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.
Poultry and eggs
by Wessel Lemmer and Karabo Takadi – Wessel.Lemmer@absa.co.za
Global poultry production is expected to increase by 1% to reach 89,65 million tonnes in 2016. The increase is owing to expansions in the main producing countries, with the exception of China. Production in China is expected to record declines of 5,22% in 2016. A reduction in imported breeding stock, as a result of the highly pathogenic avian influenza (HPAI) virus and related trade restrictions, are expected to lower production in China. Production in the US will increase by about 2,6%.as producers realise heavier weights and increased bird numbers. Expansions in production are expected to continue in Brazil. This is supported by higher exports. The struggling Brazilian economy, as well as weak global market conditions, will pose challenges for the industry. High feed costs will also limit growth prospects. Higher production of poultry meat is also expected in the EU. However, animal welfare legislation is reducing production capacity in north-west Europe and is impacting supplies.
Global exports are expected to increase by 4,7% in 2016. This is driven by increased market access and the partial removal of trade restrictions on US poultry following the 2015 avian flu outbreak. Robust Chinese demand due to lower supplies in that region, as well as a continued weak Brazilian real, supports exports. Exports from the US are also expected to improve by 6,7%. The return of US exports to the international market has triggered increased competition for Brazil, Argentina and Thailand. Exports from the EU have also been positive. Trade with South Africa, the Philippines, Hong Kong and the Ukraine is particularly strong, and higher value exports to Saudi Arabia are also increasing. Prices in the EU might be supported due to strong exports, which might benefit the industry.
The world’s imports are expected to improve by 0,8%, driven by good demand from China, while significant declines in imports have been recorded by Russia following a ban on imports of certain agricultural products from the US, Canada, Australia, the EU and Norway.
Long-term prices are expected to remain sideways. As a result of the return of the US in many international markets, some exporting countries had to reduce their prices as a way of being competitive and of defending their market share. This has put downward pressure on prices. However, the reopening of markets will support prices in the US. Factors such as increased red meat competition with abundant meat protein in the market will be bearish for market prices.
The poultry industry faces specific challenges in the short term which includes priority-wise, low-cost imports, high feed costs and the development of an export market.
Imports of broiler meat
Poultry producers compete with lower-quality and lower priced broiler meat imports from the EU. Poultry is imported from the EU (including the UK) at very competitive prices. The industry is continuously lobbying Government to provide import protection. EU consumers prefer white breast meat cuts at a premium price to bone-in dark meat cuts. The premium received on white breast meat enables the EU to export bone-in dark meat cuts at very low prices. The South African consumer prefers bone-in dark meat to white meat. Consequently, South Africa is the largest export destination of bone-in dark meat from the EU. South Africa imports about 57 000 tonnes from the EU a month compared to the annual limited import quota of 65 000 tonnes from the US. The imports from the EU are unlimited and can continue to grow in future. According to the South African Poultry Association (SAPA) imports amounting to 10 000 tonnes of poultry meat replace a thousand jobs. Current lobbying efforts by the poultry industry are aimed at ensuring that the imported finished product is at least equal to the comparable quality and packaging of domestically processed products. The majority of the big broiler companies are publicly known and listed on the JSE.
Low egg prices are dominated by the buying power of the retail sector
While prices in the broiler industry are impacted negatively by lower import parity prices, egg producers are failing to negotiate better prices for eggs from the retail sector. Consequently, the current supply of eggs needs to decline in order for egg prices to rise. The profitability of egg production is under threat because supply has increased too much. Under these circumstances egg producers tend to deplete their stock by shortening the productive lives of the layer hens. While the larger egg producers manage to survive due to economies of scale, the medium to smaller egg producers’ margins remain under pressure. However, it is important to note that egg prices have started to increase, which is positive for the egg industry.
