South Africa has adequate food supplies in the face of COVID-19 national disaster

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 The fears about the potential disruptions that the novel coronavirus (COVID-19) could cause global supply chains have raised questions of whether South Africa could experience food shortages in the near-to-medium term. From a national perspective, we doubt this would be the case, at least for most food products. South Africa is an agriculturally endowed country, generally a net exporter of agricultural and food products, as illustrated in Exhibit 1 (in the attached file). What’s more, there are prospects for an abundant harvest of staple grains and fruit this year, which will increase the local supplies.


There are, nonetheless, essential imported food products that South Africa is dependent on such as; rice, wheat, and palm oil. Key palm oil suppliers are Indonesia and Malaysia. The typical suppliers of rice are Asia and the Far East, namely Thailand, India, Pakistan, China and Vietnam, some of which are hard hit by the pandemic. In the case of wheat, the suppliers are usually Germany, Russia, Lithuania, USA and the Czech Republic, some of which are also hard hit by the pandemic. Some of the countries which have reported cases of COVID-19 have not taken drastic measures of limiting business activity (apart from Italy and China) to reduce the spread of the virus. This means the importation of some agriculture products mentioned above into South Africa could continue unabated, barring any unforeseen eventuality. Aside from the major products, South Africa also imports poultry products and sunflower oil; but these are products that can be replaced by local supplies, should there be disruptions in global supply chains.


 In the unlikely event of potential shortages, it will be due to glitches in the logistics of shipping imports rather than a decline in global essential grains supplies. For example, the 2019/20 global wheat production could amount to 764 million tonnes, up by 5% y/y, according to data from the United States Department of Agriculture. Moreover, the estimated 2019/20 global rice production is 499 million tonnes, which is roughly unchanged from the previous season.  The global palm oil market is also well supplied, with about 8.0 million tonnes, according to data from SUNSEEDMAN.


Therefore, the readiness of the domestic food supply chains will perhaps be the ones to be tested in the coming weeks and months if panic-buying arising from fears of the spread of COVID-19 were to peak to levels seen in the UK and USA, amongst other countries. So far, however, there is relative calm in local food markets at retail levels, except for the rising demand for sanitizers.  As set out in our note last week, the implications of COVID-19 on food price inflation remains unclear in the near term. We continue to monitor the consumer buying behaviour for signals of rising demand. Suffice to say, South Africa has ample food supplies for 2020, and therefore, there is no need for panic buying. Hence, we have placed our forecast for food price inflation this year at about 4% y/y compared to 3.1% y/y in 2019. The uptick in food price inflation compared to the previous year is associated with a potential increase in meat prices, rather than the COVID-19 pandemic.


 Where negative pressures of the virus are likely to hit are on farmers and agribusinesses through the potential slowdown of export demand, and a likely subsequent decline in agricultural commodity prices. As we consistently pointed out in the previous notes, South Africa’s agricultural sector is export-orientated and heavily reliant on global markets. Nearly half of the value of what the country produces, is exported. Asia and Europe, which accounted for half of the US$10 billion of South Africa’s agricultural exports in 2019, are the hardest hit areas by COVID-19 thus far. There is likely to be disruptions in supply chains in these regions as governments strive to limit the spread of the virus.


 A mixed bag of grains

 Last week the United States Department of Agriculture (USDA) released a monthly update of its World Agricultural Supply and Demand Estimates report. The commodities we typically study in this report are wheat, maize and soybeans, for various reasons, however.


 As South Africa is a generally net importer of wheat; hence we must monitor global wheat supplies and other market developments. As previously stated, in the 2019/20 season, South Africa’s wheat imports could increase by 33% y/y to 1.8 million tonnes. This is 13% higher than the five-year average import volume, exacerbated by the decline in domestic wheat production on the back of unfavourable weather conditions in parts of the Western Cape late 2019.

  Fortunately, there are large supplies in the global market. The USDA forecasts 2019/20 global wheat production at 764 million tonnes, up 5% y/y, as previously stated. What's more, the 2019/20 global wheat stocks are estimated at 288 million tonnes, which is also 4% higher than the previous season. This means there are sufficient supplies for importing countries such as South Africa in the global market. The main challenge for trade in the near-term, however, is likely to be COVID-19 due to potential disruptions in supply chains. With that said, we haven’t noticed any major hiccups thus far.


