ECONOMIC OUTLOOK REPORT XII. Prepared by the Economic Services Unit: Technology Transfer Division

Transcription

1 ECONOMIC OUTLOOK REPORT XII Prepared by the Economic Services Unit: Technology Transfer Division September

2 Table of Contents 1. EXECUTIVE SUMMARY FOREWORD AND ACKNOWLEDGEMENTS MACRO-ECONOMIC INDICATORS... 6 Global macroeconomic status... 6 South African macroeconomic status... 6 Global Agricultural outlook... 6 SA Agribusiness... 7 SADC REGION FIELD CROP PRODUCTS... 8 Maize... 8 Wheat... 8 Sorghum... 9 Barley... 9 Canola... 9 Cotton Sunflower Soya beans Groundnuts Dry beans HORTICULTURE OUTLOOK Grapes Apples & Pears Vegetables ANIMAL PRODUCTION Poultry Beef Pork Dairy Products Wool Mohair CONCLUSIONS

3 1. EXECUTIVE SUMMARY Global macroeconomics The global economic outlook remains uncertain, with downside risks being posed by the Eurozone debt crisis and the US fiscal cliff. The IMF continues to project a gradual recovery, but global growth will likely be weaker than anticipated. After leading the global economy in the current recovery, major emerging markets are now slowing. Key economies like China, Brazil and India have weakened further, impacted by dull global demand. Low-income countries in sub-saharan Africa have been growing strongly, but also face commodity price increases. Global agricultural perspective The extreme drought in the US caused soybean, maize and wheat prices to jump as harvest expectations are cut back significantly. The global wheat production forecast is lowered by 6.7 and 6.0 million tons, respectively, which is about 4% lower than in the record production year 2011/12. Globally, beef production is projected to increase on average 1.8% per annum with developing countries accounting for 58%, by South African macroeconomics The weak global environment continues to pose a risk to the domestic economy. Despite the gloomy forecast the Reserve Banks repo rate was kept at 5%. The CPI is projected to average 5.3% in Q 4 of 2012 and average 5.2% in 2013 and 5.0% in GDP growth is projected at 2.6% in 2012 and 3.4% in South African Agricultural sector perspective The Agbiz/IDC Agribusiness Confidence Index reports a slowdown in recovery in agribusiness confidence. The index reached a level of in the second quarter of 2012, 7% lower than the preceding quarter and 5% lower than last year at the same time. However, resilient global prices encouraged production in South Africa for the 2012/13 season, taking advantage of opportunities offered by export markets. Field crop outlook The BMI anticipates global maize prices to continue trading sideways around current levels in the short term. The average price for maize is expected to stay at USc600/bushel in The production of wheat is projected to be million tons, which is 0.12% less than the previous seasons crop of million tons. The expected yield for wheat is 3.45t/ha. Sorghum output is expected to remain unchanged at tons with an expected yield of 2.82t/ha. The area planted for barley is ha, with an expected yield of 3.54t/ha. The 2011/12 cotton crop is 31% smaller than that of the previous season mainly due to lower cotton prices and better prices for competing summer crops. The expected production forecast for the canola is % more than the previous seasons canola crop of tons. The production of sunflower seed is estimated to remain unchanged at tons. The production forecast for dry beans is tons, with an expected yield of 2.91 t/ha. Horticultural outlook Total cash expenditure for wine grapes shows a 9% increase from 2010, to R22 443/ha for the 2011 production year. The total area for table grapes is projected to shrink to less than ha in 2014, where after it is expected to increase steadily to reach ha in Europe remains South Africa s most 3

