• December 17th, 2018
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Huge pressure on agri-sector to increase productivity

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Front Page News

Windhoek Progress in the agricultural sector in the coming decade will have to be achieved in an environment of weaker economic growth and lower commodity prices, mainly through increased productivity. While 2016 in particular will be remembered as a challenging year, the sector’s resilience and ability to recover from a shock such as the current drought is underpinned by a combination of key underlying fundamentals linked to the long-term competitiveness of the industry. This was the conclusion reached at the recently held Bureau of Food and Agriculture Policy (BFAP) Outlook Conference in South Africa, which was attended by a delegation from the Meat Board of Namibia. The Baseline Outlook of the BFAP states that globally, agricultural commodity prices have fallen well below the peaks of 2013, as generally high production levels have replenished stocks. Furthermore, the two demand drivers of the past decade, namely biofuel production and rapid growth of the Chinese economy, are expected to slow significantly over the next ten years. Biofuel production is expected to be largely mandate driven due to weaker crude oil prices, whilst the Chinese economy is expected to grow at a slower rate due to domestic credit limitations. South African agriculture – which contributes vastly to the local feed stocks as main exporter of white maize to Namibia – has performed well over the past decade, despite some volatility owing to its dependence on global markets and on an inclement climate. Gross value added by the sector expanded by more than 15% in real terms since 2005. However, this expansion peaked at over 30 percent in 2014, before declining rapidly in the past two seasons as a result of extreme drought in the summer rainfall regions. The severity of the current drought has reemphasized the importance of a vibrant and sustainable agricultural sector, yet is contrary to the past decade when performance was supported by factors such as the commodity super cycle, Therefore, barring extreme weather conditions and related supply shocks, crop prices are expected to remain under pressure in the short term, before starting a gradual recovery towards 2020 on the back of area consolidation and rising demand for animal feed. Supported by an inherently higher cost structure, this consolidation in price levels remains above pre-2007 levels. Whilst initially lagging behind crop prices due to the longer production cycle, meat prices have also declined from 2014 peaks on the back of weaker demand and a lower cost structure resulting from reduced feed grain prices. In line with the crop sector, prices are expected to stabilise well below recent peaks over the next decade. In South Africa, much of the decline in world prices has been negated by the sharp depreciation in the value of the rand (to which the Namibian dollar is linked), which by May 2016 had declined by almost 48% over the preceding 24-month period. Combined with the impact of the domestic drought, which pushed summer grain prices (that may have traded closer to export parity in a normal year) to import parity levels, these exchange rate dynamics pushed South African agricultural commodity prices to record levels in 2016, despite low world prices. In the case of maize, the domestic crop is expected to decline by almost 30% from an already below average 2015 harvest and consequently imports are expected to exceed 3 million tonnes in the 2016/17 marketing year. Namibia annually imports about 160 000 tonnes of white maize from SA. Typically trading at import parity levels, winter grain prices were less affected by the current drought, but prices remain well supported by the combination of the variable import tariff on wheat, which currently exceeds R1 000 per tonne, and the weaker currency. In response, the total area in the winter rainfall regions is projected to expand in 2017, before consolidating over the medium term. Barley has been competitive in the Southern Cape in the recent past and in light of a favourable yield, growth outlook arising from the introduction of new varieties and gross margins are expected to support expansion of the barley area at the expense of wheat over the coming decade, provided that the current pricing structure that links barley prices to wheat prices is maintained. While projected yield growth is sufficient to offset declining wheat areas, consumption growth over the outlook implies that by 2025, imports are projected to reach 2.4 million tonnes. Rising food inflation has broad implications affecting aspects of the macro-economy and households, specifically lower income households (which spend up to 35% of their income on food). Maize meal and rice are the most affordable staple options when serving size is taken into account. In light of maize price movements, the cost of a serving of maize meal increased by 43.7 percent to R0.49 from April 2015 to April 2016, while the cost of a serving of white bread increased by 9 percent over the same period. Keeping in mind that bread is ready to eat, it is becoming an increasingly attractive staple option for consumers, as total human consumption of maize is only about 40 percent more than total consumption of wheat. Going forward however, the projected decline of more than 35 percent in maize prices resulting from normalised weather conditions in 2017 is expected to induce a 22 percent decline in the cost of a maize meal serving towards 2017. “The message is simple: provide enabling conditions (a better functioning state without red tape and ineffective processes), implement a range of models for land transfer to beneficiaries, ensure effective support to beneficiaries and eliminate political patronage for the land reform and agricultural programmes. Then we will see a thriving and growing agricultural sector, which should provide fertile ground for new farmers to put down roots,” the outlook concludes.
New Era Reporter
2016-08-25 08:27:03 2 years ago

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