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SOUTH AFRICA Grains Industry Outlook
South Africa is expected to record another bumper harvest in 2023/24 season, but a lackluster economy and poor infrastructure are expected to limit investments in the medium term.
BY PAUL ONGETO
With a landmass covering over 1.22 million square kilometers, South Africa is home to one of the world’s most diverse agricultural sectors, consisting of corporate and private intensive and extensive crop farming systems, including vegetable, fruit, nuts, and grain production. The exceptional quality of the country’s produce can be attributed to the country's climate, which ranges from subtropical to Mediterranean. This climate allows for a multitude of farming opportunities and supports a vibrant commercial farming sector. Compared to the rest of Africa, South Africa has by far the most modern, productive, and diverse agricultural economy. Commercial farms dominate the sector. It is estimated that there are about 32,000 commercial farmers, of which between 5,000 and 7,000 produce approximately 80 percent of agricultural output.
The grain industry is one of the largest agricultural industries in South Africa, contributing more than 30 percent to the total gross value of agricultural production. The industry comprises several key stakeholders including input suppliers, farmers, silo owners, traders, millers, bakers, research organizations, financiers, etc. Corn is the largest locally produced field crop and the most important source of carbohydrates in the country. It is closely followed by wheat, although the country relies on imports to meet local demand. Soybeans and sunflower seeds are other important crops, mainly grown to produce edible oil for human consumption and protein meal for inclusion in animal feed rations.
South Africa To Maintain Status As Net Corn Exporter
South Africa has enjoyed good weather during the past four seasons resulting in record bumper harvests. According to the U.S. Department of Agriculture (USDA), South Africa produced a record 16.951MMT of corn from 3.118 million hectares in MY2020/21. This was followed by another bumper crop in MY2021/22 which USDA estimated at 16.054MMT from 3.002 million hectares. In MY 2022/23, the country is once again expected to produce another record crop with the latest estimates from USDA putting production at 16.2MMT. Analysts now opine that successive bumper crops have created a bearish outlook on local corn prices and will limit growth in the area to be planted with corn in 2023/24 to just 2.9 million hectares. This is expected to result in a slight decline in corn production to 15.8MMT.
In South Africa, White maize is mainly for human consumption and yellow maize is for animal feed. White maize meal or pap is the most commonly consumed staple in the country and the percentage of germ removed during extraction will influence the grading of the end product. Maize meal that has the least germ extracted is labeled “unsifted”, moving up the scale as extraction rates increase, to “sifted”,
“special” and “super” maize meal. South Africans generally prefer the special and super grades, so most of the bigger millers have stopped producing “unsifted” and “sifted” maize meal. Beyond pap, Maize is used to make other products including porridge, extruded maize snacks, Maize chips, breakfast cereal, and Mageu-a fermented, non-alcoholic drink widely consumed in South Africa. As maize is deeply entrenched in the South African diet, it's not surprising that the county has one of the highest annual per capita consumption in Sub-Saharan Africa at 81 kgs.
Yellow corn is used as the primary ingredient for animal feed, especially in the broiler industry. Chicken meat has grown to be the most important protein source in the diet of the majority of South Africans over the past 20 years which has subsequently resulted in an uptick in corn demand for feed. This past year has however been a difficult one for the broiler sector with many poultry producers incurring losses associated with load shedding and avian influenza virus. USDA, as a result, expects corn demand for animal feed to flatten in MY2023/24 and is not expected to rebound anytime soon.
“South Africa’s economic growth outlook over the medium term remains lackluster due to prevailing policy uncertainty, structural constraints, including continuous power outages and growing pressure on consumer spending due to rising inflation and interest rates,’ the USDA said. “The struggling domestic economy will hinder any major upsurges in the demand for corn, especially with the current relatively high commodity price environment.” Overall, USDA expects consumption to reach 12.0MMT in MY2022/23, a marginal rise from the 11.8MMT that was achieved in MY2021/22.
Despite the troubles at home, South African maize is in high demand abroad. USDA forecasts that the country is expected to remain a net exporter of corn with 2.3 million tonnes of exports in 2023-24, a slight decline from the 2.5 MMT forecasted for the 2022-23 season. The top five markets for South Africa’s maize exports are Japan, Taiwan, Vietnam, Botswana, and South Korea. According to USDA, these countries represent more than 80 percent of South Africa's corn exports.
Exports to the Asian countries consist exclusively of yellow corn while corn exports to Botswana and other neighboring countries are mainly white corn. South Africa is expected to export approximately 900 000 tons of white maize in the 2023/24 season. Most exports are across the border; merely 150 000 tons are estimated to be deep-sea.
Wheat Imports To Rise To Meet Demand
Wheat production in South Africa is not as lucrative as maize and is therefore not widely practiced. Wheat however remains a competitive crop in some areas of South Africa, especially in the Western Cape province which produces more than 60 percent of South Africa’s crop. Countrywide, the area under wheat has thus stagnated at around 500,000 hectares per annum for the past 10 years, producing about 1.8MMT annually.
