Pictured Above: Marlene Louw, senior agricultural economist at the Absa Group

As the world teeters on the brink of World War III and foreign policy tensions between South Africa and the United States add impetus to worsening trade relations between the two countries, experts are warning of a tough year ahead, particularly as the country heads to the polls.

Economists and industry experts at the AmberMacs expo earlier this year highlighted world and domestic developments that could have an impact on agricultural operations in 2024:

  • The possibility of world war
  • South Africa’s worsening relations with the United States
  • Elections in 50 countries, including South Africa
  • China economy slows
  • India a promising export destination
  • Volatile input cost prices
  • Low prices drive mac demand
  • Agri-processing is key for success in the mac sector

Delegates at this year’s AmberMacs Expo at White River, Mpumalanga, were handed a stark picture of the year ahead by several economists who headlined the event.

The downward spiral in the economy is expected to intensify, while mounting political tensions across the globe – the Russian war in Ukraine, and the conflict in the Middle East, which is igniting a wider conflict between Iran and the US – have global markets jittery.

Dawie Roodt, chief economist at the Efficient Group, said: “The world has never been this close to a potential world war since the 1960s.”

(In 1962 the former Soviet Union planned to place nuclear missiles in Cuba after a failed invasion of the island by the United States, better known as the Bay of Pigs invasion.)

China’s economy was pegged as the star performer in 2023 – despite its property market crisis – growing at a rate of 12%. But, the economist warned, expectations for the Red Dragon were now pegged at a growth average of just 3% a year, especially as the impact of the property market crash deepens across the value chain.

“Last year China’s population contracted for the first time since the 1960s. This is a major headwind for economies, as we are seeing in Europe. As President Xi Jinping enforces more economic reform, we will see a poorer and older Chinese population,” Roodt said.

Growth in the single market is also on the skids as the European Union (EU) finds itself in a recession coupled with an ageing population, adding further downward pressure on economic activity.

On the home front, Roodt detailed how South Africa had faced one crisis after another since former President Jacob Zuma came to power in 2009. “Local authorities and state-owned enterprises have collapsed. This has significant consequences since it means we don’t have access to basic service provision.”

Dawie Roodt, chief economist at the Efficient Group. (Image: LinkedIn)

As a result, he expected a coalition government to take over the reins of power after the national election later this year. This, he added, would deepen investor uncertainty beyond polling day, leading to weak economic growth and volatile exchange conditions.

For the macadamia industry, this forecast suggests volatile and higher input costs, putting major strain on budgets and shrinking profit margins for the year ahead.

Marlene Louw, who is the senior agricultural economist at the Absa Group, said South Africa’s agricultural sector had been under strain since 2022, which had culminated in negative sentiments and a decline in the agri-business confidence index. “Over the past two years, all agricultural industries have faced headwinds, and macadamias were not spared as they were in previous years. Delays and inefficiencies in our ports, increased political uncertainty, high interest rates, loan repayment issues, and climate-related issues are weighing down the sector,” she said

Farming at a loss

While many of South Africa’s star commodities like citrus, avocados and blueberries have recently lost their shine, macadamia farmers’ troubles were compounded by the spectacular fall in profits. As nut prices hit the roof in 2018, many farmers overcapitalised while paying little attention to efficiencies. The fallout from the price crash and input cost hikes meant operating costs and debt levels were suddenly unsustainable.

Compounding the problem was that many calculations were based on average yields of 4.5 tons per hectare, while research has shown a more realistic 2.6 tons per hectare – and only on full bearing trees.

And, in a presentation at the expo event by the managing director at Source BI, Juan Winter, the crux of the matter was highlighted. In 2019, macadamia farmers earned on average R203 910 per hectare compared with R82 518 per ha in 2023.

Juan Winter, Source BI

“Macadamia nut prices dropped more than anyone thought. There were three consecutive years of price decreases. Then input costs rose rapidly, taking production costs per hectare from R56 000 in 2019 to R69 000 last year. Unsound kernel recovery (USKR) has also increased, going from 1.8% in 2020 to 2.8% last year,” Winter said.

While most of South Africa’s orchards have yet to reach full maturity, supply and demand will stay in buyer favour – at least for a few more years – until consumption increases.

Winter said most of the trees in this country were in the five- to six-year-old category, with 18% seven to eight years old and 13% at three to four years old.

“There is still a lot of volume that needs to come on board. The wave is only starting now,” he said.

Lower prices drive demand

The experts at the event agreed, however, that the lower prices were stimulating demand and that interest from product developers had picked up, which they believed boded well for improved pricing stability in the years ahead.

Both Winter and Louw believed a price increase of between 15% and 20% was possible this year. “Most of South Africa’s stock is sold, meaning the season starts with a clean slate,” Winter said.

Louw predicted nut-in-shell (NIS) prices could come in at US$2,80 per kg this year, reaching US$3,00 next year and US$3,20 in 2025, while Winter predicted income per hectare would increase to about R121 87, while input costs would mirror those of last year, totalling about R67 000 per hectare.

Roodt’s oil price prediction was pegged at US$80 per barrel of Brent crude, with scope for further decreases depending on whether international politics derailed supply.

Both NIS and kernel demand were looking positive for the year and although the EU economy was lagging, the US – which is a key market for kernel – remained on a bull run.

“It’s not the recession we expected,” Roodt said. “The US seems to be growing without an end in sight, adding 400 000 jobs each month. Their unemployment rate is below 4%, which means they have spending power. The US is also expected to start cutting interest rates this year, and South Africa will follow suit.”

Another market with high potential for South Africa’s macadamia nuts is India.

India’s population growth overtook China last year, with little sign of slowing down. “The Indian economy will shoot out the lights in the next decade. The population is young and urbanising and this creates a lot of opportunity. This is a market you need to get your product in to,” Roodt urged the AmberMacs gathering.

Giraf mac milk – Giraf macadamia nut milk is a vegan milk-replacement produced in South Africa by AmberMacs. This is one of the many value-added products that managing director Philip Moufarrige believes will bring sustainability to the industry in the long term.

The right position

This year’s price recovery is due mainly to an enlivened Chinese market, but economists warned the macadamia sector not to rely too heavily on the Asian NIS market as long-term growth prospects were not positive.

Philip Moufarrige, managing director of AmberMacs, said he believed by exporting nut-in-shell the industry was giving potential profit away to the Chinese. “The only way to bring long term sustainability to the industry is to add value in South Africa before exporting. This means developing our own ranges of butters, flours, milks and cheeses,” he said.

Roodt agreed inadequate value-add to the crop by the domestic industry was a problem. “It’s understandable – we don’t have a very competitive macro environment, electricity is expensive and unreliable, it’s dangerous to do business (in this country) and difficult to get the product out of the country via our ports. But by collaborating across the industry, overhead costs can be shared and economies of scale developed that would make value-adding more feasible. Don’t expect government to put systems and infrastructure in place to make it easier; find your own solutions and work around them,” he said.

Moufarrige said he believed some positives had emerged from the turmoil of the previous two years, which included farmers having become leaner and more efficient while examining their expenditure and costs more closely. “Looking ahead, I would urge them not to forget the lessons learned during these past two years. Don’t skimp on spray programmes, learn (about) the benefits of using natural predators, and keep planting. The prospects for the industry still look favourable,” he added.