BFAP Baseline Investment environment and commodity outlook. /baselines/bfap_baseline_ 2017.

Transcription

1 BFAP Baseline 217 Investment environment and commodity outlook /baselines/bfap_baseline_ 217.pdf

2 Policy Certainty is Needed Context Uncertain environment: Drought, recession, risk ratings and other factors Policy concern: Land reform, food security, transformation. Policy certainty: A pre-requisite for successful agricultural sector, rural economy and overall economic performance. 2

3 Household Disposable Income per Capita Fig. 16, Page 21 Context Real Rate of Change % Change Year-on-Year Source: SARB, 217

4 National Debt Context Fig. 2, Page 25 Gross Debtors Book Million Accounts Gross debtors book - Number of accounts *Gross debtors book value Q1 29 to Q4 216: Q4 215 to Q4 216: Rand value: +48,3% 3% Number of accounts: +12,6% -5% Gross debtors book value (R billion) 4

5 GDP and Real Gross Income Context Fig. 1, Page 5 Gross Income Index (2=1) % 8% 6% 4% 2% % -2% Real Ag. GDP Growth -1-4% Real Agricultural GDP Growth (Right Axis) Agric Real Gross Income (Left Axis) 5

6 Agriculture s Performance Context 24% 2% 16% 12% 8% 4% % -4% -8% -12% 6 Apricots Sunflower Cotton Pineapples Sugar cane White maize Groundnuts Wheat Canola Soft Citrus Soybeans Lemons & Limes Naartjies Macedamias Litchis Sheep & Goat Yellow maize Beef Avocadoes Table Grapes Pears Plums Apples Pork Milk Wool Oranges Wine grapes Potatoes Mangoes Peaches Grapefruit Barley Eggs Poultry Rooibos Share of Gross Production Value 8% 6% 4% 2% % -2% -4% Avg Annual Change in Production (Left Axis) Share of Gross Agricultural Production Value: (Right Axis) Avg Annual Change in Production

7 SA Share of World Exports (Value) 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% Wine Citrus Grapes Apples and Pears 8.7% 5.7% 5.6% 2.% %

8 Net Trade of Agri- and Non-Agri Products Context Fig. 3, Page 6 Rand Billion 1 5 Agri Products Other Products

9 World Population Population level Annual population growth Billion 5 4 Million Asia Africa Rest of world Asia Africa Rest of world 9

10 Sub Sahara Africa rapid population growth Transformation in Regional Agri-food System Billions of people Rest of world Sub-Saharan Africa Source: World Bank Development Group, 215 1

11 SSA Total Food Imports from 7 to 4 billion USD (21-215) (intra SSA trade from 1 to 1 billion USD) USD Billions SSA Imports from non-ssa SSA's imports from SSA Source: ITC,

12 List of supplying markets from SSA of food imported by SSA Transformation in Regional Agri-food System 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Rest SSA Swaziland Kenya Senegal Tanzania, United Republic of Côte d'ivoire Namibia Zambia Uganda Ethiopia South Africa 12

13 Where to Focus Transformation in Regional Agri-food System 13

14 South African Fruit and Nut Sectors Horticulture and Wine Export orientated and not likely to change significantly Increased competition globally: Southern hemisphere role-players (Argentina, Chile, Peru) Expansion of pome fruit in former Eastern European countries and Russia Sufficient opportunities remain - quality and consistency paramount Increased competition for scare resources (land, water, capital) Increased focus on water management practices need to improve efficiency and productivity of water 14

15 Competitiveness: Fruits and Nuts Horticulture and Wine RTA index Agriculture Total Deciduous fruit chain Citrus fruit chain Subtropical fruit chain Exotic fruit chain Nut chain 15

16 Pecan Nut Production and Exports Horticulture and Wine Thousand Trees Pecan Nuts: Production and tree volumes +13% p.a Thousand Tons Million USD Nuts Exports: Category Including Pecans China: 55%, Vietnam: 16%, USA: 6% Thousand Tons 216 Production (ton) Q Trees Export volumes Export value Source: SAPPA (216) and Trademap (ITC)

17 Macadamia Production and Exports Horticulture and Wine Thousand Tons South African Macadamia nut production +1% p.a. Million USD Macadamia Exports Kernel: USA (49%), NL (9%) In Shell: China (64%), Vietnam (31%) Thousand Tons Kernel Nuts in Shell Export volumes (tons) Export value ($ 1 units) Source: SAMAC (216) and Trademap (ITC)

18 Berry Exports and Production Horticulture and Wine South African Berry Hectares Berry Exports Hectares Blackberries Raspberries Blueberries Million USD Volume (Tons) Export volumes (tons) Export value ($ 1 units) Source: HORTGRO (216) and Trademap (ITC)

