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Tuinbou en bosbou

sitrus

Absa bank het al die afgelope 100 jaar in landbou belê en sien uit na die volgende 100 jaar saam met ons boere. Bekende name in die landboubedryf gaan verskillende vooruitsigte soos die ekonomie, die weer, gewasse, groente, vee ens vir 2017 bespreek. Hou ons webblad dop om almal te lees.

  • Pome fruit

By  Adri Esterhuyse – Adri.Esterhuyse@absa.co.za

International trends

China and Russia have the potential to hold the international apple industry hostage.

Production

From 1995 China’s apple production increased from 14 million tonnes to 43,1 million tonnes in 2015, making China responsible for just over 50% of world apple production. In 2008 China was responsible for only 28% of world apple production. China is followed by the US with a mere 4,5 million tonnes, followed by Poland and Turkey, with respectively 3,3 million tonnes and 2,7 million tonnes. World apple production was recorded at 85 million tonnes in 2015 as against 49 million tonnes in 1995. This growth was mainly due to China. The top 15 producing countries are responsible for 80% of apple production. World apple production is expected to reach 100 million tonnes by 2025 compared to the 85 million tonnes at present. This is the result of an increased harvesting area, better genetic planting material, productivity and technology. In Asia, led by China, production is expected to increase from 55 million tonnes to 65 million tonnes. Better productivity means that the average world yield continues to increase, especially in China. A huge driver in the growth of production was the good economic growth in China, driven by a rising domestic demand. Growth in apple-exporting countries was largely based on the expected domestic growth of China. With China’s economic growth moving sideways, the domestic demand for apples can also follow this trend. As China’s production continues to grow, this could result in overproduction, forcing China’s apple industry to expand their exports of fresh apples and apple juice concentrate.

Trade

Russia banned the import of perishable products from the EU in August 2014, which resulted in the price of fresh apples declining across Europe. The biggest loser in this regard has been Poland. Russia used to be Poland’s biggest export market of fresh apples and apple juice concentrate. The closure of the Russian market resulted in overproduction and is forcing Poland to look for alternative markets. Argentina and Chile are strong competitors with South Africa in the EU pear market, while the US is currently not a big importer of South African pears. Apples and pears are produced at a lower cost in Chile than in South Africa and, compared to South Africa, fewer pests occur there. Thus, the phytosanitary aspects are of less concern in Chile than in South Africa. As a consequence Chile has gained on market access. However, the logistics involved in the Chilean supply chain is more expensive. While South Africa beats Chile as far as eating quality is concerned, the Chilean pears are larger. In 2015 approximately 8,4 million tonnes of apples produced worldwide were exported. This included trade between European producers, which was approximately 2,6 million tonnes in 2015.

This internal trade was led by Italy, France and Poland. Due to the Russian ban and growth in production, more apples will be available in this market, forcing these countries to look for alternative markets. With slower economic growth in China, that country is expected to start exporting more apples. This means that more apples will be available for exports, putting further pressure on international prices. Despite the Russian ban, Russia remains the biggest single importer of apples, followed by the UK and Germany. The European member countries combined – including the UK − are responsible for 37% of the import volume. The UK continues to be an important export destination for South Africa, and receives 25% of South African exports. The top 10 exporting countries are responsible for 75% of world exports. The top exporters are Italy, the US, Poland and China. The top southern hemisphere export countries remain Chile, South Africa and New Zealand – all focusing on different market destinations.

Domestic trends

Production

Over the past 10 years the area planted with apples in South Africa increased by ±3 000 ha, with current plantings standing at 23 600 ha. Apple hectares mainly increased in the Ceres area, which was responsible for ±2 000 ha new orchards in the past 10 years. Some 31% of apple orchards are not yet 10 years old. These young orchards, together with more high-density plantings, will result in production increasing over the next 10 years to an expected 1,05 million tonnes from the present 0,9 million tonnes. This increase will put pressure on the present packing and cooling infrastructure. The production of pears in South Africa is also expected to grow by 18% between 2014 and 2020. The area planted under pears is not as big as that of apples.

