• The attempt last year to amend Section 25 of the Constitution represented a grave threat to whatever chances for future prosperity South Africa had.

    In targeting for the first time a provision in the Bill of Rights, it set a terrible precedent by threatening constitutional protection. Some of its proponents even claimed that the Constitution in its current form would not prevent the ultimate policy goal, Expropriation without Compensation.

    That the measure failed to pass deserves to be viewed with relief. But as we at the Institute of Race Relations have warned in the intervening period, this was at best a respite.

    A Land Court Bill, currently before Parliament, seeks to place land (and land expropriation) matters into a specially created court. The Bill itself is intended to ‘promote land reform as a means of redressing the results of past discrimination and facilitate land justice.’  Its proposed design raises a very real danger of proceedings being loaded in favour of particular outcomes. For example, two lay assessors may be appointed to sit alongside a judge, and may overrule the latter on matters of fact. The Bill is silent on how the assessors will be appointed, and it is far from impossible that  activists hostile to land ownership would be in a position to preside over cases. On certain issues, such as whether ‘nil’ compensation should be awarded, or whether a given property has been abandoned, it is likely that the views of these assessors could be decisive.

       How to counter the Expropriation and Land Court Bills

    In addition, there is the Expropriation Bill. President Ramaphosa has declared the government’s intention to pass the Bill into law this year. Dating back in its current iteration to 2019 (but with a policy lineage that extends back over more than a decade), it would establish a new regime for expropriation of property. Among other things, it defines expropriation – and so too, any entitlement to compensation – so as to require the state to take ownership of expropriated property.

    This suggests that merely depriving an owner of something – without the state’s acquiring ownership in turn, as was the case with South Africa’s mineral resources under the custodianship provision of the Mineral and Petroleum Resources Development Act of 2002 – would not qualify as expropriation. This in turn would make a mass ‘custodial’ taking of a particular asset achievable without any requirement for compensation.

    Move on property rights

    Simply put, despite the Constitution holding for the moment, the mechanisms for proceeding with a move on property rights are being put in place.

    At the same time, there has been a chorus of voices expressing harsh criticisms of the constitutional order, in part or as a whole. These voices include tourism minister Lindiwe Sisulu, KwaZulu-Natal premier Sihle Zikalala, former cabinet minister Ngoako Ramatlhodi as well as academics Professors Sipho Seepe and Eddy Maloka.

    The basic assertion is that the malaise confronting South Africa arises from a lack of radicalism, this having been constrained by a timid compromise in the 1990s and the Constitution that embodied it.

    Thus, Prof Maloka says that: ‘Our approach should not be piecemeal – about land, the judiciary, or this and that. Instead, we should be bold and decisive and overhaul the entire dispensation to align it with our times.’

    Prof Seepe was more direct, attacking both the ANC and the state, claiming that ‘the post-1994 dispensation legitimised ill-gotten economic gains under apartheid.’ The ANC had been infiltrated, he went on to write, to the extent that it is ‘now embraced by even the most racist among our citizens’ (does this mean that the ANC is attracting large numbers of bigoted white voters..?), and ‘a state without any revolutionary content is a threat to our hard earned democratic dispensation.’

    Sisulu denounced the judiciary as ‘mentally colonised’, while Zikalala proposed replacing the supremacy of the Constitution (and the law) with Parliamentary democracy. ‘We want to issue the call for us to debate whether it is not time to move away from absolute rule by the Constitutional Court to a situation where we have a parliamentary democracy in which the voice of the people who elected is supreme to all other voices,’ Zikalala declared.

    Counterproductive

    In a very real sense, this is an extension of the attempt to alter Section 25. It sees the constitutional order as the problem, not the counterproductive nature or impracticability of policy or its inept implementation. This is part populism, but arguably more fundamentally ideological.

    Unsurprisingly, in all of this, land is a central motif. Thus, Minister Sisulu opines: ‘The land is where it all begins. And the law of the land makes or breaks.’ Prof Seepe asserts that land is fundamental to the true revolutionary posture whose absence he bemoans: ‘Land is at the core of any anticolonial struggle. Reclaiming the land would have been the first order of business. With the loss of the ideological narrative, Africans have no control of the future.’

    In a similar vein, for Mr Ramathlodi, the Constitution is the culprit: ‘The essence of the 1913 Land Act retained under the New Constitution in section 25 must be reconsidered.’ 

    Contained within all of this is the notion that with a more aggressive and assertive form of political mobilisation, with the removal on the limits on the state’s powers, veritable economic miracles are possible. (In 2018, President Ramaphosa claimed that EWC would turn the country into a Garden of Eden – an attempt at allegory that fell flat.) To quote Mr Ramathlodi: ‘In this regard, the developmental state must be activist and take out scissors to perform the necessary caesarean birth.’

    Lyrical though that last comment is, it is also delusional. A good part of the reason for the disappointing outcomes of land reform – and support of small business, policing, education and so on – is precisely that the state is not up to the task. South Africa’s state is not developmental, although it certainly tries to be activist. The result, in practical terms, is a mixture of some dire laissez-faire neglect in some areas, and the constraints of an intrusive and often extortionate government apparatus in others.

