Friday, February 3, 2023

South Africa’s agriculture export drive is not a straight path

Estimated reading time: 5 minutes

There is consensus among agricultural role-players that sustainable growth in South Africa’s (SA) agricultural sector cannot be achieved through the expansion of production alone. An expansion of export markets should be a key support pillar for growth. This has been well understood for many years. 

For nearly three decades, SA excelled at opening various export markets, supporting the growth that the sector has witnessed since 1994. SA successfully negotiated several free trade agreements (FTAs) with critical regional and international markets over the past few decades. 

These include the following 

As we have noted in these pages before, all the agreements highlighted above were concluded over the past 16 years, which is quite a considerable feat given the technical and institutional demands that must be committed to negotiating and successfully implementing trade agreements. We should note, however, that the actual free trade agreements are in only two of SA’s biggest markets – Africa and Europe – which collectively account for two-thirds of the country’s total agricultural exports in value terms. 

The SACU-MERCOSUR Preferential Trade Agreement is a narrowly focussed and low-ambition trade arrangement and has not had a significant impact. That said, it could be argued that the opening of markets through these agreements has indeed deepened, consolidated and improved SA’s position in the EU and Africa. 

Recently, we have seen a rise in the use of non-tariff barriers in these critical markets, such as the regulation of citrus exports in the EU and the ban of vegetable imports from SA in Botswana and Namibia. This means the local authorities and industry will need to collectively work towards strengthening our relations in these markets and restoring the export position that the country has enjoyed for some time. 

Diversifying export markets

Simultaneously, SA would be best served by diversifying its export markets beyond Africa and Europe. The Middle East, the Far East (Asia), and North and South America currently account for roughly a third of SA’s agricultural exports. This is perhaps where most of the attention and pursuit of free trade agreements would be more beneficial. 

Some of the country’s fiercest competition among various products is from Chile, Peru, Australia, Argentina, New Zealand and Uruguay. These countries have struck trade agreements with most markets in Asia, the Middle East and the Americas. Meanwhile, SA has not and faces higher tariffs against the key competition, and local producers have to overcome these tariffs primarily through farm-level technical efficiency. 

Still, SA does not have to follow the same path as the aforementioned countries and open various FTAs. SA is an industrialising economy with a unique set of challenges and various domestic industries requiring some protection. It could target low-ambition trade agreements with specific countries, primarily preferential trade agreements, which focus on liberalising a specific set of commodities and agro-processed products. 

Read more about the South African orange export market.

There is very little chance of SA embarking on deep and extensive tariff cuts on goods and services, especially given that the costs of opening up markets cannot be determined with certainty. In this quest to expand the country’s agricultural exports, even within a narrow path, the priority countries should be China, South Korea, Japan, the United States, Vietnam, Taiwan, India, Saudi Arabia, Mexico, the Philippines and Bangladesh. 

These countries have a sizable population and large imports of agricultural products, specifically fruit, wine, beef and grains. They are already on the radar of local authorities. At the same time, SA should not neglect the continuous constructive engagements with Europe and the African continent as we search for new markets. Aside from the broad trade policy themes, efficiency in the logistics industry remains a crucial area. The sector engages with Transnet, Infrastructure South Africa and various government departments responsible for roads for this particular goal. There also needs to be increased security within the logistics as we see increased reported cases of criminality against SA’s infrastructure. 

Positive agricultural trade despite challenges

Despite all these challenges, the interventions initiated by Transnet, industry and government have again yielded positive results on agricultural exports thus far. In the data we have for the first eight months of this year, SA’s agricultural exports amounted to US$8,9 billion, up by 6% from the first eight months of 2021. The generally higher commodity prices have also contributed to this increase in export values. 

In these months, the African continent and Europe remained vital markets, underscoring the points argued above. Citrus, maize, nuts, wine, sugar, apples, pears and grapes were among the key exports, especially in the latter months under consideration. SA’s agricultural trade approach is not one-sided. The country also imports a range of products. The imports for the first eight months of 2021 amounted to US$5,1 billion, up 13% from the same period in 2021. Palm oil, rice, wheat and spirits were among the essential imported products, specifically in the later months of this measured period. The key suppliers included the likes of Indonesia, Thailand, Romania, China, Argentina, Poland and Germany. 

Overall, SA’s agricultural growth path needs a focussed trade policy strategy, but this should not be at the expense of existing agreements that have sustained the sector over the years. The industry and government should collaborate on strengthening the current markets through continuous engagements at the political and business level, while simultaneously exploring new and promising markets. 

Ongoing conversations and collaboration between industry and logistics entities like Transnet are also crucial for the success of the export strategy. Logistics efficiency improvement is an integral part of the agriculture growth agenda that will ultimately deliver jobs and economic activity in rural SA. – Wandile Sihlobo, Agbiz