The economy of South Africa is the second largest in Africa. It has a well-developed agribusiness sector, which plays a significant role in job creation and economic development. South Africa is the largest exporter of agricultural products in Africa. The grain industry is one of the largest agricultural industries in the country, contributing more than 30% to the total gross value of agricultural production.
South Africa is an upper middle-income economy, with a population of 57 million people. It is one of the most advanced and diverse economies on the African continent. It has a well-developed business market, and is a gateway to Sub-Saharan African markets. The country is an attractive business destination, due to its growing market and a well-developed infrastructure, catering to efficient distribution of both imported and locally produced agricultural products to major urban centers and the entire Southern African region.
The economy of South Africa is the second largest in Africa, after Nigeria. It is one of most industrialized countries in Africa. Since 1996, and the end of over twelve years of international sanctions stemming from apartheid rule, South Africa’s Gross Domestic Product almost tripled to peak at $400 billion in 2011, but has since declined to roughly $350 billion in 2017. In the same period, foreign exchange reserves increased from $3 billion to nearly $50 billion creating a diversified economy with a growing and sizable middle class within two decades of ending apartheid.
The South African administration aims to accelerate economic progress, build a more inclusive society, eliminate poverty and inequality, and double the GDP by 2030. The government is in the process of addressing the challenges that have led to South Africa’s deterioration in the business environment as scored by the World Bank, including skills shortage and a weak education system, which exacerbates South Africa’s growth and service delivery. There are eleven official languages in South Africa, but English is the principal language used in commerce.
Although property, jewelers and cars represent obvious signs of wealth, there is another, less apparent indicator of the country’s growing affluence: the food consumers are putting on their plates. Over the past two decades, steady economic growth and increased average income per capita, pushed large numbers of consumers towards protein-filled diets and as a result meat consumption levels have skyrocketed.
The commercial agricultural sector in South Africa is highly diversified and is self-sufficient in most primary foods with the exceptions of wheat, rice, chicken meat, and oilseeds. South Africa has a well-developed agribusiness sector, which plays a significant role in job creation and economic development. South Africa is the largest exporter of agricultural products in Africa, primarily citrus, wine, fruits, and corn.
The agricultural sector contributed around 10 percent to South Africa’s total export earnings in 2018 at a value of $11.1 billion. Major exports included fresh oranges, fresh grapes, wine, corn other than seed corn, fresh apples, wool, fresh or dried lemons and limes, fresh pears, mandarins, and food preparations. And it imported $7.7 billion in agricultural and food products in 2018. The major products imported were rice ($437 million), wheat ($395 million), chicken cuts and offal ($389 million), palm oil ($305 million), corn ($208 million) and soybean meal ($173 million).
The grain industry is one of the largest agricultural industries in the country, contributing more than 30% to the total gross value of agricultural production. The industry is comprised of several key stakeholders including input suppliers, farmers, silo owners, traders, millers, bakers, research organizations, financiers, etc.
CORN: THE MOST IMPORTANT FOOD SOURCE
Corn is the largest locally produced field crop, and the most important source of carbohydrates in the SADC region for animal and human consumption. South Africa is the main corn producer in the region, with an average production of around 12 million tons per annum. Local commercial consumption of corn amounts more than 11 million tons, and surplus corn is usually exported.
USDA’s Foreign Agricultural Service (FAS) in Pretoria forecasts that South Africa could export about 1.0 million tons of corn in the 2019/20 season. On the other hand, post estimates South Africa will have to import about 500,000 tons of yellow corn in the 2018/19 season to augment local production due to the impact of drought. The total commercial corn crop for the 2018/19 marketing year is estimated at 10.9 million tons, 13 percent less than the 2017/18 season’s corn crop of 12.5 million tons.
However, South Africa is still in a position to supply 1.0 million tons of corn, mainly white corn, to its neighboring countries (Botswana, Lesotho, Eswatini (Swaziland), Namibia, Mozambique and Zimbabwe) where import demand increased after the drought. In the 2017/18 marketing year (MY), South Africa exported 2.1 million tons of corn consisting of 1.5 million tons of yellow corn and 544,000 tons of white corn.
The consumption of corn in South Africa increased, on average, by about two percent per annum over the past ten years, mainly driven by population and economic growth. USDA projects that this marginal increase in the demand for corn will continue in the 2019/20 MY to 11.2 million tons.
DEPENDENT ON WHEAT IMPORTS
Recent statistics indicate that the production of wheat in South Africa is under severe pressure. Between 1997 and 2016, the land dedicated to wheat plantings has decreased from approximately 1.4 million hectares to 600,000 hectares, while wheat imports, to meet the growing local demand, have increased from 469,000 tons to 1.5 million tons.
