Current estimates are the industry will export more than 140 million tonnes of citrus in the 2020 season, compared to 127 million tonnes in 2019.
However, red meat, poultry, milk and potato producers are sitting on stockpiles and struggling to shift their stock in the domestic market because of a dramatic drop in demand. The decline has been caused by the shutdown of sit-down restaurants to observe COVID-19 health and safety protocols.
This segment of the agricultural value chain is filled withdread at the thought of cheap imports from Brazil, Europe and the US flooding into the country and wiping out South African producers’ profits because of price pressures.
South Africa’s agricultural sector is vast and varied, the country is renowned for its grapes and locally produced wines. It is also synonymous with, among others, maize (corn), soya, nuts, deciduous fruit, citrus, wool, red meat and poultry production.
This in-built diversification shows up in the pronounced differences in how the different industries within agriculture are faring. It also emerges in the unique sets of challenges facing some farmers.
“Agriculture was fortunate it was declared an essential service. Commercial farmers and small-scale farmers continue to farm. Small-scale farmers got extra assistance from the department [of agriculture] – R1.5bn was given,” Christo van der Rheede, the deputy executive director of Agri SA, tells The Africa Report.
Agri SA is an agricultural federation established in 1904 and whose membership is drawn from a broad cross-section of the sector.
There have been big yields, especially in the maize industry, in which producers have picked about 15 million tonnes for this season. “We had good rain last year,” says Van der Rheede.
The soya yield is expected to be between 2.5 million to 3 million tonnes. Table grape, macadamia nuts and deciduous fruit had a good season. Thus far, the export season for avocados, macadamia nuts, pecan nuts, wool skin and wine is mostly performing to expectations.
A total of 80% of South Africa’s pecan nut yield is exported to China, while 70% of the ground nut yield is sent to Japan.
“On the supply side, we are well stocked,” explains Van der Rheede, adding, “we are also experiencing a good citrus season. Most of our citrus is currently being exported to international markets.”
Drivers of citrus success
Justin Chadwick, the CEO of the Citrus Growers Association, credits an early start to the season for the industry’s good fortunes.
“Our fruit was mature earlier than in previous years, so we start[ed] packing and shipping earlier,” Chadwick tells The Africa Report.
South African citrus arrived in overseas markets which were fairly empty and the Northern Hemisphere exited the market earlier than in previous years. This further worked in favour of South African growers.
The proof is reflected by the numbers. Up to last week, the industry packed about 50 million tonnes of citrus and shipped about 45 million tonnes. For the previous comparable period in 2019, the industry exported 35 million tonnes.
“In markets around the world, there seems to be a big demand for citrus fruits. We imagine that is due to the fact citrus is considered a good source of vitamin C, a remedy for colds and flu and an immune booster. Also, citrus is a product you can store longer,” Chadwick said.
There have been increases in volumes to the Chinese market and other parts of East Asia, which accounts for 20% of the exports.
In 2004, when the industry first got official access to the Chinese market, citrus exports started at 10,000 tonnes a year. The exports to China have since grown to 140,000 tonnes.
Japan accounts for a large proportion of the grapefruit export. However, the industry’s efforts for greater market access to Japan have been thwarted by tariffs and other barriers. Malaysia and Bangladesh round off the Asian market exports where demand for citrus has surged.
“Up to about 20% of our product [goes] into Asia. If one goes [back] 10 years, we were probably at 6%,” says Chadwick.
The European Union (EU), which remains South African citrus growers’ biggest market, has flatlined and is taking the same volume year-in, year-out. Asia has filled the gap.
India, the Philippines and Vietnam are next on the horizon.
India’s large population and the fact the country favours a vegetarian diet, which requires consuming large quantities of fresh produce, make it an attractive prospect.
In February, South African growers were scheduled to gain access to the Philippines. “The work plan is being finalised, we might still get some produce into the Philippines this year. We are also working on Vietnam,” enthuses Chadwick.
Chadwick’s enthusiasm wanes somewhat when he details some of the downsides of the realities on the ground. He is mindful that all the activity in the industry is unfolding against the backdrop of a global pandemic.
People are becoming ill. That, in turn, has a bearing on the fruit coming through to the supply chain efficiently.
“We have managed at farm level so far. Now and again, the odd pack house has closed down, disinfected and started again,” says Chadwick.
COVID-19 has been most disruptive at the ports, specifically Cape Town in the Western Cape. The province is considered the epicentre of South Africa’s positive coronavirus cases.