Trade

With the Russian ban continuing, more European apples will be exported to Africa, Eastern Europe and the Middle and Far East. These destinations are also important for South African exports. Apple exports represent 30% of South Africa’s exports to Africa and 24% of its exports to the Far East. As many of these countries’ economies depend on their oil industry, their buying power will be under pressure. With the expected increase in world production, prices will be under greater pressure. This will also have an impact on South African exports even though it is a southern hemisphere producer. South Africa exports 50% of the country’s pears to the EU and Russia. Russia imports 7% of the pears, countries in the Middle East 18% and those in the Far East 15%.

Outlook

Over the past five years the rand weakened year on year against the dollar by an average 17%, resulting in good returns for apple producers. In view of this, producers will continue their high focus on the export market. In 2015, ±43% of the total crop was exported. Local fresh consumption is ±28% of the normal crop. With increased production, exports as a percentage of the South African crop are expected to increase. Africa will continue to be a major export destination for South Africa. Consumption is growing in developing countries. This is mainly owing to positive population growth and growth in the economic well-being of the consumers. In Africa, consumption has grown from 0,26 kg per capita in 1990 to 1,73 kg per capita in 2011. Over the past five years South African exports to Africa have grown by 96% and exports to the Far East and Asia by 38%, while exports to the UK, Europe and Russia have declined.

  • Citrus

by Wessel Lemmer – Wessel.Lemmer@absa.co.za

Oranges

International trends

The prospects for citrus generally appear to be promising, particularly if South Africa, like the countries that are its competitors, succeeds in entering into successful preferential trade agreements for exports, and the rand systematically weakens further.

Production

The world production of oranges reached 47,9 million tonnes in 2015. The world production of oranges is expected to stagnate at about 48 million tonnes until 2021. In 2015, the largest producer of oranges is Brazil at 16,7 million tonnes followed by China, the EU, US and Mexico. South Africa produced 1,69 million tonnes, in 2015, which is 3,5% of global production.

Trade

The world exported nearly 4,2 million tonnes in 2016. This figure is expected to grow to 5,2 million tonnes in 2021. World imports were just less than 3,8 million tonnes in 2015, with an expected growth in imports to 4,6 million tonnes. Until 2021 the consumption and processing of oranges should remain relatively stable at 30 million tonnes and 18,6 million tonnes respectively. While the production and consumption levels will stay the same, the overall trade in oranges is expected to increase.

Domestic trends

Production

South Africa’s production of oranges is expected to increase by 3,9% a year from 1,7 million tonnes to almost 2,1 million tonnes by 2021. The increase in expansion is expected to be driven by the weakening rand, which increases South Africa’s competitiveness in the export market.

Trade

Orange exports should increase by 5% a year from more than 1 million tonnes in 2015 to almost 1,4 million tonnes in 2021. Export prices may remain at higher price levels of anything between R5 400/t to R6 000/t. The domestic consumption of oranges (including fresh produce market sales, processing and other consumption) may increase by 2,8 % a year from 624 407 tonnes to 732 548 tonnes. Prices on the fresh produce market are expected to be supported by the additional exports of oranges. Consequently, orange prices on the fresh produce market may increase by an average increase of 11,6% from R2 543/t in 2015 to R4 306/t in 2021. The increase in prices is supported by the weakening rand, which favours an increase in the export of oranges to domestic consumption.

Note: A 10% year-on-year increase in the price of oranges seems extreme. It should be evaluated against the year-on-year decline in the value of the rand against the US dollar. The forecast year-on-year expenditure on food is an increase from 7,76% in 2015 to 14,18% in 2021. Furthermore, the rand is expected to weaken from R12,77 to the US dollar to R19,92 by 2021. This represents an annual weakening in the exchange rate of 9,3%.

Outlook

The outlook for oranges remains positive for the next five years until 2021. Although the world production in oranges tends to remain flat, domestic budwood sales indicates an expected decline in domestic production. The weak rand and increased expenditure on food indicates that the demand for oranges will increase. These factors support domestic prices following export prices to a higher level.

Grapefruit

International trends

Production

The world production of grapefruit reached 6,4 million tonnes in 2015. The world production of grapefruit is expected to increase to 8,3 million tonnes until 2021. In 2015, the largest producer of grapefruit was China at 4,3 million tonnes, followed by the US, Mexico, Turkey and Israel.