High feed cost
Broiler feed consists mainly of maize (65%) and soybean (20%). The relation between the poultry and yellow maize prices gives an indication of the economic status of the industry. The norm is that the industry should break even with cost at a poultry:maize price ratio of 8,5. Since June 2015, profit margins in the poultry industry have experienced increased pressure as the poultry:maize price ratio has dropped below the break-even ratio of 8,5. The price of feed increased significantly compared to that in the previous production season. The price of maize and soybean is expected to remain high until stock levels for maize and soybean recover in the next production season. Until then profit margins will remain under pressure. Those producers who have diversified into maize and soybean production, as well as feed processing, should be more sustainable as they will have access to lower-cost maize and soybean for feed. Producers who successfully hedge their price risk well in advance should also experience more favourable margins.
Development of an export market
Since 2013, the poultry industry has focused on establishing a viable export market for the higher-quality broiler meat products. It is difficult to compete with a high-quality product in a low-end quality domestic market dominated by lower import prices. The domestic broiler industry recently achieved success with the export of whole birds to the United Arab Emirates and Oman. Bilateral trade negotiations between South Africa and Saudi Arabia have not yet been finalised but developments are progressing well. The region prefers whole birds as large families stay together in compounds, preparing up to eight whole birds per meal.
A plentiful supply of meat will keep poultry prices bearish in the medium term. The return of the US to the export market has increased competition while future avian flu outbreaks will continue to disrupt trade. Poultry producers in South Africa will continue to experience tight margins until feed supplies start to recover in 2017. The imports of lower-cost poultry products will continue while higher-cost poultry products will increasingly benefit from the export trade.
by Karabo Takadi – Karabo.Takadi@absa.co.za
Global production is expected to record modest increases in 2016 to reach a total of 59 million tonnes. This increase is due to expansion in production in the US, India, and Brazil. Larger cattle supplies, higher carcass weights and cheaper feed are driving expansion in the US. In Brazil, a weaker real and market access improvements are encouraging exports, which supports expansion in the production of beef. Production in India is boosted on the back of expectations of stronger export demand in Southeast Asian countries. Notable declines in production can be seen in Australia and Argentina. Production declines in Australia come as producers are rebuilding herds after an extended liquidation period. Moreover, recent widespread rainfall in Australia has strengthened the expectation of tighter cattle availability over the coming 12 months. Production in the EU is expected to record slight gains, due in part to steady exports despite the ample availability of beef and competition from abundant lower-priced proteins.
World beef exports are expected to improve by 1% to 9,6 million tonnes. The recovery in exports emanate mainly from Brazil, India and Canada. In Brazil, the weaker currency, high domestic prices and slow economic conditions support increased Brazilian beef exports. In the meantime India has outperformed Australia as the top exporter, with beef shipments from Australia expected to decline by 18%. Lower supplies in Australia and New Zealand have reduced the export availability in terms of beef, but will support the US export market. However, the strong US dollar will be a limiting factor in terms of exports. World beef imports are also expected to improve in 2017, with strong gains realised in China. This is due to steady growth in consumption and new market access for Brazil and Argentina. Higher and middle-income earners can support continued imports as they continue to seek quality beef products while the Chinese economy slows down.
In the short term, prices remain supported owing to smaller overseas supplies, with slaughtering in New Zealand at seasonal lows and slaughtering in Australia also recording declines. South American markets have also strengthened owing to improved market access for Brazil and Argentina and contracting supplies in Uruguay and Paraguay. For other markets, oversupply of other competing meats are weighing on beef prices.
Price pressures from competing proteins arising from the abundant supply of those commodities are weighing on the market. Pork and poultry prices are low, and cheap grain prices have encouraged expansion of these commodities. However, US production expansion and declining wholesale beef prices are positive as this spurs demand. In Brazil, economic instability and weak domestic demand will remain risk factors in the beef industry.
In the summer of 2015/16, South Africa experienced severe dry conditions, which negatively impacted on the planting of summer crops and led to dry pastures. The drought also resulted in sharp declines in the number of cows and replacement heifers. This was the result of producers slaughtering older cows and retaining replacement heifers as there wasn’t enough grazing to accommodate all their animals. It becomes expensive for producers to keep all their animals during a period of drought, as there are financial implications to keeping more animals. This means the size of the national herd is expected to decline following increased slaughtering. Rebuilding the herd will be a lengthy process, which could take from two to seven years. The national cattle herd is therefore expected to take a while to return to previous levels. Breeding herds are expected to be much smaller than before the drought. Stock theft is another matter that has to be addressed in order to protect the national herd. Producers are urged to report stock theft cases, in order to address this problem.
