South African agriculture sector shows resilience amid challenges

Estimated reading time: 5 minutes

Despite encountering significant challenges, the South African agricultural sector remained steadfast. Thus, the Absa Agribusiness team is hopeful for a successful season.

“Agriculture is tough and that is why we are still open to doing more business with the sector, despite numerous challenges,” Abrie Rautenbach, head of Absa Agribusiness told reporters during the autumn launch of the bank’s AgriTrends in Pretoria last week.

Dr Marlene Louw, Absa Agribusiness’ head economist, said despite a challenging environment, there were green shoots of hope that the local agricultural sector should embrace.

The rise of slowbalisation and protectionism

Dr Louw said the era between 1986 and 2006 was the golden age of globalism and this era underpinned the importance of trade to stimulate economic growth. During this period, free trade agreements were signed, and South Africa’s agricultural exporters thrived. One such example is the impact the free trade agreement between the European Union and South Africa had on the local citrus industry.

However, between 2010 and 2020, a phenomenon known as “slowbalisation” emerged. By 2018 economists observed an actual reversal in globalisation. “There are many reasons why globalisation has lost momentum – especially since 2018 – but the three main reasons we could pinpoint was a rise in protectionist policies, the impact of the Covid-19 pandemic and an increase in geopolitical tensions,” Dr Louw said.

Listen to Dr Louw’s interview on RSG Landbou here.

Agricultural trade green shoots

“Despite a bleaker global trade environment, certain green shoots were appearing amongst South African agricultural subsectors,” noted Dr Louw. She specifically highlighted avocado, onion and meat/livestock exports.

Avocado exports to Japan have commenced and seeing that avocado consumption could still grow exponentially, this market held great potential according to Dr Louw. Although avocado exports into China were also a great opportunity, there were still phytosanitary obstacles that needed to be resolved before this could become a reality. Therefore, Absa Agribusiness was currently the most excited about exports to Japan.

With regards to onions, Dr Louw said there was room for greater exports to both neighbouring countries and internationally. This comment was made even though countries, such as Namibia and Botswana, blocked impose import restrictions during specific times of the year. “We have also seen a substantial increase in deep-sea onion exports to the European Union. Although long-term feasibility remains uncertain, these premium onions are worth exploring.”

“Currently the volumes are still very low, but livestock exports to the Saudi Arabian market have a lot of potential,” she said, basing this statement on the fact that Saudi Arabia’s red meat import market is valued at $1,9 billion. “During the third quarter, we only exported a small quantity, but the meat was exported at $3,45/kg (around R70/kg), which means that the local industry did receive a small premium compared to local prices.”

However, on the meat value chain input side, the current heat and dry weather is a developing issue that presents some upside risk. Maize prices have increased by 15% since the start of February, which could add upside pressure to prices over the coming months.

Table 1: Average producer carcass and weaner calf prices (2020 to 2023) and price forecasts (2024 to 2026) (Source: Absa Agribusiness)

YearClass A (R/kg)Class C (R/kg)Weaner Calf (R/kg)
202046,4140,3033,00
202152,4845,4138,77
202259,6048,2037,90
202353,8047,6034,32
202457,3049,5036,10
202559,6052,1037,50
202661,1054,0038,67

National elections looms

Dr Louw said in 2024 an astounding 64 countries were having national elections and the outcome of these elections in key markets could further impact global trade. The presidential election in the United States (US) was probably the single election that could have the biggest impact.

If Donald Trump were to win the US election, this could potentially have a major impact, Dr Louw said. “During his previous term, Trump established himself as a protectionist, and his current campaign alludes to the fact that he is still maintaining this view.”

During his last stint in the White House, Trump implemented tariffs against several countries, including China and he also withdrew the US from several free trade agreements. In 2018 this had a big impact on the soya bean trade. Before Trump’s election in 2018, the US was one of the largest exporters of soya beans to China. However, in retaliation to Trump’s tariffs on Chinese products, China implemented counter-tariffs on the US, which led to a decline in soya bean imports from the Western country, leading to export opportunities for other soya bean-producing countries. Since then, the US has struggled to regain its Chinese market share.

During this time South Africa saw a significant increase in its soya bean price. Geopolitical tensions, such as attacks on vessels in the Red Sea, are also having a significant impact on global trade, Dr Louw added. These Red Sea attacks have led to a significant decline in trade through the Suez Canal. “These disruptions present both risks and opportunities.”

The risks included higher shipping costs depending on the trade route. “On average shipping costs have increased by 200% since the beginning of the year.” This could lead to a resurgence in inflation and the escalation of Middle Eastern tensions could potentially impact more than mere maritime infrastructure, Dr Louw warned. However, there were opportunities hidden in these tensions. “Shortages in key export markets could be something producers should capitalise on. For example: The world’s largest producer of oranges, Spain, had to import oranges from Egypt last year to fill their demand.”

Overcoming loadshedding

Dr Louw said in recent years there was a linear correlation between loadshedding and headline inflation, but over the past year Absa could observe that this trend was changing. “We think that we will specifically see the full impact of this over the second half of the year.”

Read more about Saai’s new loadshedding fighting agreement here.

The reason for the shifting trend was the fact that more businesses and private households had moved towards renewables and alternative power sources. “We saw a 300% increase in solar installations over the past year.”

However, Dr Louw warned consumers not to celebrate just yet, because the full impact of El Nino on climate and food prices was yet to be seen. Producers were also warned that meat prices were projected to remain under pressure in the coming years (Table 1). – Susan Marais, Plaas Media

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