• The economy will not recover as long as the ANC continues with its socialist and communist political and economic systems that destroy economic growth and prosperity. Therefore, a short-term stimulus and recovery package will not make any difference because economic growth is a long-term process that must be based on economic principles, "says independent economist, Fanie Brink.

  • The area planted estimate and final production forecast of summer crops for the 2018 production season was recently released by the National Crop Estimates Committee.

  • All of the plant material for South Africa’s banana industry comes from a single tissue culture laboratory, which also exports to 25 countries throughout Africa, the Middle East and the Indian Ocean islands.

  • The summer rainfall region can expect more widespread thundershowers after an extended hot spell. The winter rainfall region will remain mostly dry.
     
    Wetter conditions following heat and drought
    After more than a week of hot and dry conditions, a much more favourable situation is now becoming established. Fairly widespread thundershowers will occur during the next few days over the summer rainfall region, excluding the western parts. Some thundershowers may become severe. This is the result of the typical unstable conditions related to upper-air dynamics and surface air interactions that usually occur in early summer.

    The early maize-production region over the northern Free State and Mpumalanga will especially benefit from the developing conditions and thundershowers will occur on most days over these areas. This is very good news for especially the northeastern parts of the Free State and southwestern Mpumalanga. Here, most of the region should receive above-normal rainfall.

    The southern parts of the country will be cool due to an on-shore flow for most of the time, while some showers are expected especially along the Garden Route towards the west (Tuesday, 20th) and east (Wednesday, 21st). The winter rainfall region is expected to remain dry during the period except for some initial showers by the 20th.

    While cool to cold air will initially invade the country, especially the western to central parts, it will become hot over the western interior from the 23rd (Friday).

    The following is a summary of weather conditions during the next few days:

    Normal to above-normal rainfall is expected over the eastern to northeastern summer rainfall region during the next few days, with some thundershowers also possible at times over the central parts.


    The western interior (mostly Northern Cape) will remain dry during the next few days.
    Cool, dry air will spread over much of the western, southern and central interior during Tuesday (20th) and Wednesday (21st).
    Minimum temperatures over the central to southern interior will be relatively low on Wednesday (21st) and Thursday (22nd) morning.
    It will be significantly colder (+/- 10° C drop in temperatures) over the southern interior (most of the Western Cape and Eastern Cape) on Tuesday and Wednesday (20th and 21st), accompanied by strong southerly to westerly winds. The wind should be especially strong along the coast.


    Small areas of frost may occur over the southern escarpment on Wednesday and Thursday morning.
    Thundershowers will occur over most of the northeastern parts on Tuesday (20th). Some of these may become severe, with strong winds and hail possible in places especially during the late afternoon.
    Rain and showers will occur from the western winter rainfall region and western Garden Route (Tuesday 20th) moving through to the eastern Garden Route (Wednesday 21st) before clearing.
    Most of the country will be dry on Thursday (22nd).
    Thundershowers will redevelop over the northeastern parts from Friday. Scattered thundershowers should occur from the Free State and North West eastwards during the weekend. These should continue into early next week.
    Some thundershowers during the weekend and early next week will become severe, including parts of the Free State and North West.
    There are early indications of more significant rainfall over the summer rainfall region by Tuesday (27th) with rain also indicated over the southern coastal belt and adjacent interior. These projections specifically are somewhat far ahead of time and not necessarily considered reliable.
    It will become hot and dry over the western interior from Friday (23rd).
    Strong southeasterlies are expected over the southwestern coastal areas most of the time. Where vegetation is dry, this could enhance the probabilities for the development and spread of wild fires.


    Seasonal overview
    The tropical Pacific continues to meet some, but not all, El Niño criteria. The Bureau's ENSO Outlook remains at El Niño ALERT, meaning there is at least a 70% chance of El Niño fully forming in 2018.

    Sea surface temperatures in the tropical Pacific Ocean now exceed El Niño thresholds. However, atmospheric indicators - such as trade winds, cloudiness, pressure patterns and the Southern Oscillation Index (SOI) - have yet to show consistent or sustained signs of El Niño. This clearly indicates that the tropical ocean and atmosphere are not currently reinforcing each other and remain 'uncoupled'. This coupling is required to not only fully develop and sustain an El Niño, but is what drives widespread global weather and climate impacts.