4 prominent export destination, accounting for just less than 80% of SA fresh grape exports. Over the next decade, the domestic market for table grape is projected to remain lucrative with nominal price growth averaging per annum. The area planted to apple trees is projected to continue its upward trend, increasing by 470 hectares in The Domestic Market for pears remains small; below tons. The price of pears sold locally is estimated to increase by 7% in 2012, supported by low supply and relatively high prices for processing pears. Until 2020 prices of deciduous fruits are expected to increase in nominal terms. Although, the quantity of vegetables sold in both domestic and export markets have remained relatively constant, the value of the domestic market increased significantly between 2006 and Livestock production Over the next decade, the increase in the demand for beef is expected to average an annual growth rate of 3%. South Africa is expected to remain a net importer of both poultry products and pork. The per capita consumption of chicken meat is forecast to exceed 45 kg by The forecast for poultry production envisages strong growth of 21.8% and 48% in the five years to 2016 and over the next decade to 2020 respectively. BMI forecast beef production rising by 25.4% in the five years to 2015/16 while BFAP projects beef consumption to grow by 23 % over the next decade. Pork consumption is expected to decline slightly in 2012 in response to decreasing beef prices, before gradually increasing over the next decade to Following a marginal decrease in 2011, the producer price of milk is expected to increase in 2012 on the back of increased feed costs and greater demand for milk products as consumers disposable income increase. SADC Food Security Outlook Favourable food security conditions are expected to prevail throughout the region from July to September Main harvests have increased the availability of staple foods at the household level and in local markets. Increased costs associated with transportation, agricultural inputs and rising inflation levels in the region may result in irregular price increases in some countries as the lean season approaches in October/November. 4

5 2. FOREWORD AND ACKNOWLEDGEMENTS The Economic Services Unit presents this 12 th Economic Outlook to the ARC as a planning resource. The document analyses global and domestic trends in economic and agricultural markets and policy, as well as potential impacts on sector performance. Apart from a macroeconomic perspective, it deals with agricultural production, consumption, and price trends. A range of projections are provided, based on assumptions about a set of economic, technological, environmental, political, institutional and social factors. International and local publications form the basis of the Outlook. Projections developed by the OECD, IMF, Global Insight, FAPRI and the World Agricultural Outlook are used. Projections should be interpreted as possible scenarios. The following sources are acknowledged: Agricultural Business Chamber Media Release, August 2012 ABSA Weekly market analysis, 21 September 2012 Bureau for Food and Agricultural Policy (BFAP) 2012 Outlook Business Monitor International Report, Q4, 2012 Cape Mohair Wool (CMW) Mohair & Wool Market 25 September 2012 reports Cotton SA, Cotton Market Report (9/3/3/1), September, 2012 Crop Estimates Committee August report, 2012 Famine Early Warning Systems Network (FEWS-Net), August 2012 International Monetary Fund (IMF): World Economic outlook, September 2012 FNB Agri-Weekly, 14 September, International Monetary Fund (IMF): World Economic outlook. April 2012 MERC/NAMC. Cost of grape production and profitability: top performers in difficult times. March NAMC &DAFF -International Trade probe, No. 39, May 2012 research@nl.abnamro.com OECD-FAO Agricultural Outlook, and Economic Outlook May 2012 SA Economic Profile 2011 ( SARB Monitory Policy Committee report, 21 September

