Agbiz Conference 5 Oct...Bureau of Food and Agricultural Policy 22 Wine Grape Production Horticulture and Wine • SA vineyards declined by 2% from 2015 and 2016 and 8.5% since 2008

BFAP Baseline 2017

Investment environment and commodity outlook

http://bfap.co.za/documents/baselines/BFAP_Baseline_2017.pdf

[email protected]

2

Policy Certainty is NeededContext

• Uncertain environment: Drought, recession, risk ratings

and other factors

• Policy concern: Land reform, food security, transformation.

• Policy certainty: A pre-requisite for successful agricultural

sector, rural economy and overall economic performance.

3Bureau of Food and Agricultural Policy

Household Disposable Income per Capita

-4

-2

0

2

4

6

819

96

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

% C

hang

e Ye

ar-o

n-Ye

ar Real Rate of Change

Context

Source: SARB, 2017

Fig. 16, Page 21


1 000

1 100

1 200

1 300

1 400

1 500

1 600

1 700

1 800

30

32

34

36

38

40

42

44

Gro

ss d

ebto

rs b

ook

valu

e (R

bill

ion)

Gro

ss D

ebto

rs B

ook

–M

illio

n A

ccou

nts Gross debtors book - Number of accounts

*Gross debtors book value

National DebtContext

Q1 2009 to Q4 2016:

Q4 2015 to Q4 2016:

Rand value: +48,3% 3%Number of accounts: +12,6% -5%

Fig. 20, Page 25


-4%

-2%

0%

2%

4%

6%

8%

10%

-100

-50

0

50

100

150

200

250

Rea

l Ag.

GD

P G

row

th

Gro

ss In

com

e In

dex

(200

0=10

0)

Real Agricultural GDP Growth (Right Axis) Agric Real Gross Income (Left Axis)

GDP and Real Gross IncomeContext Fig. 1, Page 5

6

Agriculture’s PerformanceContext

Can

ola

Soft

Citr

usSo

ybea

nsLe

mon

s &

Lim

esN

aartj

ies

Mac

edam

ias

Litc

his

Shee

p &

Goa

tYe

llow

mai

zeBe

efAv

ocad

oes

Tabl

e G

rape

sPe

ars

Plum

sAp

ples

Pork

Milk

Woo

lO

rang

esW

ine

grap

esPo

tato

esM

ango

esPe

ache

sG

rape

fruit

Barle

yEg

gsPo

ultry

Roo

ibos

Apric

ots

Sunf

low

erC

otto

nPi

neap

ples

Suga

r can

eW

hite

mai

zeG

roun

dnut

sW

heat

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

24%

-4%

-2%

0%

2%

4%

6%

8%

Shar

e of

Gro

ss P

rodu

ctio

n Va

lue

Avg

Ann

ual C

hang

e in

Pro

duct

ion

Avg Annual Change in Production (Left Axis)

Share of Gross Agricultural Production Value: 2013-2015 (Right Axis)


SA Share of World Exports (Value)

2.0%

8.7%

5.6%

5.7%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%20

01

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Wine Citrus Grapes Apples and Pears


Net Trade of Agri- and Non-Agri ProductsContext

-200

-150

-100

-50

0

50

100

Ran

d B

illio

n

Agri Products Other Products

Fig. 3, Page 6


World Population

0

1

2

3

4

5

6

7

8

9

2000 2005 2010 2015 2020 2025 2030

Billio

n

Population level

Asia Africa Rest of world

0

10

20

30

40

50

60

70

80

90

2000 2005 2010 2015 2020 2025 2030M

illion

Annual population growth

Asia Africa Rest of world

10

Sub Sahara Africa rapid population growthTransformation in Regional Agri-food System