    International climate models predict sea surface temperatures to remain above El Niño levels in the coming months. By February, two of the eight surveyed models dip just below El Niño thresholds.... - Australian Bureau of Meteorology - http://www.bom.gov.au

    The Southern Oscillation Index has been trending negative since early this year, an indication of a negative atmospheric response to warmer SSTs, signalling a trend towards El Niño-like conditions. Australian Bureau of Meteorology - http://www.bom.gov.au

    Based on the developing El Niño, forecast models lean towards a tendency for drier conditions by late summer, while early to mid-summer is expected to be relatively wet over much of the interior. Coupled with the dry signal towards late summer, there is also a concomitant indication of warmer than usual conditions. The positive temperature anomalies are also indicated for early-to mid-summer.

    It is worth noting that, while seasonal forecasts tend to indicate drier conditions towards late summer, this is a weaker signal than what is sometimes associated with El Niño summers, possibly at least in part due to the weakness of the event. The following are the latest seasonal forecasts for Africa, from the IRI, for mid (December - February) and late (January - March) summer respectively.

    There are indications that the summer rainfall region may experience above-normal rainfall during early to mid-summer with a very slight indication of possible warmer-than-normal conditions (Forecasts by the IRI - http://iri.columbia.edu/).

    Towards late summer, seasonal forecast models suggest somewhat drier-than-normal conditions over much of the interior, with a stronger indication of the development of a warm anomaly, centred towards the northwest of South Africa (Forecasts by the IRI 

    Expected rainy season progression, associated with decadal variability (issued 22 October 2018)


    Since summer 2017/18, in terms of decadal climate forcing, there has been a push towards El Niño conditions. Global Climate Models therefore predict the onset of El Niño conditions during the next few months. The negative forcing experienced during the last few months, giving rise to the development of weak El Niño conditions, will be replaced by a positive influence on the climate system during the next few months.

    By late summer, there should be a strong push towards La Niña conditions - this may result in wetter than normal conditions over large parts of the summer rainfall region by late summer. Conditions therefore, during most similar summers as 2018/19, are usually somewhat drier in early to mid-summer, but wetter towards late summer. This is somewhat different to the typical El Niño signal as is forecast by climate models. Given the El Niño-like conditions present currently, it may be safe to assume a tendency towards drier conditions with above-normal temperatures during large parts of the summer. However, based on conditions in similar years in the past, the January-March period may turn out quite favourable.

    The early rain experienced over the summer rainfall region since late September should largely be replaced by relatively dry conditions into November. This may likely be interspersed by a short wet period in early November. From late November, there is likely to be a resurgence of relatively wet conditions over the summer rainfall region, possibly lasting into December. Again, by late December/early January, it may once again be drier - basically during the period when the mid-summer drought usually occurs. If this dry period develops, it will most likely not be as severe as during 2017/18. From late January, conditions may very well improve again, and then even more so from early February. Based on the tendency in previous similar years, there is a possibility that large parts of the summer rainfall region could receive above-normal rainfall during February and/or March, while globally the indicators should start signaling the possibility of a La Niña towards 2019/20. Should the wet conditions develop in the north, there is also an enhanced likelihood of tropical systems (such as tropical depressions/storms/cyclones) influencing the region.

    Normal to above-normal rainfall is more likely to occur over the eastern parts of the summer rainfall region during early to mid-summer (top, OND - October, November, December), while the west is likely to remain drier than normal. Towards late summer (above, JFM - January, February, March), there is a strong indication that above-normal rainfall may develop over the northeastern parts of the country, spilling also into the central parts. The western parts will still be more likely to receive below-normal rainfall.

    Seasonal outlook: Summary
    Based on the current state of El Niño, it is safe to assume that there will be a tendency towards drier and warmer conditions at least in part during the summer. However, both Global Coupled Models and forecasts based on the decadal variability in the climate system suggest a very weak negative influence. The only difference here is that the predictions based on decadal variability suggest increasing wetness towards the end of the summer, with a drier start, while Global Climate Models suggest wetter conditions earlier, drying somewhat towards late summer.
    Rainfall (% of long-term mean): October 2018

    Parts of the Eastern Highveld, the northern coastal belt of KZN and southeastern Northern Cape received above-normal rainfall during October. The rest of the country was mostly drier than normal.

