Depressed markets and yields offer silver lining for SA mac crop

Despite the impact of the Covid-19 pandemic on global markets last year, South Africa’s macadamia nut sales held their ground. And while this year’s harvest is also expected to fetch slightly depressed prices, the global crop should follow suit, bringing some stability into the markets, say experts.

Consumers and export channels were hard hit by global lockdowns in 2020 as a result of the Covid-19 pandemic. And while logistics were quickly smoothed over, nut eaters are expected to remain somewhat cash-strapped this year.

But experts are confident that any reduction in global prices could initiate the development of new markets and products, which could be key to sustaining the macadamia industry over the long term. And while South Africa has a smaller than expected crop to harvest over the next few months, this reduced supply will in fact serve to stabilise supply and demand curves, they say.

Crop forecasts

The 2020/1 national crop is estimated at 60 000t. But many are of the opinion the estimate is optimistic, with between 50 000t and 55 000t dry-nut-in-shell (DNIS) being a more realistic number.

Alex Whyte, sales manager for Green and Gold Macadamias, said early rains were beneficial for most cultivars except for the Beaumont variety.

“They happened to flower during a particularly wet period and suffered flower blight and a poor nut set. But the poor Beaumont crop should be offset by new plantings coming into production and a good crop on most other cultivars,” he said.

However, Whyte said, the national crop yield was still way off the long-term Macadamias South Africa (SAMAC) forecast, which was predicted at around 75 000t.

“With Beaumonts accounting for most plantings over the past five years (77% in 2019), it is a concern how heavily the local industry is invested in a single cultivar, which has now had two very poor seasons in a row,” he said.

And while every year more orchards were maturing, this was being offset somewhat by older orchards becoming less productive or growers heavily pruning them.

“This does explain why the actual crop versus the forecast is so different. We saw a similar thing happen in Australia where the forecast did not take into account the decline in production from older orchards, where pruning was left too late and the trees were more susceptible to unfavourable weather,” he said.

Orchard expansions, he added, were still expected at around 5 000 hectares per year.

“Many farmers continue to look at alternatives to timber and sugar cane, and macadamias have shown resilience, particularly during the pandemic.”

Global Macadamias South Africa Chairman Roelof van Rooyen agreed the slight knock in the markets and the impact of the pandemic would have little influence on orchard growth. “South Africa and the rest of world are still planting a healthy number of trees every year. There is a bit of uncertainty in the marketplace as a result of the pandemic and there is pressure on certain nut styles, but I don’t think farmers will hold back their expansion plans significantly because of this.

“A healthy number of young trees are coming into production in line with the past couple of years.  I think this will, however, increase in the near future (weather permitting) when the largest of the seasonal plantings planted over the past three to five years start coming in.”

Marquis Marketing Manager in Australia Charles Cormack said he expected the continent’s crop to be on par with 2020, while the world’s third largest producer, Kenya, was looking at an average-sized crop.

“Australia’s 2020 crop was better than originally expected with the latest formal forecast at 46 900t (at 3.5% moisture), which was about 8% up on the 43 500t crop in 2019.

“It is hard to get a read on China, but we would not expect the Chinese crop to increase significantly from the 25 000t to 30 000t mark, which is our best estimate for 2020. Overall, the world crop will likely be on par or slightly up on last year,” he said.

Supply and demand

Coupled with a lower global supply this year is a lower carry-over stock in China, one of the world’s largest macadamia nut markets.

Van Rooyen said stocks were fairly low in China as a result of South Africa’s lower crop yield last season.

“This is especially the case for Beaumonts, which are typically more conducive to the Chinese nut-in-shell (NIS) markets. Demand should be strong at the right price levels, although we are seeing some downward pressure on the NIS pricing for this season,” he said.

According to Whyte the Chinese new-year celebrations on February 12 was a time when quantities of macadamias were consumed and bought as gifts, which boded well for the industry. “Furthermore, the Chinese market, outside another Covid-19 surge, should remain steady in 2021. Generally, the sale of snack nuts at retail level is expected to remain strong as people pass time in lockdowns eating healthily. There has been a strong message from health departments to citizens to eat healthily to keep immune systems strong and demand for snack grades has been solid. We expect this trend to continue,” he said.

Cormack predicted the pandemic would probably be a continued factor in all markets in 2021. “At a high level, conventional retail demand and therefore snack style (wholes, halves, and larger pieces) demand will likely remain strong and may grow through 2021. Food service, restaurant, banquet and travel retail demand and therefore ingredient style (smaller pieces) demand might remain subdued while lockdowns are in place and travel is restricted.”

