[TOP STORY] SA agriculture has improved, but still faces challenges

SIMON BROWN: I’m chatting now with Wandile Sihlobo, chief economist at the Agricultural Business Chamber of South Africa. Wandile, I always appreciate the early morning insights from you. [We are talking about] Ukraine initially.

We spoke just after the war started and one of the challenges, of course, was getting the grain out of Ukraine, simply because of the logistics of doing it during a war.

Read/listen: How the Russia-Ukraine battle will affect agriculture imports and exports

That has started to happen. There were some initial stumbles and the like, but is it fair to say that we are now getting grain out, albeit perhaps at reduced levels from what we were doing a year ago?

WANDILE SIHLOBO: Yes. That’s correct, Simon, and good morning to you and the listeners. We are getting grain out of Ukraine at this point and the anticipation on our side was that when the movement of cargos begins to come out of Ukraine, we could see prices coming under pressure as a result of that increase in supply. But over the past few days it’s increasingly becoming clear that that grain is quite expensive for all the security reasons. Some of the people are even worried about the quality of that grain coming out of Ukraine, to the extent that Lebanon and the others have had to turn down some of the shipments that they had initially ordered. So that is beginning to be one of the concerning things.

Of course you are a hundred percent correct that about three or four, about three months and now [for] a consecutive three months, you’ve seen global commodity prices coming down, and we had thought this would be an additional factor to really [apply] downward pressure. But it brings some doubts.

SIMON BROWN: I take your point on that. I hadn’t thought. Of course this is not a cheap way of moving grain around the world. In one sense, if the quality’s right at least we are getting grain to people; we can eat. You mentioned prices generally. I’m looking at white maize for September – and I’m never sure which of these contracts to look at because there are so many – in early June, late May, it was R4 900. It’s now down to R4 200. We are seeing it trend lower, but still we are at elevated prices. R4 200 is a big number.

WANDILE SIHLOBO: Absolutely. We are still at elevated prices. You would even make the point that we’re roughly 15% up on a year-on-year basis on those prices, particularly if you focus on a spot price on that. But these prices, you can look at [them] in two different ways if you’re sitting in South Africa. You say they’ve come off from where we were a few months ago. If they are still higher than last year and you start to look forward [and] say, ‘What do these mean?’ at least from a producer perspective this means these are attractive prices as farmers are supposed to start the new season, 2022/23, in about two months’ time from now, [at] the beginning of October in eastern regions of South Africa.

So those prices – we would like them, at least in the near term, to remain that attractive. Combined with the weather they will be sufficient incentive for farmers to increase planting.

For the consumer we also want to make the point that yes, [they are] still elevated from last year, but things are progressively becoming better than [we saw] maybe at the start of the year.

SIMON BROWN: Yes, still high, but I take your point – better than we have seen. What about for the farmers? Diesel peaked last month. It has come down a bit now. I’m not sure what’s happening with fertiliser prices. I know certainly they were highly elevated. They are obviously getting squeezed a bit if the commodity price is coming down, but are they really struggling or are they doing alright?

WANDILE SIHLOBO: From a farmer’s perspective I would say the picture is quite diverse, in the sense that if you are in the grains and the oil seeds you are doing relatively alright broadly, because these prices that are at the levels we’ve just discussed – plus-R4 000/ton maize, for example – give you some returns if you have the yield, and we do know that some regions have the yield.

We are expecting, for example, a maize harvest of about 14.7 million tons, well above the long-term average of around about 12 million tons, and sufficient to feed us and also have exports of 3 million tons. So that gives a bit of a return if you are in the grains and oil seeds, and the same is true for all soybeans and sunflower [seeds].

But if you are in fruits and you are in vegetables, the picture then gets to be slightly difficult. Prices have not really soared in the same way that we’ve seen in grains, in fruits and certain vegetables. And there are also some trade issues.

We as South Africa, for example, are export-oriented, and now within the EU we’ve seen some challenges for our citrus and a couple of fruits. All of those things begin to [exert] pressure. So fruits and vegetables are not perhaps getting as good returns at this moment as we see in grains and oil seeds.

SIMON BROWN: Got you. When we spoke back in February, the war broke out in Ukraine. One of them was citrus – about 7% of exports were going to Russia. I spoke with Bruce Strong from Mpact yesterday, which obviously provides the packaging for the fruit exporters. He said they’d been having challenges, as you say, just finding those markets with Russia off the radar.

WANDILE SIHLOBO: Absolutely. That has been a challenge – and finding ourselves in the EU having some changes in their phytosanitary standards and regulations on getting the products there. All of those have caused a bit of a default, a delay, and in fact I think you might have seen some headlines a few days ago where they were talking about some stranded ships there in the ports of various countries in the EU which are coming from South Africa [which] are supposed to be offloading some citrus. So that has caused a bit of a challenge.

But Simon, the other industry that is really hammered at this point is the livestock industry.

We are for the first time in South Africa seeing ourselves where we have the largest spread of the foot and mouth disease. That has meant the same thing – that we are actually out of the export markets, but also that some of the largest feedlots cannot really slaughter that much. So all of that is putting pressure on them because they’re feeding cattle they cannot really fully take to market.

The same is true for the wool industry. In China it has been temporarily blocked because of the worries around foot-and-mouth disease. And China is an important market: about 70% of our wool exports go to China.

So we have those challenges that are weighing [on] this industry, but broadly I still think that the picture is relatively better, especially if we [are] able to resolve these challenges outlined over the next couple of weeks.

SIMON BROWN: I take your point. Better, but still some challenges there. I’d forgotten about the foot and mouth [disease]. We need to follow up on that. We’ll leave it there.

Wandile Sihlobo, chief economist at the Agricultural Business Chamber of South Africa, I appreciate the early morning.