6 3. MACRO-ECONOMIC INDICATORS Global macroeconomic status The global economic outlook remains uncertain, with downside risks posed by the Eurozone sovereign debt crisis and the US fiscal cliff. Global inflation remains benign but supply shocks emanating from dry conditions in the US and Eastern Europe as well as elevated international oil prices poses an upward risk. Key global central banks have expanded their quantitative easing programmes but the risk to global financial markets remains high, with the exit of the Eurozone by Greece remaining a possibility. The IMF continues to project a gradual recovery, but global growth will likely be a bit weaker than anticipated. Emerging market economies in Asia and elsewhere, after leading the global economy in the recovery, are now slowing. Key emerging economies like China, Brazil and India have also weakened further, impacted by dull global demand. Low-income countries in sub-saharan Africa have been growing strongly, but also face commodity price increases. South African macroeconomic status Local supply disruptions, particularly in the mining sector, are impacting negatively on domestic activity. The production side of the economy has weakened in recent months. Mining output fell in July, while the Kagiso PMI pointed towards weak conditions in the manufacturing sector. The weak global environment continues to pose a risk to the domestic economy. Despite the gloomy forecast SARB kept the banks repo rate on 5%. The CPI is projected to average 5.3% in the fourth quarter of 2012 and average 5.2% in 2013 and 5.0% in The Bank s core inflation measure, which excludes food, petrol and electricity prices, is projected to peak at 4.9% in the fourth quarter of 2012 and average 4.6% per annum in the following two years. The Bank s GDP growth forecasts have been revised slightly downwards. GDP growth is currently projected at 2.6% (previously 2.7%) in 2012 and 3.4% (previously 3.8%) in Inflation expectations have remained anchored around the upper limit of the inflation target band. Despite the large current account deficit, that widened to 6.4% of GDP in the second quarter, and the unfavourable events in the mining sector, the Rand declined by only 5.0% against its trade-weighted basket, 2.4% against the US dollar and 7.5% against the euro. The rand was supported by steady foreign capital inflows, albeit of a short-term nature. Net foreign purchases of local bonds amounted to R12.1 billion since July with net foreign portfolio inflows reaching R74.5 billion year to date. Global Agricultural outlook The extreme drought in the US caused soybean, maize and wheat prices to jump higher as harvest expectations were cut back significantly. With most of the largest exporters on the world market receiving either too little or too much rain, sugar prices also started to appreciate. Production is declining in the most important producing countries due to these unfavourable weather conditions as well as crop diseases. The US Department of Agriculture (USDA) and the International Grains Council (IGC) lowered their forecasts for global production, consumption and supplies for 2012/13. The global wheat production forecast was lowered by 6.7 and 6.0 million tons, respectively, which is about 4% lower than in the record production year 2011/12. Global wheat consumption is reduced by 4.6 million tons, resulting in world ending stocks for 2012/13 projected ± 10% lower than in the past three crop years. According to the OECD FAO Agricultural Outlook report, globally the demand for beef is rapidly growing in developing economies, driving up nominal beef prices. Beef production is projected to increase on average 1.8% per annum over the next 10 years, with developing countries accounting for an increasing share of 58%, by

7 SA Agribusiness The Agbiz / IDC Agribusiness Confidence Index reached a level of in the second quarter of 2012; 7% lower than the preceding quarter and 5% lower than the same quarter of last year. The biggest drivers for this decrease was a decrease in turnover (-12%), compared to quarter 1; a reflection of the downward adjustment in summer crop projections. As some areas experienced highly erratic rain fall in the second quarter, agribusinesses became less optimistic. Still, resilient global prices encouraged production in South Africa for the 2012/13 season mainly to take advantage of opportunities offered by export markets. Sugar production forecast for 2012/13 are expecting rising prices, encouraging plantings in the medium term. However, inefficiencies in the processing industry remain a concern over the coming years. The domestic sugar price is expected to rise from 96 US cents in 2011 to 106 US cents/kg in 2015.Trade Indicators - Historical Data & Forecasts, Table: 1: Sub-indices changes of the Agbiz/IDC Agribusiness Confidence Index - Quarter 2 of 2012: Sub-indices Quarter to Quarter change Year-on-Year change Turnover -12% Decrease 0% Unchanged Net operating income -7% Small decrease 14% Increase Market share of the business -2% Very small decrease 9% Small increase Employment -2% Very small decrease 32% Increase Capital investment -6% Small decrease 7% Small increase Volume exports -13% Decrease 5% Small increase Economic growth in South Africa 38% Increase -23% Decrease General agricultural conditions -27% Decrease -43% Decrease Debtor provision for bad debt 11% Increase 14% Increase Financing costs 8% Small increase 8% Small increase Overall index -7% Small decrease -5% Small decrease SADC REGION The July FEW-NET report indicates that favourable food security conditions are expected to prevail throughout the SADC region from July to September Main harvests have increased the availability of staple foods at the household level and in local markets. As food prices continue to drop in line with seasonal patterns, food access has improved for most market dependent households. However, increased costs associated with transportation, agricultural inputs and rising inflation levels in the region may result in irregular price increases in some countries as the lean season approaches in October/November. Parts of the region that experienced crop production shocks are currently facing food insecurity conditions. Severity ranges from crisis in parts of southern Malawi, to stress in other parts of southern Malawi, and central and southern Mozambique. Other affected areas include parts of southern Zimbabwe, Lesotho, and Angola. 7