However, Whyte added, macadamias had performed relatively well compared with other tree nuts. “We did see some substitution for macadamias with other tree nuts as they have traded substantially cheaper than macadamias (macadamias are 300% more expensive than almonds). These tree nuts, mainly produced in the United States, suffered greatly as a result of the trade war with China and they had record crops in 2019 and 2020.”

Van Rooyen believed demand for snack kernel would remain strong in 2021, albeit with some downward pressure on the pricing. “The confectionery or baking styles will take some pressure due to carry-over stock in the markets since the pandemic impacted these styles the most.”

Whyte agreed, saying the ingredient grade market was expected to become a lot tougher.

“We saw prices of kernel drop on these ingredient grades by as much as 20% in US dollar terms. Snack nuts have held their price level. The convenience and food service sectors are likely to remain difficult while the pandemic is ongoing and as a result ingredient grades will remain under some pressure. It is not entirely bad news, though. With some price easing and more importantly some spare inventory, we expect to see the launch of some new macadamia products in 2021. This is a good thing for the long-term sustainability of the industry,” he said.

Politics and trade

As the knock-on effects of the new administration take hold in the US, the nut market is holding its breath in anticipation of any trade implications.

Van Rooyen said he expected the Biden administration to ease tensions with China, which had the potential to reduce the import tariffs on some of the US’s produce into China.

“Macadamia nuts fall into the larger tree nut basket and if the whole basket comes under pressure for whatever reason, then we should assume that there could be some pressure on macadamias. But to what extent is always the question,” he said.

Whyte said the cheaper nut varieties from the US could result in the more expensive macadamias being replaced in the market.

On this Van Rooyen cautioned on the importance of not being over-reliant on one market. “The biggest threat on a marketing level for the whole industry is the over-reliance on single buyers. This includes exclusively supplying NIS markets and not being diversified in one’s offering into the world. A healthy balance between NIS and kernel markets is needed,” he said.

And planting single varieties in the orchards was not only high risk due to disease, but also when linked to market demand, White said.

“Beaumonts are a perfect nut for the Chinese NIS market but do not crack well for kernel. So, focusing on a single variety is by default focusing the industry on a single market. I always believe a healthy spread in terms of variety choice and marketing is a better way to go.”

Continuing domestic threats included land insecurity in South Africa, which Whyte said was effectively holding back on-farm reinvestment.

“We have seen how allowing trees to get too old has affected output. But it’s a very tough call for farmers to remove 30-year-old trees and replant in the current uncertainty. A macadamia farmer makes a decision today which will have impact in five years’ time. So, in these circumstances farmers don’t do what they know they should.”

Marketing and prices

While farmers enjoyed record price levels in 2020 on the back of a weaker rand, this year the price correction many have anticipated has finally arrived, albeit in a limited dose.

“This year we have a stronger rand and a reduction in the US dollar price due to the Covid-19 pandemic, so we expect prices to be about 5% to 10% lower for the 2021 season,” Whyte pointed out.

“However, a weaker rand can change this outlook very quickly. Macadamia farmers will still get an excellent return while a slightly softer price does help in launching more macadamia products, which is very important for long term sustainability. There is a silver lining!”

Cormack said macadamia demand in China had come under pressure mostly due to price competition from other nut varieties, which had led to online companies significantly reducing promotional spend on macadamias.

“This may have reduced demand for the largest and most premium of macadamias. On the other hand, there is a rapidly developing market in the third and fourth tier Chinese cities for smaller and slightly less-premium grades of NIS. In addition, different geographies are being affected differently by Covid-19. The US and Europe will continue to be heavily impacted by the pandemic but to date, demand for macadamias remains strong in most sizes. Also the Middle East and most of Asia have not been too badly affected by Covid.”

Opportunities

Van Rooyen said the key focus for the year ahead would be for the domestic industry to keep its head down and continue to supply quality products, on time, to the market.

“There is a lot of movement into the value-add sections of the market, especially on the smaller ingredient styles. But it typically takes a bit longer than a season to come to fruition.”

Cormack said for many years the biggest threat to the industry as a whole was rapid increases and decreases in product availability, caused by fluctuating crop sizes.

“Steady predictable crop growth will result in market growth and stable pricing. The more reliable the supply, the more attractive macadamias become for new product development and launches. We don’t see a lot of threat at a global level on the demand side as we still have considerable untapped demand. The unpredictability of the China market and the China crop is probably the biggest threat. As the biggest consumer of macadamias any significant shifts in that market ripple through to the global market. The rapidly developing kernel market in China also represents a significant opportunity for the industry.