6.17.2 6.8

0.92

2.1 3.8

0

2

4

6

8

10

12

2015 2050 2100

Bill

ions

of p

eopl

e Rest of world Sub-Saharan Africa

Source: World Bank Development Group, 2015


0

5

10

15

20

25

30

35

40

45

50

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

USD

Bill

ions SSA Imports from non-SSA

SSA's imports from SSA

SSA Total Food Imports from 7 to 40 billion USD (2001-2015) (intra SSA trade from 1 to 10 billion USD)

Source: ITC, 2017


List of supplying markets from SSA of food imported by SSA Transformation in Regional Agri-food System

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%Rest SSA

Swaziland

Kenya

Senegal

Tanzania, UnitedRepublic ofCôte d'Ivoire

Namibia

Zambia

Uganda

Ethiopia

South Africa


Transformation in Regional Agri-food SystemWhere to Focus

14

• Export orientated and not likely to change significantly

• Increased competition globally:

Southern hemisphere role-players (Argentina, Chile, Peru)

Expansion of pome fruit in former Eastern European countries and Russia

• Sufficient opportunities remain - quality and consistency paramount

• Increased competition for scare resources (land, water, capital)

• Increased focus on water management practices –need to improve

efficiency and productivity of water

South African Fruit and Nut SectorsHorticulture and Wine


-2

0

2

4

6

8

10

12

14

16R

TA in

dex

Agriculture Total

Deciduous fruit chain

Citrus fruit chain

Subtropical fruit chain

Exotic fruit chain

Nut chain

Competitiveness: Fruits and NutsHorticulture and Wine


0

2

4

6

8

10

12

14

0

100

200

300

400

500

600

2013

2014

2015

2016

Thou

sand

Ton

s

Thou

sand

Tre

es

Pecan Nuts: Production and tree volumes

Production (ton) Q Trees

Source: SAPPA (2016) and Trademap (ITC) 2017

Pecan Nut Production and ExportsHorticulture and Wine

0

2

4

6

8

10

12

14

0

10

20

30

40

50

60

70

80

2013

2014

2015

2016

Thou

sand

Ton

s

Mill

ion

USD

Nuts Exports: Category Including Pecans

Export volumes Export value

+13% p.a.

China: 55%, Vietnam: 16%, USA: 6%


05

101520253035404550

Thou

sand

Ton

s

South African Macadamia nut production

Kernel Nuts in Shell

05101520253035404550

0

50

100

150

200

250

300

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Thou

sand

Ton

s

Mill

ion

USD

Macadamia Exports

Export volumes (tons) Export value ($ 1000 units)

Source: SAMAC (2016) and Trademap (ITC) 2017

Macadamia Production and ExportsHorticulture and Wine

+10% p.a.

Kernel: USA (49%), NL (9%)

In Shell: China (64%),Vietnam (31%)


0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

0

5

10

15

20

25

30

35

40

2013 2014 2015 2016

Volu

me

(Ton

s)

Mill

ion

USD

Berry Exports

Export volumes (tons) Export value ($ 1000 units)

0

200

400

600

800

1000

1200

1400

2013 2014 2015 2016

Hec

tare

s

South African Berry Hectares

BlackberriesRaspberriesBlueberries

Source: HORTGRO (2016) and Trademap (ITC) 2017

Berry Exports and ProductionHorticulture and Wine


Western Cape water situation

0

100

200

300

400

500

600

0%10%20%30%40%50%60%70%80%

FSC:

MILL

ION

M3

PERC

ENTA

GE

September 2017

Week: End November 2016 - % level Week: Beg September 2017 - % levelW/Average: Week 1 September 2017 Nett Full Supply Capacity (FSC) million m3

65%


• Alternative scenario of prolonged water shortages • Aggregate industry estimated yield impact: 50% - 80% “normal” water requirement for

Outlook• Impact of improved water productivity?

Pome Fruit: Drought ScenarioHorticulture and Wine

APPLES PEARSBaseline Baseline vs.

