South Africa’s agricultural sector, which is export-orientated, is one of the sectors we had feared would be disrupted by the pandemic. So far, however, there has been minimal disruptions as the agricultural and food sector had been generally operational across the globe. The coming months could be even better as many countries are slowly easing restrictions on economic activity and people movements after widespread lockdowns. In the first quarter of the year, which is a period before the coronavirus lockdowns were implemented across the globe, South Africa’s agricultural trade was vibrant. The country recorded an agricultural trade surplus of US$773 million as illustrated in Exhibit 1 in the attached file. This is up by 16% y/y, with exports having increased at a much higher rate than imports.
The exports were underpinned by grapes, maize, wine, wool, pears, apples, plums, lemons and macadamia nuts, amongst other agricultural products. We expect these products to continue underpinning South Africa’s agricultural exports in the second quarter of 2020, but with some decline in wine exports which had briefly been impacted by domestic lockdown regulations. Citrus will feature prominently from the second quarter data onwards as its exports for this year are expected to reach a record 143.3 million cartons (for the Southern Africa region, mainly from South Africa). The export activity of this particular product has also continued with minimal interruptions during the lockdown period. Similar to citrus, maize will dominate this year; we estimate South Africa’s maize exports at 2.7 million tonnes, up 89% y/y because of higher domestic harvest. This is at a time where we expect increased maize needs in the Southern Africa region, a primary market for white maize.
From a destination point of view, the African continent and Europe continued to be the largest markets for South Africa’s agricultural exports in the first quarter of this year, respectively accounting for 44% and 29% in value terms. Asia was the third-largest market, taking up 19% of South Africa’s agricultural exports in the first quarter of 2020. The balance of 8% value was spread across other regions of the world.
In terms of imports, the leading products included wheat, palm oil, rice, poultry meat, sunflower oil and sugar. For the year, we believe rice, wheat and palm oil will dominate the agricultural import product list. South Africa’s 2020 rice imports could amount to 1.1 million tonnes, up by 10% from 2019, according to data from the International Grains Council. Meanwhile, South Africa’s 2019/20 wheat imports could increase by 29% y/y to 1.8 million tonnes. We could also see an increase in palm oil in the coming months.
In a nutshell, while the pandemic will result in a loss of incomes in various regions of the world, and in turn, a decline in demand for goods; the agriculture and food sector is one of the few that might not be as hard hit. As such, for the year, South Africa’s agricultural exports could increase from the US$9.9 billion of 2019. The key catalysts this year will be the increase in grains and horticulture output and to some extent the weakening domestic currency. Therefore, as in the previous year, trade will continue to be a key driver of South Africa’s agricultural sector, at least in 2020.
The outlook for the following years will, in part, depend on the magnitude of the economic shock of COVID-19. In an event of a massive shock and slow recovery, as some analysts expect, it is plausible that the demand for high-value agricultural products could somewhat be impacted in South Africa’s traditional markets. This also means that South Africa should, after the pandemic, continue its efforts of developing the export market for agricultural products, specifically to China and India.