The drought conditions also resulted in less grain being planted, which led to higher yellow maize prices due to tight-ending stocks. Prices moved to import parity, as yellow maize had to be imported in order to meet local demand. However, the tight supply situation is expected to improve during the 2016/17 production season because of the La Niña weather conditions which have been forecast and are associated with wet weather. These conditions will result in lower grain prices and will also be beneficial to reviving pastures. This will improve the beef-to-maize price ratio, which is currently under pressure at below a break-even ratio.
South Africa has imposed strict import regulations for cattle, sheep and goats from Botswana, Lesotho, Namibia and Swaziland. These new regulations, which came into force on 1 July 2016, are expected to limit the supplies of weaners from Namibia into South Africa. South Africa is a big market for the Namibian weaners, so this will result in a shortage of weaners in the domestic market, which will add an upward pressure to weaner prices. The weaker exchange rate offers good opportunities to the export market, which has been gaining momentum. Foot and-mouth disease is under control and on-farm, biosecurity remains of the utmost importance. This is crucial at the time when exports are important for ensuring the competitiveness of the sector.
The Red Meat Producers’ Organisation (RPO) expects the demand for red meat in the African market to double by 2050, while the international market is expected to show slower growth, even though demand is expected to continue to increase. China will be an exciting market as a result of a growing demand from the growing middle class. The value of South African exports to the rest of the world in 2015 grew by over 100%, while the value of exports to Africa also continued to record steady growth. In order to take full advantage of these markets, better technology and management; higher intensification; cultivated production systems and precision farming will be some of the key drivers.
The drought resulted in more cows being slaughtered, which should support prices during the herdrebuilding phase. However, these higher prices will be met by some consumer resistance due to economic pressures resulting from inflation, higher interest rates and reduced net income. The expected La Niña weather during the 2016/17 season will contribute positively to pasture conditions and be beneficial to rebuilding the herd. The weaker currency brings about opportunities for the growing export market.
by Wessel Lemmer and Karabo Takadi – Wessel.Lemmer@absa.co.za
The dairy industry has been faced with prolonged lower producer prices, which discourage increased production. Production is expected to decrease in response to these lower producer prices. This will lead to declines in exportable surpluses. Other factors such as lower oil prices and weaker economic growth do not support the demand for dairy products. Lower oil prices are limiting purchasing power in many oil-exporting countries, which hampers demand. Global export prices of skimmed milk powder (SMP) and whole milk powder (WMP) have been strengthening recently, which could suggest that the global milk powder market may be in the early stages of a recovery. On the upside, the low international prices for dairy products are expected to improve global demand.
In Argentina, milk production is expected to decline as farmers face low profit margins and deal with the aftermath of the floods generated by strong El Niño weather conditions. Producers are also met with lower producer prices, high inflation, and increased production costs, which discourage production. Milk production will be negatively affected by dry conditions in Australia, which are expected to lead to reduced production. Milk production in China in 2016 is expected to improve slightly, but imports are expected to improve, especially for ultra-high temperature (UHT) milk. China saw increased demand during the first half of 2016. The Chinese import prospects are supported by hot and dry weather in some producing regions, which negatively impacted the supply of milk.
Milk production in New Zealand is expected to improve in 2016 as a result of favourable weather conditions over most producing areas. In the EU, the production of milk increased between January and April 2016, with deliveries growing by nearly 6%. For the balance of 2016, the pace of milk production is expected to slow significantly as average weighted producer prices dropped by approximately 13% from January through June 2016. Additional aid payments in the EU can, to some extent, alleviate low milk prices.
Milk production is declining in most producing areas in the world, in response to low milk prices. This is expected to bring the world’s milk supply and demand back into balance. The continuous weak demand due to low prices, the weaker economic growth and higher milk stocks might hamper prices. Potential risks to the price outlook could be how much milk would be available in New Zealand and Australia, as October is a peak month for production.