Scenario Baseline Baseline vs. Scenario

2016 2026 % change in 2026 2016 2026 % change in

2026

Production (Tons) 902129 999777 -24.17% 431535 453161 -30.98%

Exports (Tons) 425325 445015 -28.88% 222192 222636 -30.20%

Export Price (R/Ton) 10815 15574 4.22% 11157 15257 6.75%

Domestic Price (R/Ton) 5556 8113 18.19% 5605 8209 14.71%

21

• Effect of water shortages in a farming setup – unique for every enterprise

• Collective approach to improve water productivity & management

• Competition for resources among fruit industries and enterprises

• “Small – enterprises” – in hectares, but ever increasing in value of output and ROI

South African Fruit SectorHorticulture and Wine


Wine Grape ProductionHorticulture and Wine

• SA vineyards declined by 2% from 2015 and 2016 and 8.5% since 2008. • Total bearing vines projected to decrease by avg. 2.4% p.a. –> 221 million

vines by 2026• Reduction slows over second half of outlook

0

50

100

150

200

250

300

35020

06

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

Mill

ion

Vine

s

Vines


Vineyard Age DistributionHorticulture and Wine

• Vineyards below 4 years stabilised ± 7 000 ha

• Vineyards aged 4 - 15 years declined since 2011

• Share of older vineyards (+16 years) has grown from 34% in 2011 to almost 50% in 2016.

• Vineyard aging expected to continue• Current profitability• Many reaching

replacement age

0

5

10

15

20

25

30

35

40

45

< 4Years

4 - 10Years

11 - 15Years

16 - 20Years

> 20Years

Shar

e (%

)

2008 2009 2010 2011 2012 2013 2014 2015 2016

Fig. 111, Page 108


Wine Market BalanceHorticulture and Wine

• Decline in wine production – reduced wine grape production

• Rebalancing of supply & demand in market

• Domestic consumption reduces -> weak consumer spending power & higher prices

• Export volumes decline -> lower production & higher domestic prices

• Opportunity to rebase…

Fig. 106, Page 104

0

200

400

600

800

1000

120020

06

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

Volu

me:

Mill

ion

litre

s

Domestic wine consumptionDrinking wine productionTotal wine exports


0

2

4

6

8

10

12

14

Ran

d/Li

tre Nominal Prices

Wine for brandy Distilling Wine + grape juice

0

1

2

3

4

5

6

7

Ran

d/Li

tre

Real Prices (2010)

Drinking wine - white Drinking wine - red

Wine Prices Projected to IncreaseHorticulture and Wine Fig. 109, Page 106


Opportunity to Improve Export ValueHorticulture and Wine

• SA export prices low in global context

• Increase share packaged wine in total exports

• Target higher value, growing markets

Fig. 107, Page 105

0102030405060708090

100

Ran

d/lit

re 2015 2016

Sources: OIV, 2017


Global Wine Consumption is ShiftingHorticulture and Wine

• Traditional markets

stagnating – maintain

• Expansion in USA &

China – target growth

• Strategic marketing &

good positioning for

value

Fig. 105, Page 103

0%

5%

10%

15%

20%

25%

0

5

10

15

20

25

30

35

40

Shar

e in

SA

expo

rts

in 2

016

Volu

me:

Mill

ion

hect

olitr

e

2012 2016 2017 2018 2020 Share of SA Exports in 2016

Sources: OIV, 2017; Euromonitor, 2017; SAWIS, 2017

28

South African Wine IndustryHorticulture and Wine

• Come a long way towards strategic targets set as part of WISE -> must sustain momentum to become value driven

• Production volumes expected to decline, supporting prices going forward

• Will continue to face competition for land and water from other horticultural industries

• Domestic consumption under pressure due to limited spending power & higher prices -> segmentation & opportunities in wine tourism

• Export volumes expected to decline -> opportunity to target higher value products & markets


0100200300400500600700800900

1900 1909 1918 1927 1936 1945 1954 1963 1972 1981 1990 1999 2008 2017 2026

USD

(201

0 ba

se)

Wheat Maize

Long term trend of real commodity prices

Grains and Oilseeds in global market

29

• Prices follow the long run declining trend, with an average price decrease of about 1.5% per year in real terms