8 Maize ('000 tons) 4. FIELD CROP PRODUCTS Maize Given reports of reduced yield estimates from the South African Crop Estimates Committee (CEC) and considering the drought in the US, the BMI revised its forecast for maize production in South Africa; production is projected to grow by 1.6% year-on-year to 11.1 million tons in 2011/12. Local maize production is expected to increase in 2012/13, due to improvement in plantings against elevated global prices and higher than usual producer deliveries. The area estimate for maize production is million ha whilst the expected yield is 4.15 t/ha. Forecasts by the CEC for white maize is million tons, which is tons more than the million tons of the previous forecast. The forecast yield for white maize improved to 3.98 t/ha. The production forecast for yellow maize is million tons with a yield of 4.54 t/ha. The BMI anticipates that South African maize exports to Sub-Saharan African countries will decrease which will lead to a production deficit of tons in the region and especially in countries like Botswana, Lesotho and Mozambique f 2013f 2014f 2015f 2016f Years (f = forecast) Maize Production Maize Consumption Figure 4.1: South African maize production and consumption, (BMI, 2012). Following high maize prices earlier in the year, maize prices eased since March 2012 and are now following world maize prices. Expectations of a strong recovery in the 2011/12 harvest have caused prices to retreat. The BMI further anticipates global maize prices to going continue trading sideways around current levels in the short term. The average price for maize is expected to stay at USc600/bushel in Wheat The United States Department of Agriculture (USDA) has confirmed that the effective import duty for wheat shall be raised to US$215 per metric tonne, at current wheat prices. This is expected to improve the profitability of wheat production in South Africa. The BMI reports that such developments have also helped counteract the recent decline in local wheat production by enticing wheat producers to increase plantings. Against this backdrop, the CEC anticipates the production of wheat to be million tons; 0.12% less than the previous seasons crop of million tons. The expected yield is 3.45 t/ha. Improved yields result from continued advances in wheat varieties. The Western Cape Province continued to lead in local wheat production, with an expected production output of tons in 2012, which is tons higher than the previous season. The Free State Province is second at tons and at number three is the Northern Cape Province with a production output of tons. The area estimate for wheat is ha, which is ha more than that of the previous forecast of ha. 8

9 Barley ('000 tons) Wheat ('000 tons) Wheat Production Wheat Consumption f Year (f = forecast) Figure 4.2: South African Wheat production and consumption, (BMI, 2012). Sorghum The CEC predicts that sorghum output shall remain unchanged at tons with an expected yield of 2.82 t/ha. The area estimate for sorghum is ha. Area Planted (ha) Output Forecast (tonnes) Sorghum Production (2011) Sorghum Production (2012) Final Crop (Tonnes) Sorghum 80 (' tons) Figure 4.3: SA Sorghum Summer crop estimate (CEC, 2012). Barley The CEC forecast for barley is tons, which is 24 tons more than the previous season s crop of tons. The CEC estimates that ha is planted with barley, with an expected yield of 3.54t/ha Barley Production barley Consumption f Figure 4.4: SA Barley crop estimate (BMI, 2012). Canola The expected production forecast for canola is tons; 12.47% or tons more than the previous seasons crop of tons. The area estimate for canola is ha, with an expected yield of 1.50 t /ha. 9