“We also have an opportunity now to develop new markets since reduced traditional demand for ingredient styles has softened prices in these styles. This will promote new product development and invigorate demand. Longer term there are still many completely untapped markets to develop, including India (a potential trade agreement between Australia and India could facilitate this very quickly), Indonesia, Eastern Europe and Russia.”

Whyte said the increased supply globally over the past few years was a marketing challenge, but not necessarily a problem.

“With more supply there will be more opportunity to launch new macadamia products. We have already been working on some new product launches which should be with us in the years to come. There is also a lot of focus on macadamias in the vegan space and this is starting to gain traction. Although the volumes remain small we expect this to boom in the future.”

He warned that the focus on health markets meant added responsibility for farmers on the environmental impact of their farming operations. “Tree nuts enjoy an image as a more environmentally friendly source of protein and fat than meat and we benefit from this in the marketplace. However, the industry can be tarnished by irresponsible actions by just a few growers. Growers need to try to farm as responsibly as possible. Look after bees, use water efficiently, keep certain areas under natural bush if possible. Spray only registered chemicals, respect the withholding periods and always keep spray records.”

 

What were the final tonnages through the Ambermacs factory and were they as low as was predicted last year?

While the figures for our factory throughput are confidential, Ambermacs’ nut intake was up 20% due to an influx of new farmers and an increase in deliveries from our existing farmers. However, there was an overall drop in total South Africa macadamia production of 20% in 2020 versus 2019 (48,400mt versus 58,000mt) and considerably lower than the overall projection of 63,000mt predicted at the beginning of the 2020 season.

Do you have a clear idea now as to why the crop was as low as it was?

More than half of the South African macadamia orchards comprise Beaumonts, which flower later than other cultivars. Last year, the Beaumont flowering period was affected by extreme heat and in some areas, drought. This adversely affected the nut set and produced much lower yields than expected as a result, specifically for this cultivar.

How can that be mitigated in the season to come?

Less extreme heat during the flowering season, please! Ironically, we had the opposite this year: a number of orchards were affected by extreme frost that “burned” some several thousand trees, followed by a prolonged period of excessive atmospheric humidity, which caused Blossom Blight in some orchards. Early reports indicate the South African crop will be marginally better than last year, but in my opinion it’s too soon to say, particularly as we benefit from the high rainfall produced by Cyclone Eloise. I don’t think the Lowveld has seen so much rain in ten years; it’s great to see the dams filling and the ground water replenished. This will certainly contribute to larger fruit and will likely have a positive effect into the 2022 season as well.

What are the predictions for the season ahead?

Supply and demand dynamics for 2021 will be less predictable. The continued impact of the pandemic on global demand has not been uniform: for example, retailers who sell baked products, which include macadamia pieces such as cookies through retail chains, have slowed orders as those chains have been forced to close in the USA, causing a drop in demand for smaller styles, chips and pieces. Similarly, with a big Kenyan crop and slower global demand, prices of macadamia halves came under pressure during 2020 and this is expected to continue well into 2021, whereas large whole kernel continues to see strong demand in Europe and the US. The price spread between whole kernels and halves has widened and will remain wider this year than in the past. Shipping delays and a lack of containers will also have an effect on the timeliness of deliveries and some countries are imposing additional checks on foodstuffs crossing their borders. Nevertheless, we remain optimistic; we have secured some solid orders for both kernel and nut-in-shell and with global vaccination programmes well under way, we believe the industry will find consistency towards the second half of the year.

SAMAC estimates the South African crop to come in around 63,000t; in my opinion, it  might be more like 55,000t given recent conversations with farmers and the effect that Blossom Blight may have had on yields. On the other hand, we must remember the thousands of new hectares planted in recent years that are only now coming into production, which may boost total production significantly. Preliminary reports indicate that the Australians and Kenyans have had bumper crops this year; this information comes against a backdrop of slightly weaker current demand for macadamias globally combined with the continued effects of the pandemic. It is estimated that the price of macadamias may be 10%-15% lower this year than last. I am, however, optimistic that as a superfood, the future demand for macadamias will remain strong despite variable year-on-year pricing.

Are you able to give me some idea of the rainfall across all your supply regions?

The range over the past ten years has been 700mm-1200mm per annum for the Mpumalanga and Pongola regions. This summer, however, has seen exceptionally high rainfall.

The state of the orchards and the crop as you prepare to open up for the 2021 season?

