Macadamia industry expert and commentator Philip Lee says if the historic growth and development trajectory of South Africa’s macadamia industry is anything to go by, despite the global COVID-19 pandemic, the crop should remain profitable and in high demand.

There is an old English saying: “May you live in interesting times”, which actually means, “May you experience much disorder and trouble in your life”.

As we continue to endure the lockdown and witness the world as we know it change and regress by the minute and hour rather than the day or week, we can only speculate what the world order and economy will look like when this terrible crisis is over.

Even in “normal” times, it is difficult to predict where a given industry or economy will be in five or 10 years. And at this point we do not even know how long this particular crisis will last.

Philip Lee

Philip Lee

The Spanish flu lasted three years, from January 1918 to December 1920, infecting 500 million people (around one third of the global population) and killing 50 million. We have to believe modern medical science will produce a remedy to get us out of this hole sooner than three years.

But, enough of the dark side!

The aim of this article is to focus on the high road ahead for South Africa’s macadamia industry using its proven growth and development record – which I have been privileged to witness over the past 30 years – and to try to predict the most likely future trajectory for macadamia nut production and consumption.

South Africa’s macadamia industry was really fortunate to be included as a primary food production sector and allowed to continue with the harvesting, processing and exporting of nuts regardless of the COVID-19 lockdown. This has resulted in the sector continuing its business with hardly missing a beat.

Until mid-April – or at the time of writing this piece – the macadamia nut price was unchanged and the two processors I spoke to were busy getting nut-in-shell containers ready for shipment to China, as well as cracking and packing kernel for shipment all over the world to fulfil orders already pre-negotiated for the 2020 crop.

Accelerated planting likely to double production by 2026

Figure 1 shows macadamia tree planting per province since the start of the industry in the early 1970s. Total trees planted in South Africa at the end of 2019 were 14.6 million, with 7.3 million in Mpumalanga, 3.9 million in KZN, 3 million in Limpopo and an estimated 300 000 in other regions, mainly the Eastern and Western Cape from Port St Johns to Riversdale and even as far west as Robertson. As clearly demonstrated in Figure 1, the past six years has seen the fastest rate of planting ever, with 7.6 million trees ( just more than half of total planted trees) planted since 2014, most of these (5.4 million) planted in the past three years.

Source: CompleteLee Nuts Consulting and SAMAC tree census data

 

The tree numbers in Figure1 have been used to good effect to project total South African macadamia production illustrated in Figure 2, showing actual South African macadamia production increasing from 10 000 tons Dry-In-Shell (DIS) nuts in the year 2000 to 46 000 tons DIS in 2015 before declining to a level of around 38 000 tons DIS in 2016 as a result of the drought in most producing areas since the 2014/15 season, but bouncing back to the record 59 050 tons DIS in 2019.

The projection based on tree numbers and estimated production per tree per age of tree predicts this growth with an accuracy of 96% (R² 0.9657). In periods of more “normal” rainfall, for example from about 2006 to 2013, the projection predicts actual production with an accuracy of 99%, but clearly the projection model cannot predict the impact of a drought on total South African production.

It is interesting to note the only other year that saw a decline in SA macadamia production was 2004, which followed the severe drought in the 2003/04 season.

The projection (blue line) shows total production growing to about 110 000 tons DIS in 2025, while the fitted polynomial function (red line) suggests total production somewhat lower, at around 85 000 tons DIS in 2025. With the latest SAMAC estimate of 66 000 tons DIS for the 2020 crop and given “normal” rainfall, it seems more likely total production will be over 100 000 tons DIS (about 30 000 tons kernel) in 2025, and more than 120 000 tons DIS in 2026 (double 2019 production of 59 050 tons DIS).

