Drought Dampens 2016 Agricultural Outlook

Absa Agribusiness hosted a Media Round Table on 18 November 2015 where they launched their Agricultural Outlook for 2016 and shared the latest trends and forecasts for the agricultural industry.

For the first time since Absa Agribusiness began publishing its Agricultural Outlook a few years ago, an Africa review was included this time around, covering countries Barclays Africa has a geographical footprint in, namely Botswana, Ghana, Kenya, Namibia, Nigeria, Zambia as well as Zimbabwe; demonstrating the bank’s commitment to drive its Africa Agri-banking operations and deepen it’s understanding of the fragmented yet dynamic landscape.

According to the 2016 outlook, the drought currently ravaging several sub-Saharan Africa has resulted in crop damage, and since South Africa produces and exports the largest crop in Southern Africa, neighbouring countries will be adversely affected.

The respective regions on the continent have been faced with a number of hurdles since the beginning of 2015 and among these are the severe dry conditions ravaging the western regions of southern Africa, specifically Zimbabwe, Botswana, Namibia and South Africa. The eastern coast of South Africa, Mozambique and Malawi were hit by a tropical cyclone which aggravated seasonal rains and caused floods. On the upside, however, was the depreciation of the Namibian dollar, which is pegged to the South African rand and has increased the opportunity for Namibia to increase its exports, especially in beef. This has been timely as the severe drought experienced in the country has necessitated producers to proactively market their stock and thus the cull the national herd, supporting its move to become the first African country to export bone-in beef to China as of August this year.

The drought has affected the maize outlook for a number of countries, with Zimbabwe expecting a shortfall of 700 000 tonnes of maize following a 49% lower maize harvest year-on-year. This shortage was compounded by numerous producers switching to tobacco production which saw higher profitability as a result of the export market in 2013 and 2014. Going into 2016, Zimbabwe will depend on maize imports to feed its people, amidst the high transport costs and poor border controls. The resultant high feed prices will particularly affect poultry farmers who have already been taking strain from the low anti-dumping import tariff of USD 1.50/ kg and have thus been struggling to compete with the influx of chicken imports. The trend of farmers disinvesting from poultry production in the country is expected to continue.

Botswana received 70% less rain this year and naturally, the grain and beef producers have taken strain from the drought since the beginning of this year, following the drought of 2013. Sorghum producers, however, have been fortunate as they have harvested sufficient yields as a result of the crop’s drought-resistant attributes. The outlook on maize production and beef prices is projected to improve, should producers receive adequate rainfall in the next season.

Given the dry conditions persisting in Zambia’s neighbouring countries, maize production is expected to grow into 2016, supported by high maize prices. Zambia will thus have an opportunity to export even more maize, while foreign investment is anticipated to grow; improving infrastructure and local production capacity. Due to low levels of water in the Kariba dam, Zambia along with Zimbabwe, have been experiencing power deficits which have negatively affected the agricultural industry. The industries expected to be impacted most include dairy processing, milling and crushing plants. A limiting factor facing maize farmers in the country, however, is the Zambian government bans on exports of maize. Owing to the serious storage inefficiencies Zambian producers’ experience, farmers are unlikely to increase production of maize in the new season.

With regards to current trends in the agricultural industry, technology is expected to reshape businesses as well as countries globally. While this is no new phenomenon, this trend would narrow the education gap that exists in populations across the globe and positively contribute to the size of the middle class, which is anticipated to exceed 3.5 billion people in 2050. The demand shift from the West to the East is the second most prevalent trend. This development has had a growing impact on the nature of business conducted globally with implications on macroeconomic factors, influencing the performance of those involved.

With a growth in the consumption of food driven by population growth globally, led by Asia and Africa; there is a growing production opportunity for investors to move their operations to Africa. This is supported by a recent increase in companies moving their production processes out of South Africa and into other sub-Saharan countries. The availability of land for crop production, the single most important resource in agriculture, is anticipated to be at 1.357 million hectares in Africa in the year 2050. This figure is approximately double what is forecast for South America and Asia and furthermore stresses the potential that Africa holds in feeding the world.

The projected real GDP growth for the sub-Saharan African countries surpasses that of developed countries, reaffirming the opportunities available on the continent. In addition, the Tripartite Free Trade Agreement between the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern Africa Development Community (SADC) will support intra-regional trade among the three regional blocks. Successful implementation of the agreement will lead to harmonisation of tariffs between countries, leading to increased opportunities for liberalised trade amongst member countries.

The Outlook placed particular emphasis on the need for producers to increase productivity in order to be competitive amidst declining terms of trade. Farmers are predominantly price takers since they have no control over prices. Their focus should be on how to boost their volumes as well as use their inputs more efficiently in order to benefit from economies of scale.

The general sentiment for the industry was therefore positive for the upcoming year, given the challenging start that sub-Saharan countries have experienced since the beginning of 2015.

For more information on the 2016 Agricultural Outlook, please contact Miss Tlale Matseke, Regional Commodity Value Chain Coordinator at SACAU. Email: tmatseke@sacau.org