Trade

The world exported nearly 759 000 tonnes in 2016 and this is expected to grow to 816 000 tonnes in 2021. World imports were 684 000 tonnes in 2015, with an expected change in imports to 674 million tonnes in 2021. Until 2021, produced 405 000 tonnes in 2015, which is 6,4% of the global production. The consumption and processing of grapefruit should increase from 5,6 million tonnes and 710 000 tonnes respectively to 7,5 million tonnes consumed and 760 000 tonnes processed. While production and consumption  levels will increase, the overall trade (imports and exports) in grapefruit is expected to stay relatively unchanged. Grapefruit production and consumption will increase in China.

Domestic trends

Production

South Africa’s production of grapefruit is expected to increase by 3,9% a year from 385 774 tonnes to almost 475 000 tonnes by 2021. The increase in expansion is expected to be driven by the weakening rand, which increases South Africa’s competitiveness in the export market. South Africa is the major grapefruit producer and exporter in the southern hemisphere.

Trade

Grapefruit exports should increase by 3,9% a year from more than 224 000 tonnes in 2015 to almost 276 000 tonnes in 2021. Export prices may increase from R5 152/t in 2015 to R8 700/t in 2021. The domestic consumption of grapefruit (including fresh produce market sales, processing and other consumption) may increase by 3,8% a year from 161 607 tonnes to 198 384 tonnes. The majority (95%) of the total domestic consumption is processed. Prices on the fresh produce market are expected to be supported by the additional exports of grapefruit. South Africa exports 58% of the total production, while nearly 40% is processed locally. Consequently, grapefruit prices on the fresh produce and export markets may increase at an average of 11,5% from R3 887/t in 2015 to R6 582/t in 2021. The increase in prices is supported by the weakening rand that favours an increase in the export of grapefruit to domestic consumption. Note: An 11,5% year-on-year increase in the price of grapefruit  seems extreme. This should be evaluated against the year-onyear decline in the value of the rand to the US dollar.

Outlook

The outlook for grapefruit remains positive for the next five years until 2021. South Africa is the main exporting country in the southern hemisphere. Except for expansions in China the production of grapefruit tends to remain flat. Domestic budwood sales indicate an expected decline in production. The weak rand and increased expenditure on food indicates that the demand for grapefruit will increase not only in the domestic market but especially for exports to Asia. These factors support domestic prices to follow export prices to higher levels.

Lemons

International trends

Production

The world production of lemons reached nearly 6,9 million tonnes in 2015. The world production of lemons is expected to increase to 7,6 million tonnes in 2021. In 2015, the largest producer of lemons was Mexico at 2,3 million tonnes, followed by Argentina, the EU, the US and Turkey. South Africa produced 330 000 tonnes in 2015, which is 4,6% of the global production.

Trade

The world exported nearly 1,8 million tonnes in 2016 and exports are expected to grow to 2 million tonnes in 2021. World imports were just more than 1,6 million tonnes in 2015, with an expected increase in imports to 1,9 million tonnes in 2021. Until 2021, the consumption and processing of lemons should increase from 4,6 million tonnes and 2,1 million tonnes respectively to 5,2 million tonnes consumed and 2,4 million tonnes processed. The largest increase in lemon consumption is expected to take place in the US and the largest increases in processing in Argentina.

Domestic trends

Production

South Africa’s production of lemons is expected to increase by 2,7% a year from 330 000 tonnes to more than 383 000 tons by 2021. The increase in expansion is expected to be driven by the weakening rand, which increases South Africa’s competitiveness in the export market. Next to Argentina, South Africa is the largest lemon producer and exporter in the southern hemisphere.

Trade

Lemon exports should increase by 7,3% a year from 225 710 tonnes in 2015 to almost 325 000 tonnes in 2021. Export prices may increase 6,4% a year from R12 279/t in 2015 to R16 965/t in 2021. The domestic consumption of lemons (including fresh produce market sales, processing and other consumption) may increase by 12,2% a year from 113 393 tonnes in 2015 to 196 679 tonnes in 2021. The greater part (90%) of the total domestic consumption is processed. Prices on the fresh produce market are expected to be supported by the additional exports of lemons. South Africa exports 74% of South Africa’s total production, while nearly 22% of South Africa’s production is processed locally. Consequently, lemon prices on the fresh produce and export market may increase at an average of 6,4% from R7 247/t in 2015 to R10 013/t in 2021. The increase in prices is supported by the weakening rand, which favours an increase in the export of lemons relative to domestic consumption.