In September 2016 the price of imported dairy products started to increase. Global prices increased due to a decline in global production. The weakening exchange rate will support higher import prices. The higher import prices should lead to an increased demand for local products, thereby supporting local producer prices. Dairy producers are the ultimate price-takers in agriculture. The limited amount of milk buyers in the dairy industry, lack of sufficient competition by different stakeholders and the fact that a perishable product cannot be stored to trade later when prices improve, mean that prices are subject to bearish factors and will remain under pressure. The long-term average producer share in the retail price is about 37%. This share dropped to a low of 31% in August 2016, compared to levels last seen in November 2005. It should be noted that the importer’s price share in the retail price also dropped to 31%, adding to the weakness in the producer prices of dairy milk. Historically, the upper limit of local producer prices is determined by the price of imported milk.
When a global surplus leads to low prices coinciding with a strengthening rand, domestic producer prices decline. However, if the local demand of milk increases, the shortfall in production is imported. Producer prices in the dairy industry do not immediately follow higher import prices but when import prices suddenly decline below producer prices, the latter follow suit. However, the demand for milk is increasing year on year. The growth of a bigger middle class and the development of chain stores in townships have led to an exceptional increase in the demand for milk. Increases in production and imports both support the growing market demand both locally and for exports to sub-Saharan countries. The long-term trend also shows an increase in imports. Although at a relatively small, but consistent rate, South Africa is becoming increasingly dependent on dairy product imports. Around March 2015, a large quantity of milk was imported, which led to a subsequent decline in producer prices. The higher feed prices during the 2015/16 drought and the low milk prices resulted in disinvestment in the local production of milk increasing. This was particularly the case in those areas where surpluses are produced and demand is low. Retail prices for milk increased significantly between July 2015 and July 2016 from R11,32/ℓ to R15/ℓ. Milk prices improved to sustain supply in areas where the lower regional supply affected consumption negatively. The break-even level for the milk:feed price ratio is between 1,3 and 1,4. Since June 2015 this ratio has declined to fall below 1,4 after the producer price of milk was lowered. The lower price followed an oversupply of milk brought about a sharp increase in imports. Unfortunately, the subsequent drought led to an increase in feed prices. The result is that the feed price ratio declined to an all-time low of 0,9 at the start of 2016. This affected the production of milk and imports started to increase again. The producer’s share in the retail price of milk is expected to recover in a period of six months to meet the long-term average of 37%. Production will become profitable again in 2017, especially as feed costs will improve and producer prices increase.
Producer prices are expected to follow the recent increase in the retail prices for milk to at least a price level where the producer share of the retail price will meet the long-term average of 37%. Unfortunately, producer prices may lag behind for up to six months before catching up. By that time, from May 2017 onwards, feed prices may start to recover and the profitability of milk production will increase. The local demand for milk will increase further as milk becomes more and more accessible through additional outlets in townships.
by Karabo Takadi – Karabo.Takadi@absa.co.za
Production of ovine meat has shown moderate increases over the past number of years. In 2016, production is expected to continue to record slight increases as a result of generally satisfactory pasture conditions in many of the major producing areas. Meanwhile, limited output is expected in other production areas such as Australia and New Zealand because of drought-imposed reduced herds and the subsequent need to rebuild these herds. China is the largest producer, consumer and importer of sheep meat. Demand for Australian lamb in China weakened significantly in the 2015/16 season following an increase in China’s domestic sheep meat production and a build-up of stocks of frozen imported lamb in cold storage.
The export trade in ovine meat is very concentrated and is dominated by Australia and New Zealand. Reduced exports from these major exporting nations are expected to weigh down on world trade. Some New Zealand sheep producers have reportedly transitioned to dairy farming, which reduces the quantity of lamb that country can export. Reduced imports are expected into China due to the limited availability of world exports and the weakness of the Chinese economy. Other regions such as the EU, the US and Canada are expected to record moderately greater levels of imports.