Last year, local producers expanded their wheat area by eight percent due to the Russia-Ukraine conflict that created uncertainty in the global commodity markets and pushed local wheat prices to record-high levels. However, an upsurge in wheat plantings in the 2023/24 season is unlikely. Local wheat prices fell by more than 20 percent from their historically high levels and, coupled with a 12 percent drop in yields realized in the previous season, optimism for an upsurge in wheat plantings is fading. In addition, with South Africa's continuous power outages, an expansion of wheat plantings under irrigation is unlikely. As a result, the USDA post forecasts a six percent drop in wheat area to 530,000 ha in MY 2023/24, which equates to the 5-year average. “Under normal climatic conditions and an assumed 5-year average yield of 3.8 MT/ha, an area of 530,000 ha could realize a wheat crop of about 2.0 MMT in MY 2023/24,” USDA said.
Despite low production, Wheat is the second most important grain commodity consumed in South Africa after corn. The country has an annual per capita wheat consumption of 60kg/person and it is estimated that South Africans consume around 2.4 billion loaves of bread per annum or 40 loaves of bread per person per year. A large part of the market is covered by big players like Pioneer Foods, Tiger Brands, Premier, and RCL Food. These food companies run both industrial bakeries and mills of their own.
In MY 2023/24, USDA forecasts local wheat consumption marginally growing to 3.7 MMT. As local production is insufficient to meet demand, South Africa’s wheat and wheat product imports for the 2023/24 season are expected to rise to 1.9 MMT, according to USDA. So far in MY2022/23, Brazil, Germany, Poland, Russia, and Latvia have been the major suppliers of wheat to South Africa. USDA however does not foresee major increases in the demand for wheat in the medium term as consumers are currently facing a myriad of challenges, including high levels of unemployment, increased inflation (especially for fuel and food), and higher interest rates.
“Wheat demand in South Africa is also relatively price inelastic and should not experience major declines due to raising local wheat prices,” USDA added.
South Africa Set For High Oil Seeds Output
South Africa has experienced an upsurge in oilseed plantings over the past 20 years with a near nine-fold expansion in the soybean area. Soybeans now represent more than 20 percent of the area planted with summer rainfall field crops, while twenty years ago it was a mere four percent. Several factors are contributing to this growth. Soybean generally uses fewer farming inputs than corn which makes it attractive, particularly in the current high input cost environment. Additionally, gross soybean profit per hectare (Gross profit (R/ha) 5876) greatly exceeds that of maize (Gross profit (R/ha) 5120.5), indicating that soybean production will continue to grow.
USDA foreign agricultural service (FAS) Post in Pretoria sees this growth trend in soybean plantings continuing in the marketing year 202324 with area and total oilseed production reaching a historically high level of 1.8 million hectares and nearly 3.6 million tonnes, respectively. Sunflower seed production is also catching up, with the USDA forecasting harvest could reach 810,000 tonnes in MY2023/24 from 600,000 hectares in MY2022/23.
The bulk of soybeans and sunflower seeds produced in South Africa are crushed to produce both edible oils for human consumption and protein meal for inclusion in animal feed rations. The FAS forecasts that South Africa will have a record of 1.7 million tonnes of locally produced oilseed meal available in 2023-24 and 2022-23 after crushing 2.5 million tonnes of oilseeds, in line with higher local oilseed production.
With production reaching unprecedented levels, South Africa is reaching the limit of local oilseed crushing capacity. With investments in new crushing capacity unforeseen in the medium term due to significant economic challenges most notably load shedding, the country is expected to ship 750,000 tonnes of soybeans and 50,000 tonnes of sunflower seeds overseas in the 2023/24 season. “In the past, South Africa’s trade in oilseeds was generally limited, as the bulk of production was destined for local crushing and trade was directed to oils and meals,” the FAS said. “However, with the surge in the local production of oilseeds leading production to exceed crushing capacity, South Africa has become a net exporter of oilseeds.”
Rice Imports Sustain Demand
Rice production is insignificant in South Africa because the crop requires a high amount of water, which is not readily available in a waterscarce country like South Africa. Demand is also not robust except for some South African households, especially amongst the local Indian population where rice is the predominant food source of carbohydrates. To meet local needs, South Africa depends on duty-free rice imports mainly from Thailand and India. More than 90 percent of rice consumed in South Africa is parboiled with the balance made up primarily of the Basmati variety.
As a rice importing country, South Africa is facing an environment of relatively higher global rice prices compared to the previous year. Coupled with high food-price inflation, consumption is not expected to grow significantly in the short term. FAS thus foresees marginal increases in the demand for rice in MY 2022/23 and MY 2023/24 to 950,000 MT and 970,000 MT, respectively.
Lackluster Economic Growth Impacting Investments
The South African agricultural sector showed tremendous growth over the past two decades by almost doubling production. This positive trend translated to record agricultural exports of US$12.4 billion in 2021 and grew the agricultural sector’s contribution to South Africa’s Gross Domestic Product. This growth is now being curtailed by a struggling domestic economy that is unable to either sustain production or consumption.
Load shedding has particularly emerged as a significant threat to South African agriculture. As an advanced agricultural economy reliant upon modern farming practices, the South African sector is not structured to withstand significant power outages. Although not yet quantified, USDA estimates that the impact could be in the billions of dollars. As a result, the profitability and sustainability of the industry are under threat and could limit future investments, which would in turn negatively impact food security, job creation, and economic growth.
This coupled with the deterioration of other infrastructure, including roads, rail, and water is expected to hinder significant investments in the medium term in areas including animal feed manufacturing and oilseed crushing facilities. This is unless new and drastic action is taken immediately to improve the country’s economic fortunes.