Some orchards that I’ve seen are looking extremely good, particularly A4, 816 and Nelmac 2 blocks, but the Beaumont and Nelmac D varieties didn’t set as well as usual despite high flowering, resulting in a less than optimal nut set. Again, let’s wait and see if these rains will swell the fruit to make up the yields.

What are the yield predictions for the season ahead?

Depends who you speak to! Many farmers have told me that their crop will be marginally higher than last year while others expect a 50% increase. Yields in general have improved considerably over the past ten years due to higher quality farming practices; orchards are better laid out, with most farmers understanding the importance of correct pruning, irrigation, fertigation and a regular, effective spray programme. A minimum of 3mt per hectare is now the expected norm, with some orchards yielding 6t-7t per hectare.

How do the figures compare with last year’s figures?

The yields this year should be similar to last year, perhaps a touch lower on some cultivars, notably the Nelmac D, which doesn’t seem to have had a good nut set, and Beaumonts, which again this year might be problematic. The 816, Nelmac 2 and A4 cultivars, however, are looking strong so this should help make up any yield shortfalls on Beaumonts and Nelmac D.

What has made the difference?

Heat versus water availability: in a season where the summer was very hot and the rains came late (mid-December), irrigation did not meet minimal requirements. As a further consequence, the size of the nuts was also projected to be smaller this year – until the rains of late January came. Let’s see.

Any new strategies to cope with increased pest loads?

Farmers to whom we have spoken report minimal pest problems this year, possibly the result of extreme cold during this past winter. I defer to the professionals on pest-control strategies: according to Schalk Schoeman, the two-spotted bug remains the main stinkbug species when nuts appear on trees, with their population peaking in the second half of January. But it is recommended to spray only lightly in February because the level of natural enemies to these bugs is highest during this period. Depending on cultivars, it is “highly unlikely that  any chemical application from January forward will be economically feasible”.

How is Ambermacs coping with the Covid pandemic when it comes to the safety of staff, export requirements etc.?

Our factory is a sterile environment already, but this pandemic has necessitated even more stringent controls. The well-being and safety of our staff is paramount, and masks are mandatory at all times. In addition to a weekly visit by a mobile medical unit for routine checks, we introduced temperature screening at the gate, along with antiseptic spray tunnels for all staff entering both the premises and the factory. For kernel export, all our goods are vacuum-packed in a sterile environment; containers arrive by truck which are fumigated then packed by our staff, with almost zero interaction with the driver to protect all from the risk of possible cross-contamination.

Have export destinations put any further responsibilities on to export protocols?

There have been more delays in all shipping routes worldwide and there is talk of more stringent controls imposed on US and European borders. In addition, the EU is now imposing controls on quantities of produce being imported from various countries; we as an industry are still evaluating the implications of this on macadamias.

Where do you see challenges in the year ahead?

Uncertainty is the big challenge for 2021. Global demand metrics are contradictory, as are supply predictions for the year, coupled with the oscillating pandemic infection rates and variable lockdown rules. Six months ago, we started planning a two-day macadamia expo at our factory for early March, but this may have to be postponed until this whole thing blows over. Foreign exchange risk will need to be soberly managed; farm visits, nut deliveries and collections will also have to be conducted with stricter awareness of Covid and all interactions with individuals will need to engender greater care.

Impact of Covid on the workforce?

The pandemic has affected all of us, or certainly will have done by the time it’s all over. Some of our staff have lost loved ones and there is a risk that employees may test positive and have to self-isolate. They fear missing pay-cheques if they stay home so we have a Covid policy in place to allow staff two weeks’ paid leave for self-isolation if needed, in addition to their holiday allowance. This is to prevent staff from coming to work sick out of fear of losing pay. The system is open to abuse but on balance it is a necessary step to ensure the well-being of us all and to minimise transmissions. This policy, in conjunction with antiseptic spray tunnels, mandatory mask-wearing, strict hygiene controls, temperature checks and regular hand-washing, should ensure continuity of production and the protection of all our staff.

What are you looking forward to in the industry in 2021?

We look forward to building more partnerships with farmers and customers alike; as an industry we need to raise the awareness of macadamias’ nutritional benefits as a superfood and generate more interest and appetite for these nuts worldwide. At Ambermacs we are developing value-added products for European retail markets, from snacks and ingredients to milks, to create demand for macadamia products. As an industry, most processors have been investing in extra capacity to accommodate the burgeoning plantings of macadamia trees across the region and I foresee a standardisation of South African quality that will become the gold standard for macadamia nuts around the world.