    Vegetation activity is above normal over the northern to eastern parts of the eastern maize-production areas due to a normal start to the rainy season over much of the area. However, the northern parts of the Free State and southwestern parts of Mpumalanga experience drought stress and need rain soon. The projected rainfall from the weekend onwards may favour these areas. Over the winter rainfall region, grain-production areas are also still experiencing above-normal vegetation activity following a normal to above-normal rainy season. There are still indications of drought stress over the northern parts of the West Coast, extending into the Great and Little Karoo and the western parts of the garden Route. A slow start to the rainy season is noted over much of Limpopo, where vegetation activity is also below normal. Another area where some drought stress is noticeable is the eastern parts of the Northern Cape and northwestern Free State extending into much of central North West.

    Overview of expected conditions over South Africa during the next few days
    Upper-air troughs and perturbations moving across the interior, together with the Atlantic Ocean Anticyclone ridging strongly around the country on two occasions, will result in a much more favourable situation over the summer rainfall region for rain compared to the last few weeks.

    The first upper-air trough will move across the interior on Tuesday (20th), and out eastwards by Wednesday (21st). At the surface, an influx of cool, dry air will result in clearance from the west, after initial rainfall over the winter rainfall region. The influx of cooler air will be felt over the southern parts with some showers and windy, cold conditions on Tuesday (20th) and Wednesday (21st). The invading dry air may also result in a tendency for severe storm development where scattered thundershowers occur over the summer rainfall region.

    It will be dry over most parts on Wednesday and possibly Thursday (22nd), but upper-air perturbations moving into the central to northern parts and a renewed influx of moisture as an anticyclonic circulation pattern strengthens to the east of the country will result in a renewed development of thundershowers over the northeastern to central parts from Friday. Interaction between moisture and dry air, together with upper-air dynamics, may result in some thundershowers becoming severe.

    During early next week, an approaching upper-air trough and renewed ridging of the Atlantic Ocean Anticyclone, may result in more significant and widespread rainfall over the interior - given the long lead time, this outlook is still uncertain.

    Conditions in main agricultural production regions (20 - 26 November)
    Maize production region: Scattered thundershowers will occur over the region on Tuesday (20th). Some of these may become severe. It will be dry on Wednesday over most parts. From Thursday, scattered thundershowers will occur, continuing through the weekend. There may be an improved distribution of thundershowers over the western parts compared to earlier in the period. Temperatures will on average be in the normal ranges.

    Cape Wine Lands and Ruens: Following some showers initially (Tuesday 20th), it will become fine and mild for the most part. It will be warm over the West Coast, Swartland and Karoo from Thursday (22nd) to Saturday (24th). Winds along the southwestern coastal areas will be strong southeasterly most of the time.


    According to current model projections (GFS and CCAM atmospheric models) of weather conditions during the coming week, the following may be deduced:

    Thundershowers over the central to northeastern parts may become severe on Tuesday (20th).
    A sharp drop in temperatures on Tuesday (20th) with strong winds and rain during the night may affect small stock negatively over the southern to southeastern interior (up to the southern escarpment over the Western Cape and Eastern Cape).
    Thundershowers over the central to northeastern parts during the weekend and early next week may again become severe with strong winds and hail possible.
    Strong southwesterly winds are possible along the southeastern coastal areas (mostly Eastern Cape) by Tuesday (20th).
    It will be very hot over the Lowveld and most of the Limpopo River Valley on Tuesday (20th) and Wednesday (21st).
    Strong southeasterlies are possible over the southwestern coastal areas on most days. Where vegetation is dry, this may be conducive to the development and spread of wild fires.
    Hot conditions will develop over the Northern Cape from Friday (23rd) to Sunday (25th).
    There is a possibility of significant rainfall over the eastern to southeastern parts by Tuesday (27th). Given the long lead time, this forecast is still very uncertain.
    Sources

    Agricultural Research Council - Institute for Soil, Climate and Water (ISCW) - Climate Data Bank. Data recorded by the automatic weather station network of the ARC-ISCW.