  What’s more, South Africa is a net exporter of maize, so one looks into the USDA data for two reasons; (1) to get a sense of their estimate for South Africa’s maize production at a particular season, (2) and for a view of global maize supplies, which partially influences domestic maize prices. With that said, the correlations between the global and South African maize prices tend to be weak in years of maize abundance in the domestic market.


 The USDA has lifted its estimate for South Africa’s 2019/20 maize production by 10% from last month to 16.0 million tonnes. This is up by 35% from the previous season. This data comprises both commercial and non-commercial production and therefore not comparable to South Africa’s Crop Estimates Committee’s number of 14.6 million tonnes released last month, which accounts for only commercial production. Nonetheless, this doesn’t change the view we expressed last month, which is; if it materialises, this could be the second-largest summer maize harvest on record after the 2016/17 season (which was 16.8 million tonnes for total maize).

Aside from a favourable food price inflation outlook, this data essentially means that South Africa would remain a net exporter in the 2020/21 marketing year which starts in May 2020 (the 2020/21 marketing year corresponds with 2019/20 production season). This is at a time where Southern African maize import needs could outpace the previous year, with Zimbabwe in need of maize supplies to an extent that the country lifted a ban on the importation of genetically modified maize, which eases access for South African maize exporters.

 Moreover, a maize harvest of 16.0 million tonnes would enable South Africa to export maize beyond the continent to other typical markets such as Japan, Taiwan, Vietnam and South Korea who are not prominent in the current marketing year. With that said, the coronavirus remains a key threat to global agricultural trade and may disrupt South Africa’s agricultural exports in various markets.

Globally though, maize production is set to fall by 1% y/y to 1.1 billion tonnes in 2019/20. This will subsequently lead to a 7% y/y decline in stocks to 297 million tonnes. While this will be supportive of global maize prices, its influence on the South African maize market is likely to remain minimal.


As stated in our note last week, South Africa imports, on average, 550 000 tonnes of soybeans oilcake (meal) a year. About 97% from Argentina. Hence, we are compelled to pay close attention to global soybean market dynamics. The USDA forecasts 2019/20 global soybean production at 342 million tonnes, down 5% y/y. As a result, the 2019/20 global soybean stocks are down 8% y/y, estimated at 102 million tonnes. China, which is heavily affected by COVID-19 is the leading importer of soybeans, accounting for 58% of the global soybean import forecast for 2019/20 season. The disruptions caused by the virus there could have implications on soybean imports activity.

Concluding remarks 

Overall, this is a “mixed bag of grain market dynamics”; global wheat prices could be favourable in the near term for importing countries (and South African consumers), assuming minimal disruptions from the coronavirus. The same is true for maize but the benefit will be from the anticipated improvement in domestic supplies. Meanwhile, soybeans could be the opposit


On Wednesday, Stats SA will release the Consumer Price Index data for February 2020. To recap, South Africa’s food price inflation was at 3.7% y/y in January 2020, while the previous month was 3.8% y/y. This deceleration, however, was not across the food basket. Only price inflation of bread and cereals; fish; and vegetables decelerated. But this was enough to overshadow the increases in meat; milk, eggs and cheese; oil and fats; fruit; sugar, sweets and desserts.


Also, on Wednesday, the South African Grain Information Service (SAGIS) will release the weekly grain producer deliveries data for the week of 13 March 2020. This covers both summer and winter crops. With summer crops still at growing stages, the focus remains on winter wheat data, whose harvest was completed in January 2020. In the week of 06 March 2020, about 4 052 tonnes of wheat were delivered to commercial silos. This placed total wheat deliveries at about 1.42 tonnes, which equates to 95% of the expected harvest in the 2019/20 season.


 On Thursday, SAGIS will release the weekly grain trade data (wheat and maize), also for the week of 13 March 2020. In brief, maize exports for the 2019/20 marketing year have thus far amounted to 1.15 million tonnes, which equates to 87% of the export forecast for this season (1.32 million tonnes).


 At the same time, we expect maize imports of about 525 000 tonnes, all yellow maize, mainly for the coastal provinces of the country. This is up from an estimated 171 622 tonnes in the 2018/19 marketing year. The country has thus far imported 477 671 tonnes of yellow maize.


 Also, on Thursday, the United States Department of Agriculture will release the weekly export sales data. This is important data to monitor as it will give an indication of the US agriculture exports to China, and help us monitor the progress on commitments made in phase one trade deal.