• Prices of agricultural commodities are subject to considerable volatility and may show large deviations from their long‐term trends for an extended period of time

• Prices eventually returned to their long‐term trend

Source: OECD & FAO, 2017

Source: OECD-FAO, 2017


White maize, turnaround in domestic prices

‐1000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

Thou

sand

tons

R/ton

Production

Domestic use

Net exports

Import parity ‐Randfontein

SAFEX

Export parity ‐ Africa


Summer Crop area

0

200

400

600

800

1000

1200

1400

1600

1800

200020

0620

0720

0820

0920

1020

1120

1220

1320

1420

1520

1620

1720

1820

1920

2020

2120

2220

2320

2420

2520

26

Thou

sand

Hec

tare

s

White maize Yellow maize Sunflower Soybean

• White maize areaprojected todecline by morethan 300 000 haon the back ofbumper crop andlow prices incurrent season.

• Rapid expansionin soybean areacontinues toreach more than900 000 ha by2025.

• Long-run balancein grain andoilseed marketsreflects shift toyellow maize andsoybeans.


Winter crop area

0

50

100

150

200

250

300

350

40020

0620

0720

0820

0920

1020

1120

1220

1320

1420

1520

1620

1720

1820

1920

2020

2120

2220

2320

2420

2520

26

Thou

sand

Hec

tare

s

Wheat summer rainfall Wheat winter rainfall

Wheat irrigation Canola

• Approx. 30 000ha winter wheatarea is replacedby barley andcanola in longrun

• 2017 Wintercrop area (%change from2016):

• Wheat:-3.3%

• Barley:+3%

• Canola:+23.4%


Previous decade:

Yield growth: 2.3% p.a.

Consumption growth: 1.5%p.a

Wheat production and demand

• Next decade: Yield growth: 1.3% p.a.


0

500

1000

1500

2000

2500

3000

3500

4000

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

Thou

sand

tons

R/ton

Production

Domestic use

Net imports

SAFEX

2017 crop estimate -10% yoy - good crops in the summer rainfall and irrigated regions offset part of the 25% yoy decline in WC


0

50

100

150

200

250

300

350

400

450

500

550

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

Thou

sand

tons

R/ton

Production

Domestic use

Net imports

Producer priceCaledon

Barley production and demand

• Next decade:

Yield growth: 1.3% p.a.

Consumption growth: 1.9% p.a

• Previous decade:

Yield growth: 5% p.a.


2017 crop estimate -24% yoy - despite increased area


0

50

100

150

200

250

0

1000

2000

3000

4000

5000

6000

7000

8000

2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

Thou

sand

tons

R/ton

Production

Domestic use

Milldoor price

Import parity

Export parity

Canola production and demand

• Previous decade:

Yield growth:4.2% p.a.

Consumption growth: 16%p.a

• Next decade:

Yield growth: 2% p.a.

Consumption growth: 5.8% p.a.

2017 crop estimate -4% yoy - despite a 23% area expansion

36

Key messagesGrains, Oilseeds and Potatoes

• Major recovery in grain and oilseed production following the drought, but cash flow remains under pressure.

• Drop in maize prices brings major relief to the food inflation on the staple food basket

• Gradual shift to feed grains and oilseeds

• Higher and sustainable crop yields critical to remain competitive


Success in Wool ProductionLivestock and Dairy

• SA share in China imports increased from 2% to 8% in past decade

• Eastern Cape Production +2.3% p.a. past decade – significant share from smaller producers in

communal areas

• 1998-2015, value contribution increased: R15m –> R130m – it can be done!

