THE outlook of the agricultural sector going into 2023 would not only depend on general weather conditions, but also input costs, according to the Agricultural Business Chamber (Agbiz).
Chief economist at Agbiz, Wandile Sihlobo, said the Russia-Ukraine war had effected input costs. Russia is the world's leading exporter of fertiliser materials, accounting for 14 percent of global exports in value terms.
“The prices have risen significantly, and there are now fears that if the war continues for longer, there could be disruptions in infrastructure and limits in export volumes which will have negative implications for the 2022/23 agricultural season and, after that, the general performance of the sector in 2023,” Sihlobo said.
He added that the rising input cost pressures for farmers had also prompted them to view the agricultural machinery sales in 2022 and 2023 negatively. Farmers would likely try to manage their costs wisely and reduce spending on new tractors and combine harvesters for now.
However, the start of the year sales were robust, but Sihlobo said that in the coming months this would likely show a slowdown.
Agbiz said looking ahead, the South African agricultural sector would likely face more challenging conditions this year and going into 2023.
“The excessive rains at the start of the 2021/22 production season threatened the crops as various areas of the country experienced damages that required replanting.”
Sihlobo said, however, the overall area planting of 4.3 million hectares was well above the 2020/21 season, and the expected summer crop of 17.5 million tons (down 9 percent year on year) meant that the excessive rains did not cause as much damage as initially feared, at least from a national perspective. The expected harvest was well above the long-term average levels.
In the horticulture sub-sector, there were damages in some vegetable fields such as tomatoes and carrots. Still, fruit and a range of vegetables seemed to be in reasonably good shape.
The other challenge of this past season for field crops and horticulture farmers was higher input costs, which had increased by more than 50 percent.
The areas that had to replant following crop damages by excessive rains incurred even much higher costs this past season. Therefore, the elevated commodity prices, while looking favourable for farmers that have the crop, gains will largely be overshadowed by the higher input costs.
The livestock industry remained in solid condition, but there are still biosecurity cases (foot-and-mouth disease) in parts of KwaZulu-Natal and fears of other disease outbreaks on the back of a wet season, he said.
The higher grains and oilseeds prices added cost pressures to the livestock and the poultry industry that utilises these products in their feed. This was precisely the case for the poultry sector, where maize and soybeans made up over 50 percent of input costs. To have these products rising double-digit would add cost pressure to the poultry farming businesses.
Sihlobo said the export conditions this year would also be hampered by geopolitics.
He said citrus was South Africa's leading exportable agricultural product in 2021 in value terms, accounting for roughly $1.9 billion (R28bn).
“Additionally, apples and pears were the fifth largest agricultural product export out of South Africa, accounting for $689 million. These products had a presence in Russia, about 7 percent of South Africa's citrus exports in value terms and 12 percent of South Africa's apples and pears exports in the same year – the country's second-largest market.
The Russia-Ukraine war and the following sanctions will likely limit South Africa's presence in these markets in the near term. Given the significance of this market, the diversion of the volumes to other export markets or the domestic market could add downward pressure on prices and, after that, negatively influence farmers' finances and the general export earnings of the country.
Agbiz said that from a growth perspective, 2022 would likely be a break from the solid two years of expansion in South Africa's gross value added for agriculture.
“Our view is that the sector could see a mild contraction in 2022 because of a reduction in the summer crop harvest and the base effects. With that said, employment conditions will likely hold above the long-term agricultural employment levels of 780 000. The recovery in the Western Cape's agricultural production, particularly the wine industry reconstruction strategy, could support employment conditions in the near term,” Sihlobo said.
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