10 Cotton The International Cotton Advisory Committee (ICAC) expects cotton production in China and India to fall by 7% and 13% respectively. The USA will experience an increase of ± 13% following last year s drought. This means that world cotton production will be 7% lower than last season s forecast, at 25.2 million tons. Rising prices will cause farmers to reduce cotton areas in favour of grains and oilseeds, especially in Brazil. Cotton demand will continue to be very weak owing mainly to government interference in the market and weak global economic growth. Because of a decrease in cotton consumption in China, the ICAC expects an excess supply of ± 2 million tons, resulting in a global rise in stocks of ± 14% to approximately 16 million tons. According to Cotton South Africa s 8 th estimate for the 2011/12 production year, a total crop of lint bales was produced; roughly lint bales from the RSA and the rest from Swaziland. The 2011/12 crop is 31% smaller than the previous season mainly due to lower cotton prices and better prices for competing summer crops such as maize. RSA COTTON LINT CONSUMPTION 20 THOUSAND BALES (200kg) Jan Feb Mrt Apr Mei Jun Jul Aug Sep Okt Nov Des pvverbr Figure 4.5: RSA Cotton Lint Consumption (Cotton SA, 2012). Sunflower The CEC expects the production of sunflower seed to remain unchanged from the previous forecast of tons. The area estimate for sunflower seed is ha, with an expected yield of 1.16t/ha. Final Crop (tonnes) Output Forecast (tonnes) Area (ha) Sunflower Seed Production (2011) Sunflower Seed Production (2012) '000 tonnes Figure 4.6: Sunflower area planted and final production forecast for 2012 (CEC, 2012). Soya beans The anticipated output for soya-beans is tons and is tons less than the previous forecast. The area estimate for soya beans will remain unchanged at ha with an expected yield of 1.37t/ha. 10

11 Final Crop (tonnes) Output Forecast (tonnes) Area (ha) Soya-beans production (2012) Soya-beans production (2011) ' 000 tonnes Figure 4.7: Soya beans area planted and final production forecast for 2012 (CEC, 2012). Groundnuts Compared to the previous forecast, the expected groundnut crop shall remain unchanged at tons. The area estimate for groundnuts is ha, whereas the expected yield is 1.37 t/ha. Final Crop (tonnes) Output Forecast (tonnes) Area (ha) '000 tonnes Groundnuts Production (2011) Groundnuts Production (2012) Figure 4.8: Groundnuts area planted and final production forecast for 2012 (CEC, 2012). Dry beans The CEC predicts that the production of dry beans is going to stay unchanged as in the previous forecast. The production forecast for dry beans is tons, with an expected yield of 2.91 t/ha. The estimated area for dry beans is ha. Final Crop (tonnes) Output Forecast (tonnes) Area (ha) Dry beans Production (2011) Dry beans Production (2012) '000 tonnes Figure 4.9: Dry beans area planted and final production forecast for 2012 (CEC, 2012). 11

12 5. HORTICULTURE OUTLOOK Escalating production and replacement costs for orchards of major fruit commodities (pears, peach, nectarines as well as grapes remain a major concern. Since 2010, the industry average total production cost has increased by ± 7% to R per hectare in Cash expenditure (direct cost; labour, mechanisation, fixed improvements and general expenses) increased by 9% from 2010, to R22 443/ha for the 2011 production year. The increase is mostly due to a slightly bigger crop, high increases in the cost of electricity, water tax, reparations and maintenance of tractors, vehicles and implements, as well as fuel prices, all increasing by double digits since Other cost components increased less in line with inflation. However, the composition of expenditure has remained largely unchanged, with labour still representing the biggest component-41% for the 2011 production year. Mechanisation, direct cost, general expenses and fixed improvements represent 21%, 18%, 18% and 2% respectively of cash expenditure. Although small differences occur from year to year, the trend has nevertheless been for all components relative to each other to become increasingly expensive. 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Direct cost Labour Mechanisation Fixed improvements Figure 5.1: Percentage composition of annual cash expenditure-industry average, NAMC (MERC 2011) Grapes Dried grapes and table grapes production declined leading to a 16% drop in export volumes to Europe. Between 2004 and 2011 the overall production cost of wines increased by 7%, cash expenditure in terms of operational costs increased by 9%, labour by 41%. The age composition of vineyards has deteriorated since More than 13% of the surface planted to vines is older than 20 years and only 11% of the vines in an NAMC sample study are 3 years and younger. The deterioration in the age composition has been clearly noticeable since 2004-a clear indication that producers are defaulting on capital maintenance in an attempt to survive financially. This will impact on future production. Following the record season of 2009/10, the total table and dried grape crop declined from almost tons to below tons in 200/11. This is the third smallest crop in the past ten years and can be attributed to a decline in area planted, as well as lower yields caused by adverse weather conditions. Total area planted to table and dried grapes decreased from ha in 2010 to ha in The total 12