  • Oudtshoorn farmers, who had their own Day Zero almost a year ago when their irrigation dams dried up, have suffered losses of hundreds of millions of rands in lost production.

  • Land reform remains one of South Africa’s most pressing unresolved issues. Attempts to address skewed ownership and economic participation patterns, the result of many years of exclusion and dispossession of black South Africans, have been unsuccessful since 1994. The present government has now turned to possible changes to the Constitution to deal with these failures. 

  • At the start of the 2017/18 apple season, European apple stocks were approximately 30% lower, creating a great pull for South African apples, but it’s expected that the start of the new season will be tougher, as Europe expects a slightly above average crop.

  • A new technology developed by a South African company is the first to prove effective in killing the polyphagous shot hole borer, a tiny beetle that has been killing trees worldwide at an alarming rate. 

    The beetle, a native of southeast Asia, is no bigger than 2mm, but carries a fungus that kills trees. It has been spotted in every province except Limpopo and, until recently, there was no way to stop it. 

    But Parys-based company Pan African Farms has come up with a solution to rid trees of the borer. The treatment got the go-ahead from the Department of Agriculture, Forestry and Fisheries in June, which means it can be used as an agricultural remedy.

    In invasive beetle that is killing trees in South Africa has been sighted in Somerset West. Here's how to spot the signs in your garden. Watch.
    Professor Marcus Byrne, an Ig Nobel prize winner and entomologist at the University of the Witwatersrand, earlier told News24 that the beetle bores tunnels into tree trunks where it spreads the fungus Fusarium euwallaceae, which effectively cuts off the trees' vascular system, causing them to die.

    "It's an ambrosia beetle, which means it carries a fungus which it feeds its babies on. When it introduces that fungus into trees that have never experienced it before, it threatens those trees with illness or death."

    Byrne says no one truly knows how the beetles made their way to South Africa.

    "We happen to be a very connected world, and trade today allows for the movement of goods all around the world. We're not very good at screening these animals that hitchhike around the world on our consumer goods."

    Unique, eco-friendly and smaller than a cell

    Piet Meyer, CEO of Pan African Farms, told News24 the company has managed to develop a unique, eco-friendly solution using nanotechnology. 

    "The core of our technology is nanotechnology," Meyer says. "Our vesicle, as far as I could determine, is the smallest in the world at 10 nanometres. 

    "To give you some perspective: The smallest living cell is 10 microns. Our vesicle is 1 000 times smaller than that.

    "That enables it to penetrate through most known barriers."

    Meyer says all fungi, including Fusarium, have a cell wall.

    "This wall has always been regarded as impenetrable, but with our vesicles there's an instant passage through that wall. The fungus can then be killed through a series of cellular attacks."

    And this is the only way to kill the polyphagous shot hole borer - by killing what it feeds on. Ultimately, the fungus is destroyed and the beetles die of hunger. 

    "After 24 hours of applying this to the bark of a tree, we could trace it to about 10-and-a-half centimetres into the tree. That distinguishes this product from anything else."

    Meyer says other fungicides used today are expensive, labour-intensive and become ineffective after a while. 

    The best he can explain the vesicles, Meyer says, is to picture a tennis ball. That 'ball' is called an Anods - which stands for amphiphilic nano oil-delivery system.

    "A tennis ball is hollow inside and surrounded by rubber. In the Anods, the 'rubber' part is then surrounded by fatty acids, and the hollow part is filled with the active ingredient needed to kill the fungus."

    According to Meyer, conventional pesticides are ineffective because of drug resistance as pests adapt, much like antibiotics in humans.

    "But we have found suitable natural active ingredients that can destroy the Fusarium fungus. It is non-toxic and it won't harm your tree." 

    Meyer says after application, the beetles pour out of trees in droves. "We found that there was no trace of the fungus left."  

    Grave concern

    The local beetle infestation was first noticed in 2017 by Dr Trudy Paap – a postdoctoral fellow at the Forestry and Agricultural Biotechnology Institute (FABI) at the University of Pretoria – in the KwaZulu-Natal National Botanical Gardens in Pietermaritzburg, and it has since been found nationwide, including in Johannesburg and as far as the Northern Cape.

    Johannesburg has what is considered one of the world's largest urban forests with an estimated 10 million trees.