Note: An average 6,3% year-on-year increase in the price of lemons until 2021 seems limited compared to recent increases. This should be evaluated against the year-on-year potential increase in production in the southern hemisphere. Note that a large portion of the harvest is processed locally while most South African lemons are exported. Because most exported lemons are processed, the product can be stored for long periods, other than soft citrus, which is a more perishable product. However, lemon prices may not follow an expected weakening rand because increases in production and exports, as well as competition by Argentina, may dampen future international price increases.

Outlook

The outlook for lemons remains positive for the next five years until 2021. South Africa is the main exporting country in the southern hemisphere. Except for a recovery of production and exports from Argentina, the production of lemons tends to increase globally. Domestic budwood sales indicate an expected increase in production. The weak rand will support future increases in export prices to countries such as Asia but also in prices for the domestic market.

Soft citrus

International trends

Production

The world production of soft citrus reached nearly 28,9 million tonnes in 2015. The production of soft citrus is expected to increase to 34,9 million tonnes in 2021. In 2015, the largest producer of soft citrus was China at 20 million tonnes, followed by the EU, Japan, Morocco and Turkey. South Africa produced 205 000 tonnes in 2015, which is 0,7% of the global production.

Trade

The world exported nearly 2,3 million tonnes in 2015 and exports are expected to grow to 3,3 million tonnes in 2021. World imports were just more than 2,1 million tonnes in 2015, with an expected increase in imports to 2,9 million tonnes in 2021. Until 2021, the consumption and processing of soft citrus should increase from 27,2 million tonnes and 1,5 million tonnes respectively to 35,3 million tonnes consumed and 1,9 million tonnes processed. The greater part of the increase in soft citrus consumption and processing is expected in China.

Domestic trends

Production

South Africa’s production of soft citrus is expected to increase by 9,5% a year from 202 563 tonnes to more than 520 449 tonnes by 2021. The increase in expansion is expected to be driven by the weakening rand and global seasonal demand. South Africa competes seasonally in the export market. Next to Argentina South Africa is the largest producer and exporter of soft citrus in the southern hemisphere.

Trade

Soft citrus exports should increase by 9,5% a year from 150 002 tonnes in 2015 to almost 456 960 tonnes in 2021. Export prices may increase from R11 392/t in 2015 to R15 783/t in 2021. The domestic consumption of soft citrus (including fresh produce market sales, processing and other consumption) may increase by 3,5% a year from 52 561 tonnes in 2015 to 63 488 tonnes in 2021. Just more than half (54%) the total domestic consumption was processed in 2015. Prices on the fresh produce market are expected to be supported by the additional exports of soft citrus. South Africa exports 74% of the country’s total production while 14% of South Africa’s production is processed locally. Consequently, soft citrus prices on the fresh produce and export markets may increase from R5 606/t in 2015 to R7 767/t in 2021. The increase in prices is supported by the weakening rand and an increased demand that favours an increase in the export of soft citrus, as well as domestic consumption.

Note: A 9,5% year-on-year average increase in the price of soft citrus is supported by a weakening exchange rate and export demand. This should be evaluated against the year-on-year decline in the value of the rand to the US dollar.

Outlook

The outlook for soft citrus remains positive for the next five years until 2021. South Africa is the main exporting country in the southern hemisphere. The potential to expand in the production and consequent exports of soft citrus is clear from the above graph. South Africa is able to supply the world during a unique market window. There is ample opportunities to expand on exports. Domestic budwood sales indicate an expected sharp increase in production. The large demand in the market window and the fact that soft citrus is the most perishable product of the various types of citrus may offer unique export growth opportunities. The weak rand, the seasonality of production and the unique export window in the northern hemisphere will support future soft citrus prices in both the domestic market and for exports. These factors support further increases in domestic production.

  • Table grapes

by Wessel Lemmer and Napier de Kock – Wessel.Lemmer@absa.co.za

International trends

Production

South Africa exports about 90% of the total table grape crop produced annually. A small percentage (1,2%) is exported to Africa. Table grapes are a highly perishable product. Maintaining the logistical cold chain for exports is a prerequisite but has not been well established for African markets. India is another potential market but similar problems are experienced in terms of the cold chain requirements. The market in India is currently relatively small as imported table grapes are mainly used for consumption in restaurants. Peru and Chile compete directly with South Africa in the traditional EU and UK market destinations during the same marketing window. The grapes in Peru are produced about 150 km south of Lima and irrigated with borehole water originating from underground sources or aquifers. Peru enters the export market from week 34 to week 17 compared to South Africa and Namibia, who enter the export market from week 45 to week 18. The majority, about 80%, of the South African varieties are seedless while the majority of the varieties in Peru (65%) still contain seed. Peru is an emerging market and produces good-quality grapes, at an early stage in the marketing window.

