for growth and development. 1 Deutsche Gesellschaft fur Technische Zusammenarbeit (GTZ) GmbH commissioned by the Federal Republic of Germany: Federal Ministry for Economic Cooperation and Development. 9

13 1.4 MCA RESULTS AND SHORT LIST OF CROPS Subtropical and nut crops This section will draft an analysis of the MCA results on the various crops / value chains analysed. The results of the MCA are based on the expert opinions of the team. If there are very small differences between the total score for crops they should be regarded as having more or less the same potential. It is clear that Macadamias has the highest score followed by Avocado s and Citrus with relatively lower scores for litchis, mangoes and bananas. Table 1.4: MCA for fruit and nut crops Subcriteria Main Unweighted score (illustrative) - Max score =5 where 1=low and 5=high criteria Macada Criteria Avocado Banana Citrus w eight Weight mia Mango Litchi 1A. (Market) DEMAND CRITERIA (= most important Sustained local demand Competitive position on local Sustained foreign demand Competitive position on foreign Product differentiation / 5 reputation advantage B. GROWTH POTENTIAL - SUPPLY CRITERIA Comparative / competitive Innovation potential Value-adding potential Production potential Criteria related to (economic, social and Employment potential Cross-sectorial linkages and 20 5 spill-over effects Inclusiveness Environmental Sustainability Criteria related to institutional aspects: Inter-firm relationships Support system Business environment& 5 regulatory framew ork conditions Total MCA Results: Vegetables crops The results for vegetables indicates that the potential for vegetables is for all practical purposes the same. The reader should also note that it is important to consider vegetable rotation systems and harvesting time (which will depend on planting dates) that is aligned with the market demand during the year. 10

14 Table 1.5: MCA: Vegetables Subcriteria Main Unweighted score (illustrative) - Max score =5 where 1=low and 5=high criteria Sw eet Sw eet Criteria Butternut Cabbage Green Onions w eight Weight Beans Corn Potato Spinach Tomato 1A. (Market) DEMAND CRITERIA (= most important criteria type for VC upgrading) Sustained local demand Competitive position on local 5 35 market Sustained foreign demand Competitive position on foreign 5 market Product differentiation / 5 reputation advantage B. GROWTH POTENTIAL - SUPPLY CRITERIA Comparative / competitive 10 advantage Innovation potential Value-adding potential Production potential Criteria related to (economic, social and environmental) impact potential Employment potential Cross-sectorial linkages and 5 spill-over effects Inclusiveness Environmental Sustainability Criteria related to institutional aspects: Inter-firm relationships Support system Business environment& 5 regulatory framew ork conditions Total CROP ENTERPRISE GROSS MARGIN ANALYSIS The purpose of section 1.5 is to design and draft the various identified value chains based on their various enterprise analysis Fruit crops gross margin analysis Table 1.6 illustrates a breakdown of the enterprise analysis of the various selected fruit crop in full bearing. The fruit crops selected were done on the basis of known crops to the population and the area, crops with commercial potential and according to the MCA selection criteria. 11

15 Table 1.6: Fruit crops gross margin analysis/ha Description Kilogram Gross Farm Income Pre harvest Costs Harvest & Post Harvest Over heads Budgeted Total Yield/ha Export Local Processing costs Costs Margin Avocado Banana Citrus Macadamia Mango Litchi Sources: South Africa Avocado and Citrus Growers Associations, Levubu Macadamia Study group and the KZN Dept of Agriculture & Rural Development, , OABS adjusted Budgeted Gross Going forward, the authors suggest that the strong industries being developed for the avocado, citrus and macadamia cultivars they are all well-established export orientated industries with growth potential Vegetable gross margin crops analysis Table 1.7 illustrates a breakdown of the enterprise analysis of the various vegetable crops. The selection of viable vegetable crops depends on intercropping and double cropping characteristics in order to reach optimal crop rotation between various complimentary crops. Table 1.7: Vegetable crops enterprise analysis/ha Description Butternut Cabbage Green Beans Onion Sweet Corn Sweet Potato Spinach Tomato Estimated Yield (kg/ha) (COB) Budgeted Gross Income Pre harvest costs Harvest & Post Harvest costs Overhead costs Budgeted Total cost Budgeted Gross Margin Source: KZN Dept of Agriculture & Rural Development, , OABS adjusted The selected crops indicated gross margins that varies from R7081/ha for cabbage up to R /ha for tomatoes. The production of the mentioned crops is all economic viable in TLM area. The actual financial impact of the various crop combinations will be illustrating in the economic model illustrating the development impact Value adding opportunities Table 1.8 illustrates a view horticultural enterprise with strong value adding opportunities in the TLM area. The focus is to add value on all produce as vertically up the supply chain as possible in order to gain better prices and create jobs in the TLM area. 12