    According to Andrea Rosen, co-director of the Johannesburg Urban Forest Alliance, the infestation is spreading fast.

    "The polyphagous shot hole borer is of grave concern," Rosen told News24 last year.

    "Some projections go up to half a million trees that are affected in Johannesburg alone, which is a substantial part of our urban forest canopy," Rosen said. 

    According to Meyer, that figure could be as many as 1.8m trees in the greater Johannesburg area. 

    "In urban areas, municipalities will have to act quickly to stop the spread of the borer beetles and save the trees that have already been infected.

    "Each female beetle lays 20 eggs at a time in the bark of a tree. The life cycle is around 40 to 45 days and 60% of the population is female. According to my calculations, in 10 months, a single beetle can multiply to 50m. That is an alarming figure.

    "What worries me is that the beetles could spread to the Kruger National Park and the Knysna Forest." 

    The approval certificate from the Department of Agriculture, Forestry and Fisheries. (Supplied)
     The beetle has also spread to Cape Town.

    "The first sighting was confirmed on 3 April 2019 in Somerset West," Cape Town mayoral committee member for spatial planning and environment Marian Nieuwoudt told News24.

    So far, the identified infestation in Cape Town is limited.

    "At this stage the only positive sightings have been confirmed in the Somerset West area. Recently a sighting 1km away from the first positive sightings has been confirmed," said Nieuwoudt.

    For now, urban residents who notice the beetle in their gardens can buy the product directly from Pan African Farms

    "We have priced it to be user-friendly. They can then apply it to municipal trees growing on their sidewalks too, until such time as municipalities start using it," Meyer says. "This is happening in the north of Johannesburg right now.  

    "In Bloemfontein, for example, members of the community got together and decided to tackle the problem themselves." 

    Signs of an infestation include wilted or missing leaves, dead or dying branches, as well as tiny and randomly spaced holes in the bark. These holes could have staining around them, or a white powder or gum-like blobs oozing from them.

    "It looks like the trees are weeping," says Meyer.

  • Mercedes-Benz last week unveiled the electric Actros heavy-duty truck.  The first eActros was delivered to German logistics company Hermes in September for use under real-life conditions. By the end of this year, Mercedes-Benz will have ten such vehicles on the road with customers. Series production is planned for 2021.

  • South Africa's shifting budget priorities will provide roughly half of the R50-billion ($3.5-billion) in stimulus spending it plans to make by the end of its fiscal year in March, Finance Minister Nhlanhla Nene told Reuters.

  • Although this was a data-packed week in the South African agricultural market, there were no surprises or data prints that somewhat changed the outlook in almost all the releases.

  • South Africa's diverse climatic conditions are suited to the production of most nuts, including groundnuts (peanuts) and tree nuts. Macadamia and pecan nuts are the predominant tree nut crops grown in the country.
    The global trend towards eating healthier food has seen tree nut production worldwide increase year-on-year for the last decade, a period which showed a 24% increase compared to the previous decade. The greatest nut consumption is in the high-income countries, with the United States (US) and Europe being the biggest consumers.

    "An estimated 4,2 million tonnes of nuts are produced globally," says Dr Mmatlou Kalaba, director at the Bureau for Food and Agricultural Policy’s (BFAP) commodity markets and foresight division.

    "Almonds make up the greatest volume of tree nuts produced, accounting for about a third of global production. The fastest global tree nut growth, however, is macadamia production. Walnuts, cashews and pecans have also experienced strong average increases, showing growth of 44, 32 and 18%, respectively. Brazil nut production declined significantly, mostly due to unfavourable environmental conditions," he explains.

    Pecans on the rise


    Pecans have shown good growth in South Africa and there is a strong demand for young trees. Pecan production had increased from 5 000 tons in 2010 to 10,500 tonnes in 2015. The development of pecan orchards has been mainly around the Vaalharts irrigation scheme in the Northern Cape, but there are also growers in parts of Limpopo, Cradock in the Eastern Cape, and Citrusdal in the Western Cape.

    However, macadamia nuts take the lead as one of South Africa’s fastest-growing industries. “We are now the largest producer of macadamia nuts in the world, after recently pulling ahead of Australia by a small margin,” says Dr Kalaba.

