HomeAgri NewsAbsa Agribusiness carefully optimistic about sector’s economic prospects

Absa Agribusiness carefully optimistic about sector’s economic prospects

Estimated reading time: 5 minutes

Absa Agribusiness’ latest market report indicates that there is slight reason for optimism regarding agricultural export produce, such as citrus, meat and macadamias. Marlene Louw, senior economist at Absa Agribusiness, said this during a media appreciation breakfast in Pretoria.

“During the Covid 19 pandemic, Chinese consumers saved aggressively and added an additional US$2,5 trillion (R45,29 trillion) to their savings,” Louw said. “The question now is: When they start spending these savings, what will they be spending it on?”

Prospects for the citrus industry

The bank’s economic research indicated once Chinese citizens started spending the money, it would either directly or indirectly benefit all subsectors of South Africa’s agricultural sector. “We do believe that this could be especially advantageous to the lemon industry, which has not been able to truly capitalise on relaxed trade protocols put in place just before Covid 19 hit. This could now drive up sales,” Louw said, adding that their data indicated that grapefruit producers would probably also benefit from higher order volumes in China. “Off course we should note that this will probably be a case-by-case issue as not all farmers will benefit equally.”  

Overall, there are a few things counting in the citrus industry’s favour this year from a global perspective. One of them is the fact that there is more juicing capacity and a higher demand for lemons and orange juice. Another is the fact that Spain’s production dropped significantly due to dry conditions in that country.

Meat exports

Meat exports to China could possibly also benefit from the fact that China’s tourism industry could pick up again. “However, we will only be able to benefit from this positive development if South Africa’s disease house is in order,” Louw warned.

China’s improved spending will also have an indirect positive impact on other agricultural produce that is not directly traded with that country, due to the global economic impact that the Asian country has. One example of an industry that should benefit is the grain industry.

“In recent weeks maize prices started to decline due to large harvest expectations from Brazil, as well as favourable climate conditions in the United States of America,” Louw says. “Despite this, prices have not dropped as substantially as one would expect and this is due to large purchase orders from China.”

Concerns over other export markets

The bank remains concerned over Europe as a trading region for fruit, given that region’s focus on becoming climate neutral by the year 2050. “Currently we are concerned over the false coddling moth issue, as well as potential citrus blackspot that might be picked up this season.” Louw said black spot could be an issue if producers don’t spray their citrus crops adequately to soften the impact of rapidly rising agrochemical and fertiliser costs.

The terms of the United States’ African Growth and Opportunity Act (AGOA) needs to be renegotiated next year and Louw’s team is concerned that South Africa’s close relationship with Russia could have a negative impact on this trade agreement.

Albie Rautenbach, head of Absa Agribusiness, said overall it was clear that traditional markets were slowly turning on South Africa. Hence, it was important to develop trade relations with alternative markets such as China and India.

“There is also not a lot of scope to increase exports to our traditional markets and therefore we need to look at alternatives.”

Read more about the South African export landscape.

Reduced shipping costs

Another positive development on the global front is the fact that shipping costs have started declining. “This is especially good news for the citrus and avocado industries, as they’ve just started exporting,” Louw said, adding that shipping costs was the one factor that had the biggest influence on producers’ profit margins in 2022.

However, it remains unclear how the decrease in shipping costs will impact the rate structures of the two big shipping companies servicing South Africa.

“We are also not certain how the picture at South Africa’s ports will unfold and what the impact of this will be on production and logistical costs,” Louw added.

Local issues

Locally, loadshedding was the single biggest factor to impact the agricultural sector. “Over the past decade, Eskom’s annual tariff increases was 12,72% and therefore further increases of between 12% and 15% in the future is plausible,” Louw said. This is one of the reasons why investing in renewable energy is important. Another is the fact that (Eskom’s) electricity availability has declined drastically in recent years.

The bank’s team projects that all meat prices will remain under pressure, even though broiler prices might become firmer. “We will need to find a new equilibrium between the various types of meat (chicken, pork, beef and mutton).”

Livestock prices have decreased significantly (10%) since 2022 and would probably decrease further during the year, Louw said, indicating that last year’s high prices were still an effect of lockdown. “During Covid 19 prices were inflated, because consumers saved money on petrol as they didn’t have to drive to the office. This allowed them to spend more money on relative luxuries such as meat.”

Grain prices are however also declining, and the bank expects yellow maize prices to remain relatively constant at R4 000/ton.  

According to the latest Crop Estimates Report issued recently, almost 16 million tons of maize could be harvested this year. “This has already had an impact on South Africa’s maize price and pushed maize prices to below export parity.”

Another setback for local maize producers is the fact that South Africa’s neighbouring countries also delivered good yields,” Louw told AgriOrbit, adding that deep-sea exports would be the only option and therefore all maize would have to be exported through Durban’s port, which is only able to export 35 000 tons per month. – Susan Marais, AgriOrbit

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