Chile comes on board two weeks after South Africa, namely from week 47, and remains in the export market until after week 20. In 2015/16 Peru’s exports reached a weekly high of about 25 200 tonnes a week during week 49. South African exports peaked at 27 000 tonnes in week 3 while exports from Chile topped just more than 66 300 tonnes in week 10. Note that the production of table grapes in Chile is three times the size of production in South Africa. However, Chile is currently not an important and reliable exporter of table grapes of good quality. The labour market in Chile is expensive and unreliable, impacting negatively on production.

Trade

The consumption of fruit is part of the culture in Asian countries such as Thailand, Indonesia and China. Some of these countries do not produce table grapes and are dependent on imports. Markets in the Far East are seen as attractive destinations for exports. The joint import share of six countries in the Far East, namely China, Hong Kong, South Korea, Indonesia, Vietnam and Thailand is 18,5% of total world imports. This compares to the import share of the US (15,1%), the UK (8,4%) and Germany (8,0%). The UK is an important trading partner for South Africa. Brexit has led to a weakening pound relative to the euro. The UK and EU are the most important export destinations as approximately 80% of our table grape exports are destined for the EU and UK markets. Following the Brexit vote and the resulting weakening of the pound, exporters and producers have run the risk of earning less compared to previous years.

Although the pound has weakened, the currency is still stronger than the euro. Since the Brexit vote the rand has strengthened to R17 and lower to the pound. Table grape producers break even at an exchange rate of R18 to the pound. Should the rand weaken to R19 to the pound, the profitability of table grape production could improve. Our future competitive growth to countries in the Far East is of critical importance. We need to negotiate increased market access for the export of table grapes. Supportive bilateral trade agreements are necessary but South Africa is falling behind. This will limit our future export growth for table grapes.  Phytosanitary requirements for exports from Africa to the EU will remain an issue as special conditions need to be met to prevent pests being exported to the EU market.

Domestic trends

Production

The deregulation of agricultural marketing in South Africa has offered opportunities for South African producers to pool their resources and jointly export their grapes. Fruit breeding has developed in accordance with consumer needs and, since deregulation, a couple of table grape varieties have been commercialised. They include a range of varieties, of which several have highly unusual flavours and shapes. These varieties are mainly seedless with a good eating quality. The aim is also to develop cultivars that require less labour. Two of the interesting new cultivars include Cotton Candy and Candy Hearts. Cotton Candy is a white seedless variety tasting like candy floss and Candy Hearts is a midseason red seedless variety tasting like butterscotch. The other cultivars attracting attention are Joy Bells with bell-shaped berries and other varieties with elongated shapes. Increased obesity in the population has created an opportunity to market table grapes as a healthy substitute to curb the consumption of sugar. The innovative breeding of new cultivars to meet consumer demands or to introduce cultivars consumers cannot imagine going without has introduced a higher replacement rate in the table grape industry compared to the wine industry. Led by innovation, the average age of a vineyard planted for use as table grapes is eight years compared to the average age of 15 years for a vineyard planted for making wine. Consequently, the replacement cost is double that of wine grape producers. Nevertheless it is worthy to note that, in terms of years, a block of table grapes breaks even with cost earlier than a block of vine. Some analysts are concerned that the industry is developing fashionable cultivars with a short demand cycle of say five years, while investment may require a period of 15 years. Since deregulation, individual producers in the table grape industry have learned to innovate in order to survive ever-changing market conditions and domestic competition among individual producers introduced by deregulation.

Except for the Olifants River region, the production of table grapes has not been affected by the drought which occurred during the 2015/16 production season. Producers in the Loskop region allocate water in favour of permanent crops compared to annual crops. Despite the drought, the producers of table grapes have experienced excellent gross incomes over the past four years. The industry grew over the past two years from about 51 million cartons to packing between 60 million to 65 million cartons. Growth is expected to continue to reach 70 million cartons or 315 000 tonnes within five years. The industry is challenged by particular circumstances. Second to the vegetable industry, the table grape industry has the highest potential for employment and is therefore exposed to uncertainty regarding labour policies. It is not possible to mechanise the harvesting of grapes.