    Increasing growth in macadamias


    Gilberto Biacuana, Land Bank economist and research analyst, confirms that macadamia nut production in South Africa has experienced exponential growth in the last few years, influenced mainly by robust international demand.

    Figure 1 shows macadamia nut (nut in shell) production between 2006 and 2017, indicating the sustained upward growth. Production increased at a compound annual growth rate (CAGR) of 8,1% from 16,007 tonnes in 2006 to 44,610 tonnes in 2017.

    Figure 1: Macadamia production between 2006 and 2017 shows steady upward growth. (Source: Land Bank, SAMAC)


    Local nut production continues to increase


    "This trend has been influenced by the expansion in area under macadamia trees to support the increasing global demand of macadamia nuts,” Biacuana says. Data from the International Nut and Dried Fruit Council (INC) revealed that South Africa was the leading global producer of macadamia nuts in 2018, accounting for 29% of world production. Other major global producers included Australia at 25%, Kenya at 13%, China at 10%, and the US at 7%.

    According to Biacuana, new plantings increased from 1 250ha in 2013 to 5,000ha in 2017. There are nearly 700 farmers involved in macadamia nut production in Levubu and Tzaneen in Limpopo, from Hazyview to Barberton in Mpumalanga, and in the coastal areas of KwaZulu-Natal. He also says Macadamias South Africa (SAMAC) estimates that the industry employs approximately 12,500 people.

    Export of macadamias


    Macadamia nut exports have maintained an upward trend from 2012 to 2018, with a dip in 2016, which was probably a reflection of loss due to drought.

    Exports increased at a CAGR of 17,6% between 2012 and 2018. Biacuana says a closer look at the data shows that South Africa’s exports of macadamia nuts are predominantly nuts in shell (unprocessed). “In 2018, in-shell macadamia nut exports accounted for 70,8% of total macadamia nut exports. This probably reflects the underdeveloped processing sector of the macadamia nut value chain.”

    Primary export destinations


    Figure 2 illustrates the major destinations for South Africa’s macadamia nuts in shell exports from 2014 to 2018, with Hong Kong at 57%, Vietnam at 26%, China at 9,3%, Switzerland at 4,4%, and the US at 1%.

    During the same period, the major export destinations for South Africa’s shelled macadamia exports were the US at 43,1%, the Netherlands at 9,8%, Hong Kong at 8,5%, Germany at 6%, and Spain at 4,8% (Figure 3).

    Figure 2: South Africa’s major export destinations for macadamia nuts in shell exports between 2014 and 2018. (Source: Land Bank, SAMAC)
    Local nut production continues to increase

    Figure 3: Export destinations for South Africa’s shelled macadamia exports. (Source: Land Bank, TradeMap)
    Local nut production continues to increase


    Watching the competition


    Biacuana notes that competition looms for macadamia producers, despite the export success of macadamias in recent years. “The major competitive risk to the South African macadamia industry in the future is the increased planting of macadamia orchards in China.”

    Table 1 contains the major global producers of macadamias (nuts in shell) and their respective areas under production in 2015. “The biggest producers in terms of the total area under production in 2015 included, among others, China at 42,6%, South Africa at 12,8%, Australia at 11,5%, and Kenya at 11,5%.”

    Local nut production continues to increase


    As illustrated in Figure 4, China will potentially increase its production from 12 000 tons in 2017 to 50,000 tonnes in 2020, an increase of 317%. Therefore, most of the projected growth in global production will come from China. "The increase in China’s production and the subsequent decrease in its imports will likely put global prices under pressure in the medium to long term," says Biacuana.

    Figure 4: Projected global growth in macadamias. (Source: Land Bank, SAMAC)
    Local nut production continues to increase


    Figure 4 shows that production from other major producers is projected to remain relatively stable between 2018 and 2020.

    Increased global demand


    The macadamia industry has grown significantly in the last few years, driven by the increased global demand for nuts. With the rise of the middle class in developing countries, this trend is likely to remain in place for the foreseeable future.

