28 September 2023
By: Jasper Raats
South African farmers relying on export markets need to tighten their belts for the short to medium term.
At the beginning of 2023, most economists expected the global economy to pick up after China lifted its Covid-19 restrictions, but things didn’t work out that way, Wandile Sihlobo, chief economist of the agricultural chamber Agbiz, told the recent international macadamia symposium in KwaZulu-Natal.
The medium-term outlook for global economic growth is around 2,5%, he said. “We are close to the danger zone, and it could deteriorate into a global recession. Furthermore, there is not much hope that the situation will improve over the next five years.”
China’s economic issues lie at the heart of the world’s economic problems. “Until we see a revival in the Chinese market, we won’t see much growth in the global economy.”
On home turf, Sihlobo said annual growth was unlikely to top 2% in the next three to four years. That means the local market will not be able to create the extra demand to bail out exporters.
The fact that many economies are becoming increasingly domestically focused is also a cause for concern, especially for producers of high-value export products such as macadamia nuts.
“I don’t think this will change soon. It started with the Covid-19 pandemic and was fuelled by the war in Ukraine. Even South Africa is becoming more domestically focused, especially with manufacturing.”
Another major factor affecting local farmers is climate change. “In South Africa, we’ve had four seasons of above-average rainfall thanks to a La Niña phenomenon, but now we are entering an El Niño phase, which usually means less rainfall,” said Sihlobo.
“In the short term, it’s not a crisis because we have a lot of groundwater, but if it’s a long El Niño it will cause big problems for us, especially given our energy issues.”
The state
Farmers are grappling with poor roads, inadequate harbour infrastructure and load-shedding that makes it even more difficult for them to compete with their international counterparts.
These factors also deter foreign investors.
Sihlobo said that for the past four quarters the Agbiz Agricultural Investor Confidence Index has detected pessimism in the agricultural community. It was only in the latest figures, released earlier this month, that a slight increase in optimism was observed.
However, investors and banks will remain cautious about the agricultural sector. “It will only change when the South African government and parliament gain control over roads and infrastructure, municipal service delivery and animal health. Until then, the industry will continue to be under pressure.”
<Caption> Wandile Sihlobo. Photo: Jasper Raats
Brics
In the next two years, growth in some agricultural industries is likely to show a slight decrease, but in the long term there is still much to be excited about in the nut and fruit sector, said Sihlobo
Farmers are addressing their power problems independently, and even the government has now joined the fight by making R1,2 billion in credit available through the Agricultural Energy Fund.
“It’s not enough to save the entire industry but it will help,” Sihlobo said, especially when considering the impact of load-shedding on irrigation farmers.
He said the government urgently needs to find ways to revive the Land Bank so farmers can access essential agricultural credit on favourable terms.
Sihlobo is also optimistic about the potential decisions at the recent Brics summit could hold for South African agriculture. While China has made no secret of its desire to learn South Africa’s production capabilities and Russia has indicated its interest in export markets for its grain and energy, South Africa has requested freer trade and more access to its Brics partners.
The agricultural market of Brics countries, excluding the new members, is worth about R320 billion, Sihlobo said. China and India are the largest markets for South Africa but exports to Brics countries amount to only R12,8 billion.
So, South Africa exports only 8% of its agricultural products to Brics partners, nearly as much as to the UK, which represents 7% of South Africa’s agricultural exports.
Sihlobo said that when considering Brics and now Brics+ with its new member countries’ potential, there is much to be excited about in the agricultural sector. The purchasing power of new countries such as Saudi Arabia and the United Arab Emirates is something to be excited about.
