Concerns continue over rising agricultural input costs

However, ‘it’s been one of the best years in South Africa’s agriculture’ – Wandile Sihlobo – chief economist at Agricultural Business Chamber.

SIMON BROWN: I’m chatting now with Wandile Sihlobo, chief economist at the Agricultural Business Chamber of South Africa. Wandile, I really appreciate the very early morning time. I want quickly to touch on 2021 before we start looking forward. It’s been another good year for agriculture in South Africa – broadly my sense is across the different sectors of agriculture.

WANDILE SIHLOBO: Absolutely, Simon. It’s been one of those best years in South Africa’s agriculture. I would say the only sub-sectors that didn’t have a good year were the wine industry, and maybe there might be one or two crops like tobacco. But across the board, if you were to look at how the production was, but also the higher commodity prices, which were combined with this large harvest in general – they’ve improved the farmers’ financial conditions remarkably this year.

SIMON BROWN: How’s it looking? I imagine most of the summer crops are down in the Western Cape – what are our forecasts looking like for the summer season and going into 2022? Is it still perhaps too early to start looking at next year and the winter season?

WANDILE SIHLOBO: For next year we already have some early information – for example, the intentions to plant for summer crop, which are pointing up fairly well. For example, we were a bit concerned that, even though the past season was great, and prices were also good, input costs have been rising. For example, if you had to look at the fertiliser prices, they are plus-50% up on a year-on-year basis. The same is true for agrochemicals: plus 30% on a year-on-year basis. And it’s not just a South African story, but really globally. And we thought that was going to somewhat negatively affect the plantings for the next year.

But the numbers that are coming out of the crop estimate committee are telling us that farmers intend to plant 5% more than the area they planted last year.

Now the area expected is around about 4.3 million hectares of summer crops. There we group everything from maize to sunflower seeds, soybeans, peanuts, sorghum and dry beans.

So it looks like the next season is coming up well. But importantly there’s also this La Niña that is still in the mix, which is going to give us above-normal rainfall. So it’s looking fairly [good].

Down in the Western Cape we are finalising the wheat crop, canola and the like, and the yields there are looking fairly good.

SIMON BROWN: Yeah, you mentioned La Niña (so El Niño is obviously the very, very dry season). I can’t find – perhaps I don’t look hard enough – SA data, but I find Australian data, and they are certainly saying we are actually going to have another decent rainfall season. It’s tough being a farmer, but at least if it rains, it does give you some respite.

WANDILE SIHLOBO: Yes, absolutely. And in fact, Simon, the South African authority came out at the end of last month, October 30, agreeing with the Australians, saying there is a prospect of another La Niña. So those good rainfalls I think are going to assist. But also I think what’s important is the fact that with the La Niña you’re likely to see the South Americans having a relatively poor crop. What that then does is that the commodity prices are likely to remain at relatively higher levels for some time. I think that would be important, given the higher input costs that I mentioned for this year. So if we get another good crop, commodity prices are still at relatively decent levels. This means that even though the margins will be squeezed compared to the previous season, farmers will still be in a better position financially.

SIMON BROWN: Yeah. I was looking at that, and I was checking some of the prices. White maize at R3300 [ton]– it’s off the highs; yellow maize, R3500, almost R3600, also off the highs. But sunflower seeds at R10 800, at records; bread milling … we are still at fairly elevated prices of the crops. The old-school economist in me would say – and I’m no economist – when output increases, I would expect prices to decrease, but they are managing to stay at relatively elevated levels?

WANDILE SIHLOBO: Yeah. These are extraordinary levels, because with a large crop, like the one that which we’ve just had – because the price in the previous year, which is the 2020/21 production season, was the second-largest grain harvest in the history of South Africa – now, typically with yields like that we would see, for example, maize prices falling below R1 500/ton historically, but now we are over R3 000/ton, as you rightly said.

But the chief thing that has been driving up prices is not so much what happens in South Africa. What’s important is what happens in Beijing as well as in South America.

China has been buying a lot of grain, supporting global prices, South America the best crop. What that does, all of that supporting the global prices, we saw then South Africa benefiting from the mix of that, and I think that’s what we’ll continue to see as we go into 2022.

SIMON BROWN: You’ve mentioned that to me before – that actually it’s global conditions as much as it is conditions on our ground. You’ve mentioned the input costs hurting farmers. I hadn’t even thought of the fertilisers; I was thinking of sort of diesel and power and the like. What about the logistics? I chat with some of the sort of downstream companies who are in the logistics space in terms of the citrus crop and the like – are farmers managing to get their crops to export markets, considering struggles that we see at Transnet? Certainly we see that coming through the mining space.

WANDILE SIHLOBO: Within the logistics challenge, the same is true because I think the key thing is that if you look at the grain component, for example, you do have roughly 75% of it being transported by road. So higher fuel prices do weigh in and you see the same story when it comes to the horticulture space. On the other inputs, fertiliser and the like … it’s is true even today that South Africa imports 80% of its annual fertiliser usage, 98% of its agrochemicals usage. So all of these global shocks that are happening in the commodities come directly and you add the exchange-rate effects onto that. So they really add to the higher inputs that the guys are using.

SIMON BROWN: A last question. Again, in mining we’ve seen massive boosts to our fiscus thanks to massive – particularly in the PGM space – prices we export at. It helps our rand, it helps our economy. Agriculture is not as big as mining, but it is a significant part of our economy in terms of employment, but also in terms of earning export dollars.

WANDILE SIHLOBO: Yeah, absolutely.

We actually think [as] agriscience that this year agricultural exports will probably reach a record level, which is about $11 billion.

Last year was the second largest, round about $10.2 billion, so it did really givea boost. The record level was in 2018, about $10.6 billion. So within this year we will hit the record. Already for the first six months, for example, our exports are up 30% on a year-on-year basis with just over $6 billion. So we think that we’ll be able to see that coming through on the numbers at the end of this year.

SIMON BROWN: Those are giant numbers – $11 billion, call that R65 billion. That is massive. Wandile Sihlobo, chief economist, Agricultural Business Chamber of South Africa, I really appreciate the time and the insights this morning, sir.