19 Western Cape water situation 65% September 217 PERCENTAGE 8% 7% 6% 5% 4% FSC: MILLION M3 3% 2% 1% 2 1 % Week: End November % level W/Average: Week 1 September 217 Week: Beg September % level Nett Full Supply Capacity (FSC) million m3 19

20 Pome Fruit: Drought Scenario Horticulture and Wine APPLES PEARS Baseline Baseline vs. Scenario Baseline Baseline vs. Scenario % change in % change in 226 Production (Tons) % % Exports (Tons) % % Export Price (R/Ton) % % Domestic Price (R/Ton) % % Alternative scenario of prolonged water shortages Aggregate industry estimated yield impact: 5% - 8% normal water requirement for Outlook Impact of improved water productivity? 2

21 South African Fruit Sector Horticulture and Wine Effect of water shortages in a farming setup unique for every enterprise Collective approach to improve water productivity & management Competition for resources among fruit industries and enterprises Small enterprises in hectares, but ever increasing in value of output and ROI 21

22 Wine Grape Production Horticulture and Wine Million Vines Vines SA vineyards declined by 2% from 215 and 216 and 8.5% since 28. Total bearing vines projected to decrease by avg. 2.4% p.a. > 221 million vines by 226 Reduction slows over second half of outlook 22

23 Vineyard Age Distribution Horticulture and Wine Fig. 111, Page 18 Share (%) Vineyards below 4 years stabilised ± 7 ha Vineyards aged 4-15 years declined since 211 Share of older vineyards (+16 years) has grown from 34% in 211 to almost 5% in < 4 Years 4-1 Years Years 16-2 Years > 2 Years Vineyard aging expected to continue Current profitability Many reaching replacement age

24 Wine Market Balance Horticulture and Wine Fig. 16, Page 14 Volume: Million litres Decline in wine production reduced wine grape production Rebalancing of supply & demand in market Domestic consumption reduces -> weak consumer spending power & higher prices Export volumes decline -> lower production & higher domestic prices Domestic wine consumption Drinking wine production Total wine exports Opportunity to rebase 24

25 Wine Prices Projected to Increase Horticulture and Wine Fig. 19, Page 16 Rand/Litre Real Prices (21) Rand/Litre Nominal Prices Drinking wine - white Drinking wine - red Wine for brandy Distilling Wine + grape juice 25

26 Opportunity to Improve Export Value Horticulture and Wine Fig. 17, Page 15 Rand/litre SA export prices low in global context Increase share packaged wine in total exports Target higher value, growing markets Sources: OIV,

27 Global Wine Consumption is Shifting Horticulture and Wine Fig. 15, Page Share of SA Exports in 216 Volume: Million hectolitre % 2% 15% 1% 5% % Share in SA exports in 216 Traditional markets stagnating maintain Expansion in USA & China target growth Strategic marketing & good positioning for value Sources: OIV, 217; Euromonitor, 217; SAWIS,

28 South African Wine Industry Horticulture and Wine Come a long way towards strategic targets set as part of WISE -> must sustain momentum to become value driven Production volumes expected to decline, supporting prices going forward Will continue to face competition for land and water from other horticultural industries Domestic consumption under pressure due to limited spending power & higher prices -> segmentation & opportunities in wine tourism Export volumes expected to decline -> opportunity to target higher value products & markets 28

29 Grains and Oilseeds in global market Long term trend of real commodity prices USD (21 base) Source: OECD & 1 FAO, Wheat Maize 29 Prices follow the long run declining trend, with an average price decrease of about 1.5% per year in real terms Prices of agricultural commodities are subject to considerable volatility and may show large deviations from their long term trends for an extended period of time Prices eventually returned to their long term trend Source: OECD-FAO,

30 White maize, turnaround in domestic prices R/ton Thousand tons Production Domestic use Net exports Import parity Randfontein SAFEX Export parity Africa 3

31 Summer Crop area Thousand Hectares White maize Yellow maize Sunflower Soybean White maize area projected to decline by more than 3 ha on the back of bumper crop and low prices in current season. Rapid expansion in soybean area continues to reach more than 9 ha by 225. Long-run balance in grain and oilseed markets reflects shift to yellow maize and soybeans. 31

32 Winter crop area Thousand Hectares Wheat summer rainfall Wheat irrigation Wheat winter rainfall Canola Approx. 3 ha winter wheat area is replaced by barley and canola in long run 217 Winter crop area (% change 216): Wheat: -3.3% Barley: +3% Canola: +23.4% from 32