13 R/ton area is projected to shrink to less than ha in 2014, where after it is expected to increase steadily to reach ha in The smaller crop of 2010/11 led to a 12% decline in fresh grape exports, with supply to the European market down by 16%. Europe remains South Africa s most prominent export destination, accounting for just less than 80% of SA fresh grape exports. Lower supply levels resulted in a 13% increase in the average export price, from R13 662/ ton in the 2009/10 season to R15 467/ ton in 2010/11. In response to the surge in prices the previous season and due to a relatively large crop this season, exports reached a record peak of tons (or 55 million cartons) in the 2011/12 season, i.e. a 22% increase from tons in 2010/11. The domestic market remains strong as prices increased on average by 10% in 2010/11 despite the 10% increase in volume traded. Supply to the local market is estimated slightly higher in 2011/12 compared to the previous season with price increases of roughly 6% to 8.4%. Apples & Pears The area planted to bearing apple trees (i.e. trees four years and older) is projected to continue its upward trend, increasing by 470 hectares in Assuming average yields, total apple production is projected at tons in 2012, up 3% from the previous year. The upward trend in bearing acreage is projected to continue until 2021, up hectares. Production is projected to follow a similar increasing trend with total crop forecast at tons in The average price for fresh apples exported in 2011 increased by 6% year-on-year, despite total southern hemisphere exports peaking at tons, the second largest supply from the southern hemisphere to date. The price increase can be attributed to the previous year, but also the continued shift in South Africa s export destination. The share of South African apples exported to Europe declined from over 60% in 2006 to 41% in A key growth area is Africa with exports to the continent increasing by 102% over the past four years. In 2011, 24% of total South African apple exports were destined for the African market. Export prices are projected to jump on average by 16% in 2012, from R6 434/ton to R7 456/ton, as a number of factors come into play. Until 2020 prices of deciduous fruits are expected to increase in nominal terms SA apple export price (nominal) SA pear export price (nominal) Figure 5.2: Trends in export prices of apples and pears in nominal terms, BFAP 2012 The domestic market for apples exceeded expectations in 2011, with a price increase of 18% despite a 4% increase in volume traded. These price increases are projected to soften over the next few years. BFAP 13

14 simulated the local market price at R5 323/ton for 2012, up 5% from Prices are projected to remain under pressure in real terms up to 2014 as increasing supply is coupled with slow economic growth. From 2015 onwards stabilising supply levels and economic growth rates around 4% are projected to provide some stimulus to prices leading to real price gains in the order of 2%. The domestic market for pears remains small, below tons. The price of pears sold locally is estimated to increase by 7% in 2012, supported by low supply and relatively high prices for processing pears. Vegetables The trends and figures reported are based on the FNB weekly report of 14 September Tomatoes Tomato prices increased sharply due to decreased supplies on markets. Prices increased by a whopping 36.7% w/w and 16.0% y/y, closing the week at R4.804 per ton. Potatoes Potato prices increased marginally due to limited supplies on markets. Prices were up 1.6% w/w but still 19.8% lower y/y, closing the week at R2 629/ton. Volumes traded were down by 6.5% w/w but still 29.2% higher y/y, closing the week at tons. Onions Onion prices increased sharply due to limited supplies on markets. Prices reached R2 218/ton, up 10.0% w/w and 22.0% y/y. Volumes traded were down 24.9% w/w but still 9.3% higher y/y, closing the week at tons. Carrots Carrot prices posted marginal gains due to decreased supplies and limited uptake on markets. Prices were up 1.3% w/w but till 17.5% lower y/y, closing the week at R2 516/ton. Volumes traded reached tons, down 12.2% w/w but still 13.0% higher y/y. Prices are however expected to improve somewhat in the short term on improved demand. Cabbages Cabbage prices continued to drift lower on the back of higher volumes and softer demand on markets. Weekly cabbage prices fell by 4.1% w/w but still 3.4% higher y/y, closing the week at R1 441/ton. Volumes traded reached tons, down 0.8% w/w but still 2.0% higher y/y. Prices are expected trend sideways on moderation in demand in the short term 14

