Despite its recent successes, the citrus industry continues to face several challenges that threaten its sustainability as it entered this year’s export season, according to Paul Makube, Senior Agricultural Economist at FNB.
He said a combination of domestic and global headwinds was presenting something of a perfect storm for the country’s citrus industry.
“The global economy, including declining growth prospects and rapidly rising inflation and interest rates, are starting to bite hard into the profitability of the citrus industry worldwide,”
“And when you couple these fiscal pressures with the sharp rises we have seen in the costs of logistics, particularly the prices of reefer containers, citrus exporters’ margins have been shrinking rapidly, since 2021,” Makube said.
Makube said challenges facing the citrus producers included the deterioration of infrastructure, the impact of energy insecurity and load shedding on farming, storage and cooling processes; increasing competition in many markets and the slow progress in expanding global market access.
South Africa's citrus industry has been a major contributor to the country's agricultural sector, and its overall GDP (gross domestic product), for many years.
Despite facing numerous challenges, the sector had managed to achieve a steady annual compound growth rate of 11% in gross production value over the past five years, allowing it to not only bolster South Africa’s economic recovery, but also provide close to 150 000 employment opportunities.
Makube said in addition to rapidly increasing production costs, which had risen by more than 25% in the past three years, local citrus producers were also having to deal with rising costs associated with getting their produce to global marketplaces, “and the situation has now been exacerbated by changes in the EU’s cooling protocols, combined with the steady increase in the costs of sanitary and phytosanitary (SPS) protocols across the food chain management process.”
While these cost increases were, in themselves, a significant challenge for local citrus producers, they were compounded by a variety of operational problems ranging from ongoing domestic port and logistical crises that raised the risks of delays and consequent quality claims.
He added that cold-chain interruptions due to load shedding were a massive risk to both the quality of fresh produce and the cost of storage in chilled environments.
“To top it all, while freight rates are showing signs of normalising, they are largely still higher than pre-pandemic rates, and input costs in terms of fertilisers and labour are also still presenting headaches for many farmers.”
The senior agricultural economist was, neverthelesss, positive about the potential that still existed for the country’s citrus industry to grow in the coming years, and even become more sustainable.
“While the challenge of slowing exports is likely to remain in place for some time, the local industry is able to adapt, and there is evidence that it is already doing so.”
He said this was evident from the “gradual consolidation of the planted area due to the removal of marginal orchards and more carefully considered orchard expansion.”
Makube emphasised that there was no simple solution or quick fix to the challenges but a carefully coordinated response by all stakeholders could lead to long-term positive outcomes, particularly for farms, which were the cornerstone of the sector’s sustainability.
However, there would not be breaking export prices witnessed over the past five years.
“From next year we expect to see a gradual settling of the various factors that are contributing to the volatility and uncertainty in our citrus markets…after which, we’re hopeful that steady improvements will once again take place as all the industry players work together to secure its sustainability and set it firmly back on an expansionary path.”
Meanwhile, Justin Chadwick, CEO of the Citrus Growers’ Association urged Minister Ebrahim Patel who will be delivering the Department of Trade, Industry and Competition Budget speech in Parliament on Thursday, to provide an urgent update on government’s interventions to put a stop to the EU’s new unfair and discriminatory False Codling Moth (FCM) regulations, which threaten the operations of thousands of growers and the livelihoods they support.
FCM said is also a threat to desperately needed foreign currency revenue coming into the South African economy.
The CGA said months of consultations between the South African government and the EU at a World Trade Organisation (WTO) level, had failed to reach mutually agreed concessions from the parties. As a result, growers were being forced to pre-cool their oranges to below 2 degrees Celsius and then maintain this temperature for 20 days at a massive extra cost at a time where their profit margins have already been squeezed.
CGA said for many, this had made exporting oranges to the region commercially unviable, which was why an estimated 30% or 120 000 tons of fruit produced for the EU would not be sent this export season. This may result in an overall estimated R500 million loss in revenue for growers this year alone.
Chadwick said the establishment of an independent WTO Panel that could adjudicate on the matter after considering all evidence presented by both parties, was the only way the issue could be resolved.
BUSINESS REPORT