In the US, the amount of lamb and mutton in cold storage, which has nearly doubled in two years, together with overall declining prices for other meats, might weigh on prices. There are abundant supplies of other meat proteins, which might put pressure on the demand for lamb products. Sheep numbers in New Zealand and Australia continue to trend lower, at a time of good international demand. This will add some support to prices.
World production is expected to increase marginally because of generally satisfactory pasture conditions in many of the major producing areas. Lower supplies and herd rebuilding will support sheep prices in exporting nations Australia and New Zealand. Australian and New Zealand’s lamb prices are also expected to remain strong this year owing to an increasing export demand. The softening in world economic growth might be bearish in terms of demand for lamb and mutton, especially at a time when there are abundant supplies of cheaper protein alternatives.
Following the dry conditions in the summer of 2015/16, more sheep were slaughtered. However, the extent was not as severe as that of the cattle slaughtered. In total 9,21% more sheep were slaughtered for the period June 2015 to February 2016 than in the period June 2014 to February 2015. The local sheep herd has been showing a steady decline in numbers over the past few years. The drought has contributed to exacerbating this situation, along with other factors such as stock theft, which discourage producers from farming with sheep. Producers need to report stock theft cases in order to address this problem and protect the national herd.
La Niña weather conditions are expected in the summer of 2016/17, which will then support producers in rebuilding their herds. There are opportunities for improving the carrying capacity of the veld by way of new-generation cultivated grazing. The herd-rebuilding process will result in less sheep meat production and hence add some support to lamb and mutton prices. In 2011, significant price increases were recorded for meat and feeder lamb prices as Rift Valley fever reduced the sheep flock.
In terms of lamb and mutton products, the spending ability of consumers is the most important price driver. During economic hardships, consumers are likely to consume cheaper meat protein such as poultry and pork, and to some extent beef rather than lamb and mutton. In the present South African context, demand for sheep meat is negatively affected by the recent weaker economic growth, higher food prices following the drought, raised interest rates and the high unemployment rate. Demand for sheep meat into the future is positive owing to the growing middle class. Producers have to adapt to changing consumer behaviour, and produce the right cuts, at the right quality at the right price. As consumer behaviour is also changing, especially regarding the use of new technology and the like, producers need to position themselves to cater for technologically savvy consumers by either delivering the product to their doorsteps or by using cellphone apps to track their demand.
Mutton prices are expected to remain supported into the next year as a result of the aftermath of the drought. Producers are expected to continue rebuilding their herds, after losing animals during the dry conditions. The national herd has been declining, and it will take some time for it to return to previous levels. However, if weather conditions deteriorate in summer, encouraging producers to reduce their stock levels, which will in turn result in temporary, abundant supplies in the market, prices will be under pressure. The South African economy is not expected to grow, with the Reserve Bank predicting 0% growth for the rest of 2016, which does not bode well for the demand for sheep meat. However, the long-term demand prospects are positive.
by Wessel Lemmer and Karabo Takadi – Wessel.Lemmer@absa.co.za
Global pork production is expected to decline by 0,9% to 109,3 million tonnes. The biggest contributors to these declines are China and the EU, who more than offset the gains made by the US, Brazil, and Russia. Production in China, the world’s largest consumer and producer, has declined as a result of new environmental regulations. These regulations saw some producers shut down their farming enterprises, and others having to relocate their farms. Pork production was reduced after the biggest sow cull in history decreased the number of pig sows. Weak prices into early 2015 stimulated the number of herds being reduced, which contributed to lower supplies. Prices have been following an upward trend in recent months, and are expected to continue to increase while supply is not expected to recover before 2017 as new regulations continue to keep herd expansion in check. The main drivers for price increases are supply shortages. A combination of high consumption and supply shortages has led to a strong demand for Chinese imports. The outlook for a continued deficit in Chinese pork production suggests a sustained import demand for at least the rest of this year, which will support prices. However, the Chinese pig herd is expected to start increasing towards the second half of 2016 as producers might see the higher prices as a good reason to invest in the industry.