    Biacuana warns that increased production in China could lead to import substitution, which may affect the demand for South African macadamias and apply downward pressure to global macadamia nut prices. “It is unclear when such an increase in supply is likely to happen. Nonetheless, such a likelihood remains a risk to the global macadamia nut market in the near future. Hopefully, the South African macadamia nut industry will adapt and seek new markets,” he says.
  • Port Elizabeth – The wool market traded lower at this week’s auction and the Cape Wools Merino Indicator decreased by 5.6% and by 1,362 points to close at a value of R229,28/kg (Clean). The Australian EMI lost 2,8% this week. The Cape Wools All Wool Indicator declined 5,6%.

  • It’s well known for its taste for international wines, but China’s domestic scene is growing too. In a different country, China’s wine industry might be a house of cards. But China’s government seems committed to it, and that makes all the difference. 

  • This is the question on everyone’s lips as the ANC government appears to be moving ahead with its proposal to expropriate land without compensation (EWC). During TAU SA’s recent annual Congress, Adv. Roelof du Plessis SC set out the legal ramifications of the government’s various statements about EWC.

  • A strong Budget will come down to simple action and hard choices taken now for the long-term benefit of the country, says Citadel portfolio manager Mike van der Westhuizen.

    Finance minister, Tito Mboweni will deliver the 2020 National Budget Speech on 26 February, to announce how the government plans to spend its budget, while also collecting money.


    “The main thing to look at, given that the Moody’s is watching closely, is the need to rein in the budget deficit, which is starting to spiral even more out of control,” he said.

    In the 2019 Medium Term Budget Policy Statement (MTBPS) the Treasury projected a consolidated Budget deficit of 5.9% of GDP, averaging 6.2% of GDP over the next three years.

    A low growth, low inflation environment also affects the debt-to-GDP trajectory, the sustainability of which minister Mboweni has already warned about.

    As a proportion of South Africa’s GDP, the MTBPS notes a hike in gross debt from 56.7% in 2018-19, to 60.8% in 2020-2021 and 71.3% in 2022-23 if the status quo does not change, something the rating agencies are understandably concerned about.

    “These numbers show that the previous goal of fiscal consolidation is currently not on target,” said Van der Westhuizen. “Although it must be said that while Treasury appears to be doing everything in its power to stop the slow bleed, it’s a cooperation issue with the rest of government and other influential stakeholders.”

    This disconnect between what needs to happen and the disinclination within government to act is likely to come through on Budget day.


    Revenue under pressure

    Distilling the multiple issues at play, Van der Westhuizen said that “government needs to find about R150 billion in savings over the medium-term expenditure framework, being the next three years. So that’s essentially R50 billion a year in savings that needs to come through.”

    But how can this be achieved?

    Treasury could look, once again, to the taxpayer. But, said Van der Westhuizen, “with the taxpayer already squeezed, options are increasingly limited. In prior years, we’ve seen personal income tax hikes and last year a VAT hike”.

    “Easy wins are fuel levies and sin taxes that rise every year, as well as bracket creep, i.e. not adjusting the tax brackets for inflation. Other potential tax avenues could include a new upper tax bracket, wealth tax, estate duties or even changes to capital gains tax or dividend tax. Although helpful, these don’t really do the heavy lifting.”

    There has been talk that the only really effective lever left to pull could be to raise VAT by one percentage point to 16%, which would inject between R20 billion and R35 billion in revenue. Although it would be a particularly unpopular move politically, it is increasingly possible, said Van der Westhuizen.


    Expenditure in the crosshairs

    Given the revenue constraints, Van der Westhuizen believes all the hard work should be done on the expenditure side. But, again, taking steps to contain and curb expenditure will come down to political will.

    “The big line items here are public sector wages (about 34% of expenditure), debt service costs (10%) and social grants (10%). Interest payments and social grants are essentially fixed, leaving the wage bill as the main lever.

    “This is a bit tricky at this stage since multi-year wage negotiations are still in process and will only conclude around March 2021, so we will watch this carefully,” said Van der Westhuizen.

    “The government tried a voluntary resignation and natural attrition approach to reduce the wage bill, but that hasn’t been effective. Maybe the lower inflation outlook from the Reserve Bank and pinning of inflation expectations might help in negotiating lower wage hikes, but that is unlikely to be enough.”