15 000'tons 6. ANIMAL PRODUCTION Over the next decade, the increase in the demand for beef is expected to average an annual growth rate of 3%. Chicken meat production is anticipated to grow by 29% from 1.4 million tons to 1.8 million tons over the next decade, implying that South Africa will remain a net importer of chicken meat. The demand for fresh milk and dairy products is expected to increase by 22% and 34% respectively during the next decade. Poultry Due to challenges such as weak economic growth, persistently high unemployment and an influx of cheap poultry imports into the market, the operating environment for South African poultry producers such as Astral Foods and Rainbow Chicken is expected to be difficult. BMI predicts that poultry consumption will increase by 2.9% in 2012 to reach 1.7mn tons. The forecast for poultry production envisages strong growth of 21.8% and 48% in the five years to 2016 and over the next decade to 2020 respectively. BFAP forecasts the total consumption of chicken meat to reach almost 2.4 million tons by It is projected that the per capita consumption of chicken meat will exceed 45kg by 2020, driven by strong GDP per capita growth and a steady fall in unemployment. During the third week of September poultry prices traded mixed compared to the previous week. Frozen birds traded 0.53% lower at R18.83/kg compared to the previous week. Whole fresh medium bird prices traded lower at R23.78/kg and IQF traded a 1.11% higher at R16.33/kg for the week compared to the previous week. The market is expected to trade sideways in the short term and higher in the medium due to the higher demand. Poultry Production Poultry Consumption Figure 6.1: SA Poultry Utilization (BMI, 2012) Beef Considering the expectations for economic growth in South Africa, BMI forecast beef production rising by 25.4% in the five years to 2015/16 while over the long run, BFAP projects beef consumption to grow by 23 % over the next decade (compared to 24 % over the period ). With a projected annual average growth rate of 6.5%, BFAP projects nominal beef prices to reach R44/kg in 2020, implying growth in real terms of 0.5% with a target inflation rate of approximately 6%. Local beef prices traded higher during the first three weeks of September, 2012 following the international market. The weekly ABSA market analysis projects the price of beef to continue the move upwards in the short to medium term due to higher demand 15

16 000,tons 000'tons in the market place and possible shortages in the C-class. Weaner prices are forecast to move sideways in the short term with an upward movement in the medium term due to higher demand. Beef & Veal Production Beef & Veal Consumption Figure 6.2: South Africa Beef & Veal Utilization (BMI, 2012) Pork Consumption is expected to decline slightly in 2012 in response to decreasing beef prices, before gradually increasing over the next decade to However, South Africa is expected to remain a net importer of pork. BFAP projects pork imports to increase to ± tons by In the medium term to 2016, BMI forecasts pork production to increase by 20.2% over the next five years to 2016 while pork consumption will grow by 5.2% in 2012 and by 29.3% in the five years to During the third week of September 2012, local pork prices traded higher compared to the first two weeks of the month. According to ABSA the demand for pork is steady with varying demand for weekly slaughtering. The prices are expected to move sideways in the short term with an upward movement in the medium term due to possible shortages in the industry. Pork production Pork consumption Figure 6.3: Pork Production & consumption (BMI, 2012) 16