Wheat is produced mainly in the winter-rainfall areas of the Western Cape and the eastern parts of the Free State with considerable annual fluctuations in production. Average wheat production has been about 1.8 million tons a year. There is, however, a distinct downward trend in the area planted to wheat over the past few years. Thus, South Africa has become more dependent on imports to meet the local demand.
South Africa is the only country in the region with significant wheat production. However, in the past 20 years, and especially after the deregulation of the market in 1997, there has been a decreasing trend in the area planted with wheat despite increasing local consumption. Declining profit margins saw local wheat farmers scaling down wheat production and switching to other crops like canola, corn, soybeans or increased livestock production. Furthermore, the trend in wheat production has been sporadic over the past 20 years because of unpredictable weather conditions. Without an advance in technology or policy changes, the decreasing trend in hectares planted with wheat in South Africa will continue.
USDA forecasts that the declining trend in hectares planted with wheat will continue in the 2019/20 marketing year, due to the crop’s decreasing profitability. FAS/Pretoria estimates producers will plant about 500,000 hectares of wheat which could, on average yields, realize a wheat crop of about 1.7 million tons.
Annual wheat consumption in South Africa is about 3.3 million tons, or about 55 kg per capita, which means South Africa will have to import at least 1.8 million tons of wheat to meet local demand. South Africa’s wheat consumption is the highest in sub-Saharan Africa and is expected to increase annually with population growth and increased urbanization to South Africa’s major cities.
USDA forecasts South Africa’s imports of wheat and wheat products for the 2019/20 MY at 1.9 million tons, 12 percent more than in the 2018/19 MY, mainly due to an estimated eight percent decrease in local production. For the first five months of the 2018/19 MY, South Africa imported 403,268 tons of wheat with Germany, Russia, and Latvia the major importers.
South Africa aims to have 85% of its wheat requirements grown locally. “We are working towards this, making certain changes to grading regulations and looking at the yield versus quality and the trade off to encourage more South African farmers to grow more wheat,” says Geoff Penny, South African Chamber of Baking Executive Director .
RICE IMPORTS EXPECTED TO INCREASE
South Africa is dependent on rice imports to meet the local demand as rice production is insignificant in the country due to the high water requirements of the crop. As a result, rice imports are duty free. Thailand and India, together, supply more than 90 percent of South Africa’s rice demand, with Thailand’s contribution almost 80 percent.
USDA forecasts a marginal four percent increase in the rice consumption in the 2019/20 MY to 980,000 tons, on the back of higher corn and wheat prices. In the 2019/20 MY, South Africa’s rice imports are expected to increase by two percent to 1.1 million tons. Consumers can substitute rice, wheat and corn products based on price and taste preferences.
However, there is vast differences in the annual per capita consumption of these commodities in the country. For example, each South African consumes an annual average of around 100 kg of corn (mainly white corn), 58kg of wheat and only 16kg of rice. The demand for corn and wheat products is also relatively price inelastic, diminishing major shifts in consumption due to price movements.
FOOD PROCESSING INDUSTRY
There are over 1,800 food production companies in South Africa. However, the top ten companies are responsible for more than 80 percent of the industry’s production revenue. The industry employs 450,000 people in the subsectors of meat, fish, fruit, dairy products, grain mill products, and beverages. As a major producer and exporter of finished processed food products in Africa, South Africa’s appetite for ingredients drives demand for a wide range of products.
The grain milling sector plays a vital role with regard to food security through its influence on the price of the country’s staple foods, maize meal and bread. Wheat flour, mainly used in the baking of bread, is regarded as the second most important food source in South Africa and therefore plays an important role to ensure sustainable food security. This view is supported by the fact that bread, and especially brown bread, is seen as an essential part of the National School Nutrition Programme to feed the nation. Bread is fast becoming a staple food, particularly in informal settlements where people do not have access to electricity and ovens. As a result, wheat consumption has increased relative to maize. South Africa is importing unprocessed wheat, processing it, and then exporting the wheat flour mainly to African countries such as Zimbabwe, Mozambique and the Democratic Republic of Congo.
The milling industry in South Africa is concentrated with four large companies dominating the market. These large millers have a competitive advantage in terms of economies of scale, finance, skills and ability to cope with price volatility, which enable them to import, process and export larger quantities of wheat than smaller millers. According to ‘Manufacture of Flour and Grain Mill Products’ report prepared by Who Owns Whom, an independent research organisation, the leading four players together mill approximately 75% of the maize meal produced in the country and dominate the wheat milling market with 97% market share. About half of the flour used by the bread industry is milled from imported wheat, with wheat sourced mainly from Russia, Ukraine, Argentina, US and Germany.