    “Even if government took a firm stance of CPI less 2%, which would have the trade unions baying at its feet, it would only save about R105 billion over three years, leaving us some R45 billion short. The point is that even a drastic decline in wage growth doesn’t result in sufficient scaling back in spending,” Van der Westhuizen said.


    The SOE drag continues

    Despite this constrained picture, there is still bound to be more budgetary support doled out for state-owned enterprises (SOEs) and this issue will loom large over Mboweni’s speech, said Citadel.

    “In late-January we saw the Development Bank of South Africa (DBSA) grant a loan to South African Airways (SAA) as part of its restructuring,” said Van der Westhuizen.

    “That represents a red flag in terms of the cross contamination of SOEs, with a well-performing SOE such as the DBSA bailing out a poor-performing one. Government cannot afford to use its balance sheet to rescue these SOEs, so it is rearranging the deck chairs.

    “Our concern is the strain this might put on the better-performing SOEs. For now it might not be a big issue given that the DBSA does have rules governing its lending, but the trend isn’t pleasing.”

    And Eskom is likely to remain both a concern and a drain. Clearly there is much in-fighting at the parastatal and disagreement about its turnaround direction coupled with bouts of load shedding, which indicates that South Africa is certainly not out of the woods. “Eskom will, again, be a massive issue to watch for in the Budget,” said Van der Westhuizen.

    “For at least the next few years, support will have to be pencilled in for the utility. If that number were to rise significantly or if there were further talk of taking Eskom debt on the government balance sheet, then we would be in deep trouble.”

    What could prove a fillip for the country would be positive developments around key issues such as power generation.

    “There has been much talk about mining companies, and other businesses, being permitted to generate their own electricity and for independent power producers to come onto the gird, but we are yet to see formal communication in this regard.

    “If something concrete is announced, even some compromise around public-private partnerships, then that would be very positive,” said Van der Westhuizen.


    The D-Day downgrade

    While the state fiddles, and South Africa’s economy burns, a downgrade in the country’s sovereign credit rating continues to hang over South Africa’s head. While the markets have long priced this in, the continued expectation that the axe will fall is, in itself, creating uncertainty and tension.

    On 28 January 2020 Moody’s Investors Service analysts noted that it was “a bit early” to judge the impact of both policy and structural reforms. Lucie Villa, Moody’s lead sovereign analyst for South Africa, told Bloomberg that while the data was not pointing to either a particularly positive or negative direction, that “there is nothing really to flag for the time being”.

    This indicates that Moody’s may well be prepared to give SA more leeway, but obviously, the credit rating agency will be keeping a close eye on Mboweni’s Budget.

    “Certainly, everyone expects this Budget to be poor,” said Van der Westhuizen, “but they might manage to demonstrate the will to cut expenditure and show just enough fiscal consolidation and, in that case, Moody’s might delay any decision until November, after the next MTBPS.”

    That said, while government might do enough to keep Moody’s at bay for the first half of this year, it remains Citadel’s view that the agency will downgrade South Africa in 2020. While this would put South Africa out of the World Government Bond Index, Van der Westhuizen believes it is time for the country to take its medicine.

    “Foreigners would come in and sell some of our bonds on index exclusion but, with some of the most attractive yields available, there would definitely be buyers stepping in,” he said.


    Reading the mood

    Citadel noted that anyone who follows Mboweni on Twitter will be keenly aware that the finance minister is getting significant pushback, making him increasingly despondent with the lack of progress. There appears to be considerable opposition to his plans, as laid out in the economic strategy document released in August 2019.

  • I continue to be surprised by an absence of horsemeat imports into South Africa so far this year. This is evident from the data from January 2018 to July 2018.

  • IF EMIGRATION is a barometer of confidence in a country’s future, then South Africa, where a growing number of people are upping sticks, is in trouble. Private schools complain about losing students as families move abroad. More people are selling their homes in preparation for leaving . “Emigration sales” are a fixture of neighbourhood Facebook groups, with leavers peddling their patio furniture and braais. 

  • The latest RepTrak Pulse Survey for South Africa shows which local brands are most trusted and reputable among South African consumers.

  •  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.

    WEEKLY HIGHLIGHTS

     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.

    Wheat

     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.

    Maize

      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.

    Soybeans 

    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

    DATA RELEASES THIS WEEK 

    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.

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