Trade

Compared to Namibia as a competitor, our regulatory restrictions raise the transaction costs of exports. Our competitors such as Peru are aggressively changing the composition of cultivars offered for exports to our export markets. If they succeed, our future exports can be hurt. Peru is a large producer of table grapes and their product is ready at an earlier stage for exports to compete with South Africa. The future research capacity in the public sector may fail to keep up with the research and demands for technological development in the industry, enabling it to stay abreast of competing exporter countries. To achieve this, the existing experience of the relevant government departments needs to be used optimally and its capacity increased.

Outlook

In the past the table grape industry experienced a number of favourable seasons leading to unprecedented growth. To continue on this growth path led by new, innovative cultivar development, we need to increase preferential trade agreements and market access to existing and new markets. We therefore need to retain our existing markets but also need to gain new markets while striving to optimise production.

  • Viticulture

by Adri Esterhuyse – Adri.Esterhuyse@absa.co.za

At present, international wine consumption is basically the same as 10 years ago. The only difference is the shift in the demand for wine. Consumption is increasing in the US, while it continues to decline in the traditional wine countries in Europe, which remain the main destinations for South African export wine. As international markets are therefore saturated, it is essential to grow the local market. Over the past three years local wine consumption has, in fact, increased by 7% year on year.

International trends

Production

World wine production in 2015 was 274 million hectolitres. This is approximately 5,8 million hectolitres more than in 2014. The combined production over the past three years was 832 million hectolitres, compared to 789 million hectolitres between 2010 and 2012. The higher production over the past three years, compared to lower production the preceding six years, has increased world inventories. Italy, France and Spain are still responsible for 49% of world wine production.

Trade

The international wine trade is also dominated by these three countries, together accounting for 56% (58 million hectolitres) of the trade volume of the global market in 2015 and 57% in terms of value (€16,2 billion). The US remains the biggest importer in terms of value. The value of its imports increased by 22% in 2015, although its volume increased by only 2,6%. Of wine consumed 25% is imported, mainly in the higher price segment. In 2015, the world consumption of wine was around 240 million hectolitres, an increase of 0,9 million hectolitres compared to the previous year. This excludes wine for industrial use. In 2007, before the economic and financial crisis, world consumption was around 250 million hectolitres. Since 2008 the best consumption was in 2012 when 244 million hectolitres were consumed. It seems that consumption is stabilising at around 240 million hectolitres, with only marginal growth expected.

Ten countries still account for approximately two thirds of the world consumption. Over the past five years continuous growth has been recorded in the US, now the largest domestic market in the world. Consumption in France, the second largest market, has continued to decline over this period. There has been a slight improvement in consumption in the UK, Germany, Italy and Portugal. However, over the past five years consumption in the UK, Spain and Portugal has remained relatively the same.

Domestic trends

Production

A smaller wine harvest was recorded in South Africa for the 2016 harvest (1,07 million litres). In the preceding three years record harvests resulted in the biggest stock levels in the history of South African wine. In view of the smaller 2016 harvest, carry-over stock is expected to decrease by 8%. In the medium term, harvest volumes are expected to begin a continuous decline as too few vineyards will be replaced, resulting in ageing vineyards. Quality and volumes will come under pressure. In five years’ time 62% of the vineyards planted with wine grapes will be 16 years and older, compared to the current 46% if the current rate of replanting is maintained. The biggest future threat for wine sellers in South Africa could be the inability to ensure a large enough volume. However, this is not necessarily a bad thing. For producer wine cellars it would be a challenge to maintain current profitability, unless there is an increase in the international price of wine. The profitability of the South African wine producer is under pressure due to increasing cost inflation and wine prices only increasing marginally.

This is reflected in lower plantings and more hectares replaced by fruit trees and vegetables. In traditional areas such as Paarl and Stellenbosch, the area planted for wine has declined by 3 964 ha over the past 10 years (11%). Even in higher-producing wine areas such as those around Robertson, more and more fruit trees are being planted on land previously used for producing wine.