The resilience of the macadamia tree is dramatically illustrated by the speed actual production has caught up again with projected production in 2018, despite the fact that most growing regions had yet to effectively escape the drought conditions since 2015. Even in 2019 the crop was negatively impacted by hot and dry conditions at flowering and fruit set, yet there was still a small increase in total production when compared with the 2018 crop. Production in 2019 was boosted by 1.6 million young trees (aged between six and 10 years) coming into production, representing some 25% of the estimated 6.5 million trees in production that year.

Source: CompleteLee Nuts Consulting and SAMAC production statistics

Industry growth driven by a 12-year-long increase in the dollar price

In Figure 3 we find the driving force behind the accelerated tree plantings in the past few years, especially in KZN, where the profitability of the sugar industry remains in decline. Figure 3 clearly highlights the dramatic rise in the US$ price of macadamia kernel from the low of $6.55/kg in 2007 to the estimated $18.80/kg in 2019. This is the average price for premium grade kernel of all styles supplied by South African macadamia exporters in the standard 25lb (11.34kg) gas-flushed vacuumed pouch in cardboard cartons, a price increase of 187% over the 12-year period. It is important to note the world price of macadamias has never been as high as it is now and has never before remained above US$10 for such a long period (from 2010 to 2019).

In Rand terms, the average kernel (wholesale) price increased from R45.85/kg in 2007 to R272.00/kg in 2019, an increase of 493%! The farm gate price (the wholesale price less the processing costs charged to the grower) has increased from R25.85/kg in 2007 to R232.00/kg kernel in 2019, an increase of 797%.

Credit must go to the processors for restricting their processing costs to the relatively modest increase of only 100% between 2007 and 2019, from R20/kg to R40/kg kernel, in the face of substantial increases in electricity, labour and transport costs over the period.

Source: CompleteLee Nuts Consulting and USDA Foreign Agriculture Service (FAS)

While the average dollar price of kernel increased from the estimated $16.75/kg in 2016 to $17.35/kg in 2017, the strengthening of the Rand saw the average exchange rate of R14 to the US$ in 2016 decrease to about R13.30 to the US$ in 2017, resulting in the decrease in Rand value of kernel from about R234.50/kg kernel in 2016 to the R231/kg kernel in 2017. Further strengthening of the kernel price in 2018 to around $17.90/kg and relative stability of the Rand in 2018 saw the Rand price of kernel return to about R240/kg in 2018. The dollar price increase to $18.80/kg kernel, combined with the weakening of the Rand to R14.45 during 2019, moved the wholesale Rand price to the record high of R272/kg kernel.

Note from Figure 3 the two dollar price crashes, from $9.55/kg in 1997 to $6.17/kg in 1999, only increasing back up to $11.70/kg in 2005 before regressing back to $6.55/kg in 2007, neither of which was caused by an increase in South African, or global, production. The crash in 1998 resulted from the Southeast Asia currency crash which started in Malaysia and spread through China and Japan to cause a serious global financial crisis, and the crash in 2007 triggered by the sub-prime debacle in the USA, also causing a major global financial crisis.

Prosperity after Covid?

These are difficult times indeed, for South Africa and the world.

All we can do is stick to the knitting. We are fortunate to be in the food production industry, producing a nutritious nut with a high energy content, unique in taste and texture, a relatively long shelf life and proven health benefits that continue to drive increased consumption. Whatever happens in the next weeks and months, people need to eat. Our macadamia industry has enjoyed incredible prosperity and success over the past decade and our farmers have reaped the benefits of more than 30 years of SAMAC-funded research.

This means sustainable production ‘recipes’ for profitable yields are available for all growers to use. Those who implement these will achieve exceptional yields as illustrated in Figure 4 from time to time, but most will be more than satisfied by achieving the more reasonable target yield of 3 tons DIS per hectare (one ton of edible kernel per hectare), which will keep every macadamia farm profitable, even if the present price declines by 60%.

The average yield for the South African macadamia industry in 2019 was pegged at 59 050 tons DIS from some 20 000 hectares in production. This translates into 2.95 tons DIS per hectare – arguably the best average yield of all producing countries.