Pork production in the US is expected to increase by 1,9%, boosted by lower feed prices and herd growth. The strength of the US dollar is hampering trade, but export opportunities with China will help absorb this growth in production. Brexit has added to the strength of the US dollar, making US pork more expensive around the globe. Larger volumes of other competing meats are also putting pressure on pork prices. EU production is also expected to decline as low prices discourage herd expansion. The EU is expected to capitalise on the growing Chinese demand, and push more exports into that market. Increased exports, driven by a weak currency and improved market access, will support production in Brazil. The ongoing depreciation of the real has given support to both the growing pork and maize exports. Russian production will continue with reasonable expansions, although at a slower pace as a result of the struggling economy, as well as competition from lower global pork prices.
Expanding trade prospects with China provide an opportunity for exporters across the globe, with strong demand in China being supportive to prices. The low costs of grain continues to bring about an opportunity for expansion as producers have been experiencing lower cost of production when compared to those of previous years.
Industry under pressure
South Africa has been battling with a drought, which has had a distressing impact on the pork industry. As a result of dry conditions during the summer of 2015, producers were unable to plant maize crops, which resulted in significant increases in maize prices. Feed is one of the main components of production costs in the pork industry. Yellow maize accounts for between 60% and 70% of feed costs in the pork industry. Maize prices increased significantly towards the end of 2015, and continued to trade at import parity into 2016 due to lower crops. The weakening of the currency also made imports of the maize grain more expensive in rand terms. Production costs on pig farms have therefore been dominated by high feed costs, putting margins under pressure. This was exacerbated by the fact that South African pork producer prices failed to increase during the same period. The greater availability of beef in the domestic market as a result of increased marketing on the back of the dry conditions also proved to be problematic for the pork industry, as it contributed to increased supplies in the market at affordable prices.
Swine fever threatens export market
The industry is struggling with outbreaks of African swine fever (ASF), as several outbreaks have been reported across various farms in the country. In order to safeguard animals against this outbreak, the facilities in which the pigs are kept are surrounded by double fencing to ensure that they do not come into contact with the affected animals. Animals are also regularly tested in units. This practice grants them acceptance by South Africa’s trading partners. Following reports of African swine fever outbreaks in South Africa, Namibia immediately suspended the importation of live pigs and raw pork from South Africa. The suspension will be in force until the outbreak is resolved satisfactorily. Namibia trusts the South African system, and borders are expected to be reopened. Monitoring of the surveillance activities will be increased at the official border points to ensure that products entering the country do not pose any risk to the pork industry.
Exports expected to grow
The industry has attempted to improve the export market by gaining more market access to other regions. This will help in terms of industry competitiveness, and act as a cushion to counterbalance the impact of large imports. A country like Singapore has already conducted its inspections, and India seems interested in South African pork. The beef and pork industries have appointed a veterinary professional to monitor issues concerning the export of meat. Growing demand for the South African product can be seen in the African market, as the shorter distance allows the industry to compete based on geographic location. Countries such as the EU face increased transportation costs to other African countries compared to South Africa. China, India, Singapore and Thailand are important markets for pork exports. Current exports to African markets are mostly to neighbouring countries such as Namibia, Mozambique, Lesotho and Swaziland.
The South African Pork Producers’ Organisation (Sappo) has indicated that about 30 000 to 35 000 tonnes of pork are imported per annum, of which roughly 50% are ribs. The EU and Canada are the main exporters to South Africa. 70% of pork imports are from the EU and imports from this region have increased in recent times. Russia closed its borders to the EU three years ago, which added to the build-up of stock in the EU. The excess stock then had to be diverted to other markets as they accumulated other costs such as storage costs.
Most pork cuts entering South Africa are subject to an import duty of 15%, or a minimum of $1,30/kg. Ribs, which are imported at zero import duty, are the exception. South Africa has a free trade agreement with the EU. South Africa cannot produce enough ribs, hence the need to meet its consumption needs by importing. It seems that, as a result of lower prices, local producers are not willing to take the risk of producing more in order to compete with imports. Production in the EU is also subsidised, which adds to the difficulty of competing against this trade bloc. South Africa officially opened to US pork on 26 February after months of negotiations. The market had been completely closed to US pork since June 2013 following the introduction of trade barriers.