33 Wheat production and demand R/ton Previous decade: Yield growth: 2.3% p.a. Consumption growth: 1.5%p.a Next decade: Yield growth: 1.3% p.a. Consumption growth: 1.5%p.a Thousand tons Production Domestic use Net imports SAFEX 217 crop estimate -1% yoy - good crops in the summer rainfall and irrigated regions offset part of the 25% yoy decline in WC 33

34 Barley production and demand R/ton Thousand tons Production Domestic use Net imports Producer price Caledon 217 crop estimate - 24% yoy - despite increased area Previous decade: Yield growth: 5% p.a. Consumption growth: 1.3%p.a Next decade: Yield growth: 1.3% p.a. Consumption growth: 1.9% p.a 34

35 Canola production and demand R/ton Thousand tons Production Domestic use Milldoor price 4 Import parity 3 1 Export parity crop estimate - 4% yoy - despite a 23% area expansion Previous decade: Yield growth:4.2% p.a. Consumption growth: 16%p.a Next decade: Yield growth: 2% p.a. Consumption growth: 5.8% p.a. 35

36 Key messages Grains, Oilseeds and Potatoes Major recovery in grain and oilseed production following the drought, but cash flow remains under pressure. Drop in maize prices brings major relief to the food inflation on the staple food basket Gradual shift to feed grains and oilseeds Higher and sustainable crop yields critical to remain competitive 36

37 Success in Wool Production Livestock and Dairy Fig. 82, Page 8 Billion Rand Rand / kg Other Germany India Italy Czech Republic China China Import Price South African Price SA share in China imports increased from 2% to 8% in past decade Eastern Cape Production +2.3% p.a. past decade significant share from smaller producers in communal areas , value contribution increased: R15m > R13m it can be done! Source: ITC Trademap 37

38 Net Trade in Beef Products Shift in Markets Thousands tons Livestock and Dairy Fresh or chilled edible offal: bovine Frozen, boneless meat Frozen, bone in cuts -1 Frozen, Carcass & Half Carcass Fresh or chilled, boneless -2 Fresh or Chilled, bone in cuts Fresh / Chilled, Carcass & Half Carcass Predominantly high value cuts destined for Middle East Vet protocols are paramount need to remain free of FMD, more possibilities Source: ITC Trademap 38

39 Poultry Imports Continue to Grow Livestock and Dairy Fig. 74, Page 74 Thousand tons % % % 216 Frozen Bone-in portions: Other (37% tariff) Frozen Bone-in portions: EU Origin (% tariff) Frozen Offal (3% tariff) Frozen Boneless Cuts (12% tariff) Frozen Whole Bird: Other (82% tariff) Frozen Carcass (31% tariff) Mechanically deboned meat (% tariff) Rapid growth in imports of bone-in portions Bulk of import growth originates from EU Short term relief due to HPAI in EU Provisional safeguard has lapsed, ITAC investigation ongoing Importance of food safety & origin to consumer? Source: ITC Trademap 39

40 Thousand tons Feed Grain Prices Provide Relief Livestock and Dairy Price ratio Fig. 75, Page 75 Chicken production Chicken consumption Chicken imports Chicken:maize price ratio (right axis) Profitability to improve on reduced feed costs Some, but still limited growth in production Many uncertainties remain o Safeguard duties on EU imports o Impact of AI outbreak Import growth expected to slow, but still factor 4

41 Summary: Meat Price Outlook Livestock and Dairy R/ton Nominal Rand per ton (real 21) Real (21) Beef average auction price Lamb avg auction price Chicken total realisation (frozen) Pork avg auction price 41

42 Dairy Product Prices Livestock and Dairy Rand per Kg Nominal Rand per Kg Real (21) Cheese consumer price Butter consumer price SMP consumer price WMP consumer price 42

43 Key points: Meat and Dairy Livestock and Dairy Consumer under pressure - domestic demand growth expected to slow, especially in short term Commodity cycle has turned in favour of livestock production provided weather conditions play along Livestock sectors have long value chains with a large footprint commercial and small scale, but prolonged recovery from drought Significant expansion potential particularly informal market Disease control is vital to sustain beef export markets & protect domestic producers (eg. HPAI outbreak 217) Ongoing drought in Western Cape concern particularly to dairy, where more than 25% of production from Western Cape 43

44 In summary SA has caught up with global commodity cycles. Lower food price inflation but margins under pressure Recovery from the drought will take a few years Lower feed prices offer opportunity for intensive livestock operations to recover Water availability & efficient use make or break for highvalue crops Rural economies are growing but financing and investment in infrastructure required Land reform only small pockets of success and a long way ahead 44

45 THANK YOU The BFAP Baseline 217 publication is available electronically on the BFAP website. (12)