17 25-Apr 09-May 23-May 06-Jun 15-Aug 29-Aug 06-Sep 12-Sep 19-Sep Dairy Products Despite volatility in prices, the industry is constantly expanding due to the growing demand for dairy products. Over the past decade, the industry grew by 25%, with total consumption of dairy products increasing from 2.1 million tons in 2001 to 2.68 million tons in With the milk/feed price ratio declining significantly in 2011 and 2012 as a result of increased feed prices, production remained virtually unchanged in 2011, before an expected increase of only 1% in 2012 following improved demand for dairy products. Following a marginal decrease in 2011, the producer price of milk is expected to increase in 2012 on the back of increased feed costs and greater demand for milk products as consumers disposable income increase. The price is expected to grow at an average rate of 7.8% per year over the next decade, resulting in an average price increase of ± 1.8% per year in real terms. The price of butter and whole milk powder is expected to increase at an average of 5.9% and 6.2% per year respectively, resulting in prices remaining relatively constant in real terms. Since the average economic growth rate over the baseline period is projected to be lower than the past decade, the growth in the demand for dairy products is expected to slow down to an annual average increase of 3.3% per year, compared to 5% over the past decade. Consumption of fresh milk is expected to increase at an annual average of 2.2% per annum over the next decade, compared to 2.5% per annum over the past decade. Wool Since 2002, South Africa experienced a consistent decline in wool production until a slight increase in There was a 5.4% decline in wool production in South Africa in 2010 as compared to There was a slight decline in average auction prices of wool in 2009 at approximately R per ton. In 2010 year, auction prices of wool attained a peak at approximately R per ton. Between 2006 and 2007 years, gross value of wool production increased and a peak was attained in 2010 at a gross value of R1.4 million. The lowest levels of gross value of wool production were attained in 2001 at approximately R An increase of 13.2% in gross value of wool production in South Africa compared to 2009 was recorded. 19 MICRON 21 MICRON ZAR Price Figure 6.4: Price Movement for good quality wool per micron: (CMW, 2012) 17

18 Mohair According to Cape Mohair and Wool, the demand on the third mohair sale of the 2012 winter selling season was substantially better than the previous sale, mainly due to the improvement in quality of the offering. The kid market continued with its upward trend since the beginning of the season, especially on the finer component of kids. The young goat market made a substantial recovery, especially with more fine young goats available, with the adults selling percentage also better. 200 Kid Indicator Young Indicator Adult Indicator Average Price O6 Mar 27-Mar 24-Apr 15-May 29-May 12-Jun 14-Aug 4-Sep 25-Sep Figure 6.5: Cape Mohair market indicator movement for different age group categories (CWM, 2012) 18

19 7 CONCLUSIONS Whilst the global outlook is characterised by heightened uncertainty, weak growth and declining consumer confidence, the sub-saharan economy is projected to increase at 5% in 2012 benefiting from production boosts in a number of African countries. By 2050 the world population will reach 9 billion, with the demand for food including meat and meat products to increase by at least 70%. However, food security remains a challenge, also in Africa, despite recent growth. More research, development and technology transfer is needed to improve the profitability for resource poor farmers to participate in well-defined commercial markets. The ARC has a role in defining and conducting research that address the challenges of specifically resource poor and commercial farmers on the continent, research that impact on job creation and rural development. The prospects for agribusiness are improving globally and locally. An increasing role for biofuels is projected in the long-term, which together with food security concerns will make agricultural R&D a priority. The ARC should play a role in enhancing productivity, growth and competitiveness across a spectrum of value chains. Import volumes continue to raise alongside declining export volumes. Recession in Europe and economic slowdown in Asia would worsen the situation as demands from those regions for other countries exports would be slow. South Africa would be affected as both countries are her major export markets. South Africa has the largest and most efficient agricultural sector in Sub-Saharan Africa by far. The country is expected to contribute to feeding the rest of the continent. This expectation relates to the advanced technology developed by South African Research Institutions and applied across the country. The Agricultural Research Council with its extensive research know-how has a key role to play in the agricultural research development thrust of the continent. Despite a constant increase in South African meat production, quantities produced are still below demand and particularly beef, pork and poultry are imported, indicating a local growth potential for production. With nearly 80% of South Africa s agricultural land almost solely suitable for extensive livestock production, and significant untapped communal reserves, there is extensive scope for improved meat production. A particularly undeveloped area is the 86% of smallholder farmers that have cattle. If the ARC can expand its research and development focus on these farmers to produce quality livestock with better feed efficiency and growth, it would address poverty, rural development, food security and commercial output. South Africa is also a net importer of pork with significant opportunities for new prospective producers to enter this market. The ARC could play a leading role in capacitating these producers. 19