Water and electricity add pressure
Unstable electricity supply is a risk to the industry as it remains essential for heating purposes. Electricity is needed to regulate the required temperatures in order to provide additional heat or, when necessary, cooling effects that will achieve the best results. In terms of water, sufficient water of a high quality is required for the production of sows. Some producers use biogas in their operations, but the main challenge remains the fact that biogas is more expensive and smaller operations cannot afford it.
Special housing needed
Global animal rights organisations are not happy about the way in which animals are handled. These organisations continue to put pressure on the industry by calling for changes to the way animals are raised. However, it is expensive for industry players to fully comply with their demands due to the associated high costs. Big farms have already met the requirements set by these organisations. The industry has since set a deadline of 2020 to fully convert the pens the animals are housed in, etc. and meet the requirements.
The long-term prospects of the pork industry remain positive. Short-term pressures from higher feed costs on the back of the drought, the weakening of the South African rand against major currencies, unstable water and electricity supplies, increased labour costs and lower poultry prices remain. Consumers’ reduced disposable incomes, which were met with higher interest rates at the time when pork supplies remained constant, added to the pressure. Prices are expected to improve towards the end of the year. Investment in the sector is needed to ensure the long-term profitability of this sector and continued improvements in technology need not be ignored. The export market also provides long-term opportunities for the industry.
by Dr Flippie Cloete – firstname.lastname@example.org
Following almost a decade of unprecedented growth, the live trade segment of the wildlife industry in South Africa finds itself in somewhat uncharted territory. It is clear from recent developments that the segment does not function in isolation and, like all other agricultural commodities, is affected by both internal and external factors at play. The negative price movement of the past couple of months are often laid at the door of the current unfavourable economic climate and subdued economic growth, and rightfully so. However, laying it all at the door of a struggling economy may be an oversimplification of a far more complex situation that is likely to continue to impact on game prices in the foreseeable future. Looking back, the current market trends actually started at the beginning of 2015 with the prices of certain species doubling overnight. These prices attracted widespread interest, and many people started to question whether they could be sustained. This, coupled with the seasonal price adjustment that followed during the winter months of 2015, laid the foundation for the uncertain investment sentiment that developed. What transpired was a bidirectional relationship between uncertainties and declining prices, i.e. the emergence of an uncertain investment sentiment that led to lower demand and subsequently lower prices on the one hand, and the continued decline of prices, which fuelled uncertainty, on the other.
In the same way, negative developments in the broader political, economic and legislative environment leading up to the municipal election in 2016, contributed towards lower levels of business and investor confidence. Not much has since changed, signs of a feud between the President and the Minister of Finance have reappeared; and questions remained unanswered as far as Guptagate and the capture of state resources and business are concerned. Uncertainty is growing following the decision of Futuregrowth to stop any advancement of money to some of the largest state-owned companies in the midst of what appears to be a political battle for power over these companies, and uncertainty remains in terms of policy directives as far as land reform is concerned.
In addition to the uncertain market/investment sentiment in the wildlife and broader economy, the industry was also hard hit by the negative financial effects of what is described as one of the most severe droughts in centuries. However, all is not doom and gloom – the weather prospects for the coming season seem to be better. Good rains would not only contribute towards a much-needed positive sentiment in the agricultural sector but could also be fundamental in terms of support to the general economy. The same goes for the most recent political developments, where the power in most of the major metropoles shifted away from the ruling party. Effective and efficient service delivery, coupled with the elimination of fraud and corruption, could well send out a message that could be helpful in terms of regaining some of the investment confidence lost over the past year or so.
The general decline in prices over the past year is, however, not only the result of demand being under pressure. Auction statistics clearly present a picture of increased quantities being offered for sale at formal auctions. In other words, the breeding segment of the wildlife industry is facing uncharted territory in that price pressure is being instigated from both the demand and supply side at the same time. Never in the history of this fairly young industry has a similar situation been witnessed – at least not to the same extent. This is the result of a combination of financial, economic, political and legislative factors that exerted pressure on demand, while supply at the same time started to increase. With the above in mind, live game prices are expected to remain under pressure. It should be noted that the volumes and prices, both historic and forecast, are index-based, i.e. the numbers and prices are not representative of one specific species but a group of species. The colour variant index consists of black impala and golden blue wildebeest.
