South Africa Agribusiness Industry Update Quarter 4 2011

  • August 2014
  • -
  • Business Monitor International
  • -
  • 98 pages

BMI View: We have revised almost all of our production projections for South Africa's agribusiness segment, with our new projections reflecting the most recent government and market data available. We have also introduced new consumption projections for rice, sorghum, poultry, pork and beef. In 2010/11, negative production growth is expected for corn, sorghum, barley and sugar. Although our long-term projections project positive growth for these four crops, we do not expect growth to be dramatic. Slightly weaker growth is projection for the production and consumption of poultry and beef in 2010/11. Despite this, we continue to envisage strong production growth in the livestock segments, driven by a growing demand growth for meat and poultry. Over our five-year projection period, we expect consumption growth in most agricultural sectors to be driven by rising living standards and by a fall in unemployment. Demand will be notably strong in the case of rice, poultry, pork and beef.

Key Projections

* Official figures point to a 17% rise in wheat production in 2010/11. This follows a 27% fall in production in 2009/10. Positive growth of 35% is predicted through to 2014/15, although this reflects a low starting point.

* A revised supply projection for corn envisages production falling by 15% in 2010/11. This reflects the decision by farmers to alternative crops in the wake of a series of bumper harvests, together with an oversupply of the grain and falling prices. In the five years to 2014/15 corn production is predicted to grow by just 1.5%, while consumption will grow by 16%.

* Our production projections for sorghum and barley reflect new government data. After falling by 38% in 2009/10, sorghum production is expected to fall by 12% in 2010/11. A contraction of 3.3% is projection for the five years to 2014/15, though the market will benefit from improved production techniques and the use of the grain in beer brewing. The production of barley is predicted to fall by 3.5% in 2010/11, although positive growth of 2.5% is projection through to 2014/15.

* Relatively weak supply is envisaged for poultry in 2010/11, with production expected to grow by just 2.8%. Demand is predicted to rise by 2.5%. Production growth of 19.8% is envisaged through to 2014/15, while consumption will increase by over 23%.

* Beef production is projection to rise by just 2% in 2010/11, while consumption will increase by 4%. Through to 2014/15, production and consumption will grow by 22% and 26% respectively. Pork consumption should increase by 6% in 2010/11 and by 19% over the projection period.

* Sugar production is expected to fall by 13% in 2010/11. Over the long term, we expect improved macroeconomic fundamentals and the increasing use of sugar in biofuels to have a positive impact on production. However, these influences on output growth will be countered by the negative effect of falling global sugar prices.

* Rice consumption is predicted to grow by 13% in 2010/11 and by 41% through to 2015. Rising income will encourage people to choose rice over traditional, more labour-intensive carbohydrate sources. The 'New Rice for Africa' (Nerica) strain could also grow in popularity. Macroeconomic Projections

* Real Gross Domestic Product growth: 3.5% in 2011, up from 2.8% in 2010. Predicted to average 3.7% over 2011- 2020.

* Unemployment: Predicted to fall to 23% in 2011 from 24% in 2010, then to fall below 19% by 2015.

* Inflation: Inflation is expected to temporarily breach the 6.0% upper targeted band in Q411 and then moderate. Our core view is for global food and fuel prices to cool over H211 and this, in combination with somewhat lacklustre domestic economic growth, should help keep price pressure under control.