The port of Cape Town has had to close and disinfect because of positive COVID-19 cases. It is operating at 50% capacity.
For the industry, that means delays.
Some volumes are being redirected by truck from the port of Cape Town to Port Elizabeth, Ngqura and Durban, which are operating at 100%.
Transnet is working with industry to remedy the situation.
The delays in Cape Town will affect the citrus’ shelf life and arrival times in overseas markets.
Ever the optimist, Chadwick does point out that despite the challenges: “COVID-19 has opened communication. We’ve been talking with the chief executive of Transnet Group and directors. We’ve also engaged with the minister of public enterprises.”
Limpopo, which borders Zimbabwe; the Eastern Cape, which neighbours Lesotho; Mpumalanga, next door to Mozambique and Eswatini; and the Western Cape, are the main four citrus-growing provinces in South Africa.
Dumping warning shot
At the other end of the sector, there is a concerted campaign to stem the influx of cheap imports or dumping. It is an eventuality that cannot be permitted because of the enormous pressure this will place on South African growers and producers, insists Van der Rheede.
“It is going to distort the market. That might lead to an outright price fall which can result in many farmers going bankrupt. That’s our appeal to the government – just protect our own industry,” implores Van der Rheede.
“We’ve seen how the dumping of poultry products from the EU markets into South Africa has played absolute havoc,” Van der Rheede sounds a warning.
The debt factor
The sector does not need the added complication of excess product via dumping. Some South African commercial farmers already have their backs against the wall.
That has filtered through to the Land Bank, which lends to commercial farmers. The entity was recently downgraded because of its failure to repay interest on debt – a reflection on its own compromised loan book with commercial farmers.
Van der Rheede describes the situation as dire for all involved because of the interlinked nature of this agricultural lending ecosystem, whose balance has now been disturbed.
The Land Bank holds 29% of the country’s agricultural debt. South Africa’s large banks have significant exposure to the sector. In addition, farmers’ co-opts, which are referred to as kooperasies in Afrikaans, also lend within the sector.
In his recent adjustment budget speech, finance minister Tito Mboweni allocated R3bn to recapitalise the Land Bank. The National Treasury is helping the entity to restructure.
Van der Rheede welcomes this, but points outrelief remains elusive for commercial farmers.
That said, farmers are thankful for the banks’ three-month payment holidays for vehicles and other tangible assets. Most important, interest rates are at an historic low.
“Some big farmers borrow in the region of R50m-R60m; others up to R100m to buy seed and diesel to plant their seed. Those are big sums,” says Van der Rheede.
An interest rate cut of 3%-4% on a massive loan can easily mean a farmer paying R20,000-R30,000 less a month.
The government has pieced together a R500bn relief package from which funding will be availed for institutions to lend to small businesses. “I presume that would include commercial farmers,” hopes Van der Rheede.
In a further sign of the strained and strange times, criminal syndicates are threatening the security of diesel supply by siphoning the fuel off Transnet’s 3.800km pipeline that runs from Durban, KwaZulu-Natal, to Johannesburg, Gauteng.
The pipeline crosses some farmland in the two provinces.
“We have encouraged farmers to keep an eye because it is clear well-organised syndicates discovered they can tap the pipeline illegally,” according to Van der Rheede.
Workers are important stakeholders in the agricultural value chain.
The Food and Allied Workers Union (Fawu) and other unions operating in this space are keeping a pulse on events, with a view to protect workers’ interests.
For Fawu secretary in Gauteng Vuka Chonco, workers’ safety is paramount. So, too, is protecting their livelihoods.
On safety, Fawu has implored the government tohire more inspectors to ensure compliance. “A few weeks ago, we had a meeting with farmers and the government. Farmers confirmed having measures designed to curb the spread of COVID-19.”
The union has detected a trend of employers wanting to alter conditions of service retrospectively in response to the pressures caused by COVID-19. This is most pronounced among tobacco producers, who have mounted several unsuccessful legal challenges seeking to reverse the government’s ban on the sale of their products.
Chonco can already see the problem will shift to workers. “The bosses want to say on the basis that there’s an existing ban it means … job losses.”
In the first quarter of 2020, agriculture was the second-biggest contributor to South Africa’s unemployment rate rising to 30.1%.
“We will only know in the third quarter how the sector performed in the second quarter – the months of the lockdown,” concludes Van der Rheede.
July 3, 2020