Trade

For the 12-month period between July 2015 and June 2016 wine exports amounted to 421 million litres compared to 429 million litres the previous year (a decrease of 2%). Of the exports, accounting for 42% of total natural wine sales, 60% were in bulk. Packaged wine showed a declining trend. The UK and Germany continue to be the main bulk and packaged wine markets for South Africa. In a very competitive global bulk wine market, bulk wine trade is responsible for ±38% of international wine trade in volume but comprises only 10% of the total wine trade value. Spain continues to be the dominant market player in the bulk wine trade market.

Outlook

Over the past five years wine grape hectares in South Africa have declined by 1 971 ha as a result of more vines being uprooted than planted. At present 48% of red wine grape varieties are 16 years and older and 44% of white wine cultivars are 16 years and older. If the current trend of the past five years continues, the vineyards of 73% of red wine cultivars and 54% of white wine cultivars will be 16 years and older. This should result in a decline in production over the medium term. The continued growth in sales in the local market should reduce pressure on the current high volumes, together with the expected decline in wine production in the future. In the saturated international wine market the US remains a growing high-value market destination. Trade agreements are important to open up and support export markets.

  • Macadamias

by Karabo Takadi and Johann Coetzee – Karabo.Takadi@absa.co.za

South Africa and Australia remain the largest producers and processors of macadamias in the world.

International trends

At present the world market for macadamias is estimated at 170 000 tonnes, which is expected to grow to 270 000 tonnes in 2020. South Africa and Australia remain the two largest producers and processors of the macadamia nut and will remain significant role players for quite some time.

Production

This season the South African crop has been somewhat smaller, down from the expected 50 000 tonnes crop to 39 000 tonnes. The 2016 Australian macadamia crop is on track to reach 46 750 tonnes in-shell at 3,5% moisture (50 000 tonnes in-shell at 10% moisture) and Bundaberg is set to become the largest macadamia-growing region in Australia by the end of the year. The Chinese have also planted a considerable number of hectares over the past couple of years but the quality of the nuts will be affected considering the terrain it is farmed on.

Trade

The two major export markets are North America and the Far East, especially China. In 2015 the Chinese market had difficulties as a lot of nuts were being smuggled into the country. Other export destinations are Europe, the Middle East, Australia and South America. The Middle East and South American nations such as Brazil are good markets for growth. As macadamia nuts are still fairly unknown, it remains very important for the industry to invest in research in terms of health and consumer awareness. This will be crucial for the industry if it wishes to take advantage of growth opportunities. Internationally, about 70% of macadamias are used for snacking purposes, while 30% are used as an ingredient in a final product. A future shift towards using macadamias as ingredients is expected. Uses of macadamia include snacking, biscuits, ice cream, nut mixers and oil in the cosmetics industry. In many areas, the nuts are still considered a luxury product. It is therefore easy for consumers to go without them.

Domestic trends

Production

Over the past five years macadamia plantings grew at a very healthy rate with 1 247 ha in 2013, 1 547 ha in 2014 and 1 892 ha in 2015. In 2016, the growth in area planted is expected to be at least 2 000 ha, the main planting region still being Mpumalanga. Mpumalanga remains the largest macadamia-producing region in South Africa (53%) and after coal, macadamia is the second-largest foreign export earner in the province. Limpopo is the second-largest producer, accounting for 30% of total production, followed by KwaZulu-Natal, with 16% of macadamia nut production in the province. In 2016, a total of 24 771 ha of macadamia plantings distributed through Southern Africa have been confirmed, with 49% of the plantings in Mpumalanga, followed by 21% in Limpopo, 19% in KwaZulu-Natal, 1% in the Eastern Cape and the remaining 10% spread in other regions.

As a result of the drought, the total output of macadamias is expected to decline to about 39 000 tonnes, which is a decline of about 15% down from last year’s crop of 46 000 tonnes. The dry conditions were not suitable for growing the crop. In 2017, the crop is expected to continue to remain low as a result of the aftermath of the drought. Good production volumes are expected only in 2018. Expectations from the industry are for the production of macadamias to double in the next five years. This is the result of producers continuing to plant more trees and other trees reaching full production. South Africa needs a lot more cracking facilities that will satisfy the need for processing the nuts and also to take full advantage of the various export markets.