Industry Developments
Despite efforts to tackle the outbreak of foot and mouth disease (FMD) in KwaZulu-Natal since late February 2011, some observers are predicting lost business for farmers across South Africa. Preliminary estimates by the National Agricultural Industry ing Council suggested farmers across the country stand to lose at least ZAR4bn (US Dollar 592mn) in exports because of the FMD outbreak. These estimates are based on anticipated export trade losses for a wide variety of livestock market products, including unprocessed meat from cattle, sheep and pigs, along with wool and animal skins. However, the estimates do not include the additional costs of vaccination, animal surveillance and other disease control measures.
Although BMI does not expect the upheaval caused by FMD to be excessively harmful to beef production, we believe lost earnings for farmers will affect production indirectly, reducing the amount that farmers can reinvest in the production process. Farmers from areas unaffected by FMD could also suffer from reduced international demand for their produce. Although a ban on meat from the regions affected by the disease has been lifted, it could take some time for exports to fully recover.
South African poultry producers such as Astral Foods and Rainbow Chicken continue to highlight the difficult operating environment, characterised by weak economic growth, persistently high unemployment and a strong rand, which has encouraged an influx of cheap poultry imports on to the industry . Although the government has started to address of the problem of cheap imported poultry being 'dumped' on to the local industry, there are signs of new challenges for the poultry segment in the months ahead. These include the potential for rising feed costs, especially relating to soybean and corn. BMI believes a spike in grain prices similar to the one in H208 could have an extremely damaging effect on local poultry producers.
Following another bumper harvest in the 2010/11 crop year, South Africa risks having to import corn by the end of 2011 if it commits too much of its crop for export. Compared with 2010, South Africa has managed to find more countries that are willing to buy its corn surplus. Among the countries that have purchased South African corn in the 2010/11 are South Korea, Japan, Kuwait, Taiwan, Italy, Spain, Mexico and Portugal. The country exported an estimated 2.065mn tonnes of corn in the May 2010-April 2011 industry ing season. For the season that began in May 2011, 344,165 tonnes of corn have so far been exported.

Table Of Contents

Executive Summary 5
Industry SWOT Analysis 8
South Africa Agricultural SWOT .. 8
South Africa Political Environment and Risk Analysis 9
South Africa Economic Environment and Risk Analysis ...... 9
South Africa Business Environment SWOT . 10

Market Projection Scenario ... 11
South Africa Sugar Outlook ..... 11
Data : Sugar Production, Consumption And Trade, from 2010 to 2015 .. 11
Data : Sugar Production, Consumption And Trade, from 2006 to 2011 .. 14
South Africa Rice Outlook 15
Data : Rice Consumption And Trade, from 2010 to 2015 ....... 15
Data : Rice Consumption And Trade, from 2006 to 2011 ....... 16
South Africa Livestock Projection . 17
Data : Beef And Veal Production, Consumption And Trade, from 2010 to 2015 ..... 18
Data : Pork Production And Consumption, from 2010 to 2015 ...... 18
Data : Poultry Production, Consumption And Trade, from 2010 to 2015 18
Data : Beef And Veal Production, Consumption And Trade, from 2006 to 2011 ..... 22
Data : Pork Production And Consumption, from 2006 to 2011 ...... 22
Data : Poultry Production, Consumption And Trade, from 2006 to 2011 22
South Africa Grains Projection ..... 24
Data : Barley Production, Consumption And Trade, from 2010 to 2015 . 25
Data : Corn Production, Consumption And Trade, from 2010 to 2015 ... 26
Data : Sorghum Production, Consumption And Trade, from 2010 to 2015 ..... 26
Data : Wheat Production And Consumption, from 2010 to 2015 .... 26
Data : Barley Production, Consumption And Trade, from 2006 to 2011 . 29
Data : Corn Production, Consumption And Trade, from 2006 to 2011 ... 29
Data : Sorghum Production, Consumption And Trade, from 2006 to 2011 ..... 29
Data : Wheat Production And Consumption, from 2006 to 2015 .... 29
Food. 31
Consumer Outlook ...... 31
Food ... 32
Data : Food Consumption Indicators, from 2008 to 2015 ...... 34
Mass Grocery Retail ... 35
Data : MGR Value Sales By Format, from 2008 to 2014 5 ...... 36
Data : Grocery Retail Sales By Format, 2009 And 2019 .... 36
Data : Food and Drink Trade Indicators, from 2008 to 2015 (US$mn)..... 37
Commodity Price Analysis .... 38
Monthly Grain Update ..... 38
Corn .... 38
Rice ..... 39
Soybean ...... 40
Wheat .. 41
Monthly Softs Update ....... 42
Cocoa.. 42
Coffee.. 43
Palm Oil ..... 44
Sugar .. 45
Downstream Supply Chain Analysis .... 46

Market Projection Scenario ...... 46
Macroeconomic Projection ... 46
Data : South Africa - Economic Activity, from 2008 to 2015 .. 50
Exchange Rate Policy . 51
Data : South Africa - Exchange Rate, from 2008 to 2015 ....... 53
Key Segment Outlook ..... 53
Regional Economic Outlook ....... 58
Tesco Could Follow Wal-Mart Into Africa . 61
BMI Projection Modelling 64
How We Generate Our Market Projections ...... 64

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