0

20

40

60

80

100

120

140

0.00.51.01.52.02.53.03.54.04.55.0

2005 2007 2009 2011 2013 2015

Ran

d / k

g

Bill

ion

Ran

d Other

Germany

India

Italy

Czech Republic

China

China Import Price

South African Price

Source: ITC Trademap

Fig. 82, Page 80


Net Trade in Beef Products – Shift in Markets

-30

-20

-10

0

10

20

30

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Thou

sand

s to

ns Fresh or chilled edible offal:bovine

Frozen, boneless meat

Frozen, bone in cuts

Frozen, Carcass & HalfCarcass

Fresh or chilled, boneless

Fresh or Chilled, bone incuts

Fresh / Chilled, Carcass &Half Carcass

Livestock and Dairy

• Predominantly high value cuts destined for Middle East

• Vet protocols are paramount – need to remain free of FMD, more possibilities



Poultry Imports Continue to GrowLivestock and Dairy

2%

33%

38%

0

100

200

300

400

500

60020

10

2011

2012

2013

2014

2015

2016

Thou

sand

tons Frozen Bone-in

portions: Other(37% tariff)Frozen Bone-inportions: EUOrigin (0% tariff)Frozen Offal(30% tariff)

Frozen BonelessCuts (12% tariff)

Frozen WholeBird: Other (82%tariff)Frozen Carcass(31% tariff)

Mechanicallydeboned meat(0% tariff)

• Rapid growth in imports of bone-in portions

• Bulk of import growth originates from EU

• Short term relief due to HPAI in EU

• Provisional safeguard has lapsed, ITAC investigation ongoing

• Importance of food safety & origin to consumer?


Fig. 74, Page 74


0

2

4

6

8

10

12

14

16

0

300

600

900

1200

1500

1800

2100

2400

2700

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

Pric

e ra

tio

Thou

sand

tons Chicken

production

Chickenconsumption

Chickenimports

Chicken:maizeprice ratio (rightaxis)

Feed Grain Prices Provide ReliefLivestock and Dairy

• Profitability to improve on reduced feed

costs

• Some, but still limited growth in

production

• Many uncertainties remain

o Safeguard duties on EU imports

o Impact of AI outbreak

• Import growth expected to slow, but still factor

Fig. 75, Page 75


Summary: Meat Price Outlook

0

2000

4000

6000

8000

10000

12000

2006 2010 2014 2018 2022 2026

R/to

n

Nominal

Beef average auction priceLamb avg auction price

Livestock and Dairy

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2006 2010 2014 2018 2022 2026

Ran

d pe

r ton

(rea

l 201

0) Real (2010)

Chicken total realisation (frozen)Pork avg auction price


Dairy Product PricesLivestock and Dairy

0

50

100

150

200

250

Ran

d pe

r Kg

Nominal

Cheese consumer price Butter consumer price

0

20

40

60

80

100

120

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

Ran

d pe

r Kg Real (2010)

SMP consumer price WMP consumer price

43

Key points: Meat and DairyLivestock and Dairy

• Consumer under pressure - domestic demand growth expected to slow, especially inshort term

• Commodity cycle has turned in favour of livestock production – provided weatherconditions play along

• Livestock sectors have long value chains with a large footprint – commercial andsmall scale, but prolonged recovery from drought

• Significant expansion potential – particularly informal market

• Disease control is vital – to sustain beef export markets & protect domestic producers(eg. HPAI outbreak 2017)

• Ongoing drought in Western Cape concern – particularly to dairy, where more than25% of production from Western Cape

44

In summary

• SA has caught up with global commodity cycles.• Lower food price inflation but margins under pressure• Recovery from the drought will take a few years• Lower feed prices offer opportunity for intensive livestock

operations to recover• Water availability & efficient use – make or break for high-

value crops• Rural economies are growing but financing and investment

in infrastructure required• Land reform – only small pockets of success and a long way

ahead

THANK YOU The BFAP Baseline

2017 publication is

available electronically

on the BFAP website.

www.bfap.co.za

(012) 420 6964

[email protected]

Documents

Agbiz Conference 5 Oct...Bureau of Food and Agricultural Policy 22 Wine Grape Production Horticulture and Wine • SA vineyards declined by 2% from 2015 and 2016 and 8.5% since 2008