Outlook

The macadamia industry still seems to be very promising for South African growers as export prices will be supported by the weakening exchange rate. Investments in the industry are expected to continue for the near future as the margins in farming the nuts will remain very lucrative. There needs to be a massive emphasis on researching the health aspects of the nuts as the nut is rich in omega-7. Intensive consumer research also needs to be conducted on consumer preferences in the ingredients markets. The latter have a great deal of market-expanding potential which has not been exploited yet.

  • Timber

by Deon van Wyk – deonvw@absa.co.za

International trends

Production

The overall global GDP growth is expected to remain muted at 3% to 4%. This will have a direct impact on the demand for timber products. The increase in global timber production for 2016/2017 is forecast at 1,7%.

Trade

The global outlook for paper and forest products over the next year remains stable as increasing home construction and economic growth drive the demand for these products. More recently, there has been a growing and considerable interest in forestry and timberland investment by corporate pension funds, sovereign wealth funds and groups charged with diversifying huge portfolios away from coal and highcarbon assets. The two largest woodchip-importing markets are Japan and China, both countries with limited forest resources to supply the pulp industry with sufficient wood fiber.

The prices for globally traded hardwood chips fell to a record low in May 2016, while softwood chip prices reached the highest level in seven months. The forecast is that the international markets will improve, but at a much slower pace according to the latest FOEX Chip Price Indexes. However, the decrease in hardwood chip prices was not experienced in the local prices paid to producers, mainly due to the worsening of the rand/dollar exchange rate.

Domestic trends

Production

South Africa is lightly forested with 7% of the country’s area being suitable for growing timber. Only 1% of the total area of South Africa is under commercial forestry. Almost 80% of the established timber areas in the country are in Mpumalanga and KwaZulu-Natal, the balance being in the Eastern Cape, Limpopo and the Western Cape. New afforestation in South Africa has come to a standstill, mainly due to new legislation. No new water permits are granted by DAFF and suitable forestry land is becoming increasingly less available. There is also a marginal conversion of forestry land to other agricultural uses, mainly for economic reasons. Within the forestry industry itself, mainly dictated by market demands, some species are constantly being replaced by other species.

Trade

The forestry industry nevertheless remains one of the strategic economic sectors in South Africa, making a significant contribution towards the GDP. The industry also retained a positive growth rate over the past 18 months despite the economic slump and drought conditions. Private sector ownership in forestry accounts for 83% of the total area planted to timber. This includes corporates such as Sappi, Mondi, NCT, and other corporate landowners. 56% of the plantation area is managed mainly for pulpwood production, 36% for sawlog purposes and 4% for mining timber. The remaining 4% is used for other purposes. Primary roundwood is processed by 184 plants, of which 90 are sawmills (including veneer and plywood plants), 33 poletreating plants, 18 pulp and board mills and chipping plants and 13 mining timber mills.

Outlook

The South African timber market follows world price trends. About 75% of the timber produced in South Africa is exported, mainly as wood chips but also in the form of treated poles and sawn timber. The demand for pulpwood from South Africa was under pressure in 2014 but has improved since 2015, a trend that has continued in 2016. The harder wattle and some eucalyptus species are preferred and it is found that producers of the preferred species do not have problems to sell their product. Most exporters have recorded an increase in demand for wood chips on the export market. The rand/ dollar exchange rate has pushed the local price paid to producers upwards by 14% since January 2016. The net value per hectare of eucalyptus has increased over the past three years and six months from R38 000/ha to the current R92 000/ha.

Conclusion

  • Global consumption of timber products will grow substantially from current levels, with both developed and developing countries increasing consumption at the same time.
  • Construction output, including house building in the developed world, still remains far below pre-recession levels.
  • New markets for timber will compete for supply with traditional uses.
  • With an increase of 14% in income and an increase in costs linked to inflation, the outlook for the timber industry is very positive at this stage.
  • The rising demand and constrained supply will cause the relative value of timber plantations to increase by at least 15%.
  • The procurement of timber plantations by saw mill operators and other processors will increase to ensure that they have raw material to process in the medium and long term.
  • The current drought had a very limited effect on the timber industry.
  • A major challenge faced by the South African forestry sector is land reform. Land claims have been institutedfor a significant land area currently under forestry. This increases uncertainty about land tenure and the benefits of the land. These claims could lead to a further reduction in land under forestry, which has already been estimated to have dropped by between 9,1% and 14,9% since 1996.

Source: ABSA agricultural outlook 2017

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