The lower market price and subsequent profitability, the uncertain market/investment sentiment and higher population growth rates on the back of growing breeding stocks and intensive breeding practices, are all factors which will likely contribute towards an increase in the number of animals offered to be auctioned. With supply that is expected to increase and demand that is likely to remain under pressure, prices for most colour variants are likely to continue along its weakening path. A similar trend is expected in terms of higher-value species, especially female animals. Prices are likely to continue along the weakening path of the past couple of months. Again, lower profitability, larger breeding stocks and an uncertain market/investment sentiment are among the factors that will contribute towards both demand and supply pressure. A slightly different trend is expected in terms of highervalue males. Animals such as sable antelope and diseasefree African buffalo remain among the most sought-after trophies around the world. Besides, the recent developments in the live game trade segment have instigated renewed energy and efforts into the “revitalisation” of the hunting industry in South Africa. The focus of the industry over the past decade was primarily on the breeding and live sales of game animals and as a result, a significant amount of South Africa’s international market share (in terms of the number of overseas hunters) was lost to Namibia. However, South Africa remains one of the most sought-after hunting destinations in the world and with the renewed focus on regaining the momentum of the past, growth is imminent.
This, coupled with the expectations of a relatively weak exchange rate and improved environmental conditions could well support the demand for these animals. On the other hand, supply is expected to increase on the back of larger breeding stocks. Consequently, prices are expected to remain at or close to current levels in the coming months. The prices of intermediate species, such as nyala, are also expected to remain under pressure. Again, an uncertain market/investment sentiment, increased supply and higher feed or production cost will be the main factors that will negatively impact on the price of these animals.
The effects of the drought and the softening of the colour variant market was clearly visible in the prices of most plains game species during the middle to latter parts of 2016. However, improved environmental conditions are expected for 2017 and although it will bring much needed relief, the impact is only likely to become more visible towards the latter parts of 2017. In general, supply is expected to increase with prices that are likely to stabilise at or close to current levels.
A similar trend is expected in terms of the prices for larger plains game female animals when compared to those of small plains game female animals. Similar to smaller plains game, the drought and softening of the colour variant market were foremost among the factors that had a negative impact on the average prices of these animals in 2016. Supply is expected to continue along the positive path with prices stabilising close to or at current levels. The prices for both smaller and larger plains game male animals are also expected to remain at or close to current levels. Although renewed efforts at revitalising the hunting industry, a weaker exchange rate and improved climatic conditions could stimulate demand for these animals, an increase in supply on the back of larger breeding stocks will most likely offset any positives price movements in the months to come.
Other segments of the wildlife industry such as the game meat segment have received a lot of attention over the past year. Exploiting the opportunities presented by game meat is most probably the key in terms of new market development and/or expansion in the quest to ensure the continuous growth and sustainability of the game-ranching industry in South Africa. Although a notable percentage of the red meat consumed in South Africa is game meat, the market is largely undeveloped and many consumers consume game meat unknowingly. Future growth expectations rely heavily on developments in terms of game meat. At the same time, cohesive growth and development will be central in terms of ensuring the sustainability of the industry in future. The different segments of the game-ranching industry cannot function in isolation.
Unlike in the past, future success will depend on how successful the industry could grow the different segments proportionally to each other. The latter will require that future growth and development be guided by the principles of long-term sustainability and not by potential short-term gains that may be at the expense of other segments in the industry. Game ranching in South Africa is unique, not only in terms of species diversity, but also in terms of our institutional environment, i.e. South Africa is one of only a few countries in the world where ownership of wildlife is vested in private landowners, which presents game ranchers with a comparative advantage second to none– there is no reason why game ranching cannot become or remain one of the leading agricultural land use options in years to come. With the above in mind, the growth potential of the industry is ample; however, it will be difficult to sustain the robust growth rates of the past. The industry is likely to report a more moderate growth rate in the years to come.
Source: ABSA agricultural outlook 2017