16 Table 1.8: Value adding opportunities Description The following observations are of importance: Production, harvesting and basic processing is similar for all produce and can be done at source given processing-, packing and cooling facilities exists. The known or traditional way of packing / processing is indicated in the table. Almost all the varieties offer pre-packing or vertical market penetration opportunities according to client specification. The pre-packing option can be executed at source and will result in better prices/kg. Job creation will also benefit from the action. Almost all the varieties offer industrial processing opportunities. Available volumes at source will determine to what extend cost effective industrial processing can be done in the TLM area. 1.6 CHAPTER SUMMARY Production Harvesting Traditional processing & Pre-packing - client specific packing at source at souce Avocado X X Carton X Guacamole Banana X X Carton X Dried / Juice Citrus X X Carton / Bag X Dried / Juice / Jam Macadamia X X Bag X - Mango X X Carton / Bag X Atjar / Juice / Dried Litchi X X Carton X Juice Butternut X X Bag X Foodstuff ingredient Cabbage X X Bag X Foodstuff ingredient Green Beans X X Bag X Foodstuff ingredient Onion X X Bag X Foodstuff ingredient Sw eet corn X X Bag X Foodstuff ingredient Sw eet Potato X X Bag X Foodstuff ingredient Potato X X Bag X Foodstuff ingredient Spinach X X Bundle / lux - Foodstuff ingredient Tomato X X Carton / Bag X Foodstuff ingredient With respect to chapter four the following observations is of importance: Industrial processing The demand for food is increasing at significant ratios. As far as the South African fresh produce demand is concerned indications are that the demand grows as follows, since The demand for fruit and vegetables (excluding potatoes) increased from R million to R million in 2014 or by 292%. The demand for potatoes grow in the order of 276% from R4.339 million (2000) to R million (2014). Total demand in consumption grows from R million to R million over the period or 391%, and it will continue showing strong growth due to: Continuous growth of the middle class both in population and disposable income General population growth and associated rise in food demand Increase in demand for certain food types from Africa - particularly from South Africa The economic growth potential of Africa will open new markets and it is known that the South Africans cannot supply in the increasing African demand. New large-scale entrants are 13

17 needed. The conclusion is that the food market segment will show (strong) growth in the future as well. Such a scenario will benefit any future horticulture production in South Africa. Small-scale / Small holders producers are under consistent pressure to increase production in order to benefit from economy of scale. Apart from the challenge to produce bigger volumes they have to produce quality according to client specification. The mentioned background gave an overview of the dilemmas faced by small scale producers to access markets successfully. To improve market access in the TLM area emphasis must be place on improving market dynamics and mechanisms in a two-pronged approach: Priority 1: Develop strong agricultural production based industries (and business entities) on the identified land / irrigation schemes and the downstream development of value adding agroprocessing facilities for the respective industries. These developments must lay the foundation for the agriculture development in TLM. Priority 2: The planned strong industries / Agri Businesses will benefit the small-scale producers, downstream: to create a natural demand, pull effect in the area for produce that will fit into the industry plan open logistical access to markets at better prices create jobs and alleviate poverty in the area dilute the market failure effect experienced by the small-scale producers The development of strong industries will address a range of logistical and market access related issues and dilute to a large extend the effects of market failure. Through the application of the Multi Criteria Analysis on a range of fruit and vegetable crops the assessment is that: Fruit types: It is clear that Macadamias has the highest score followed by Avocado s and Citrus with relatively lower scores for litchis, mangoes and bananas. Vegetable types: The results for vegetables indicates that the potential for vegetables is for all practical purposes the same. The reader should also note that it is important to consider vegetable rotation systems and harvesting time (which will depend on planting dates) that is aligned with the market demand during the year. The various value chains were unpacked and give a view of potential income streams for each crop type. Finally, the chapter concluded on forward market integration value adding options for each identified crop, which indicated that forward market integration is possible for each of them. 14

18 2. REFERENCES Complete list of references available in main report. 15