    Actually, in this respect Prof Seepe is partially correct when he says of the ANC that ‘instead of using the state as an instrument at the service of the poor, it does the opposite.’ But he fails to note that much of the blame for this can be placed squarely at the door of the ANC’s conscious decision to politicise the state administration in the 1990s, thereby preventing a meritocratic, professionalised civil service from emerging. In so doing, it destroyed the prospect of a developmental state.

    Broad ideological thrust

    Such actions were, however, in keeping with the broad ideological thrust of the ANC and with its National Democratic Revolution. One might describe them as the natural outgrowth of the revolutionary impulse.

    South Africa’s future needs a good deal less ideology, and a good deal more pragmatism. This is readily apparent to anyone who cares to look, but is unfortunately not entirely clear to our political and intellectual elites.

    The disparaging of the constitutional order is intrinsically a threat to property rights, and to land ownership, both on the part of those who own and those who aspire to do so. Indeed, a successful land reform programme holds value for all of us – but it will not be delivered by the ideologues and venal individuals who are using it to frame their arguments.  

    The EWC agenda, and all that surrounds it, remains very much in place, and the present is no time for complacency.

  • Nitrogen and phosphates drift downwards as Rand strength helps push local prices down.

     

     

     

    26 May price (ex-WH)

    19 May price (ex-WH)

    Week-on-week change

    Urea gran

    R12,602

    R12,912

    -2.4%

    MAP

    R18,429

    R18,735

    -1.6%

    KCl gran

    R18,626

    R18,770

    -0.8%

     

    Cost per kilogram of nutrient (R/kg):

     

    26 May

    19 May

    Week-on-week change

    Nitrogen (N)

    R27.40

    R28.07

    -2.4%

    Phosphate (P)

    R67.91

    R68.93

    -1.5%

    Potash (K)

    R37.25

    R37.54

    -0.8%

      

    Nitrogen

    Urea from Iran and Russia is putting downward pressure on prices, as buying interest remains quiet. The ammonia price took a big step down this week as the US Tampa contract price dropped almost 40%.


    Markets that are happy to trade with Russia and Iran are enjoying competitive offers for urea, as Brazil and US urea prices continue to drift downwards. The Middle Eastern urea producers are busy fulfilling their tender commitments to India but are facing much lower netback values for any new business as most major price benchmarks are well below the $690/t fob value that the Indian tender price represents. US nitrogen demand continues to be hampered by wet weather conditions for planting and some of the northern states are starting to switch from maize to soya, which will further hurt nitrogen demand.

    It looks like the usual Q2 seasonal lull for urea demand is set to continue for at least another month, unless some unexpected demand emerges.

    The ammonium nitrate and ammonium sulphate markets were also quiet this week, with prices broadly going sideways and the market sentiment pointing towards prices continuing to trend downwards. The main annual industry conference, IFA, is taking place next week, so there is hope that some signs of market direction will emerge from discussions taking place there.

    Ammonia saw some large downward price corrections this week as the US Tampa contract price dropped $425/t to $1,000/t CFR and the Middle East ammonia price benchmark dropped around $100/t too. This will be welcome relief for the local South African fertilizer producers that consume ammonia to produce MAP, CAN and NPKs. An ammonia import cargo was booked from Algeria sailing to South Africa, which may be a first from this origin.

     

    Phosphates

    The market sentiment for phosphates prices continues to be quite negative/downward but players are waiting to see whether India’s attempt to force prices down towards the $900/t mark is successful. Demand destruction remains a common theme as buyers reduce their purchasing volumes.


    Most MAP/DAP prices around the world continue to float in the $1000-1100/t range. There is a lot of noise around prices in various regional markets – with the Chinese domestic price a good $300/t or more below international prices but the Chinese government is maintaining strict restrictions on any export sales. Brazil is being offered discounted Russian phosphates, while the Moroccans continue to demand a big premium for their phosphates.

    The phosphoric acid quarterly contract price remains unresolved and it looks unlikely that a price consensus for this quarter will be reached, considering there is only one month left. The Moroccans are standing by their position of $2000/t while Indian officials are announcing that they will not pay anything above the Q1 price of $1530/t. Interestingly, some of the smaller phos acid exporters to India like Jordan have rolled over the Q1 price and have been selling to India at that level.

    It appears that Foskor has agreed to another large phos acid export to Bangladesh during the past week or so, which has angered a number of the local liquid fertilizer producers who are concerned about getting adequate phos acid supplies ahead of the liquid season. Foskor is reported to be running fairly well otherwise, although MAP availability remains incredibly limited in the South African market.

     

    Potash

    A very quiet week for potash as prices rolled over and no price changes are expected any time soon. 


    Potash market players are apparently waiting for next week’s IFA conference to thrash out potash prices. Emerging trade data from Brazil points to over 500,000t of Russian product destined for that market, which represents almost half of Brazil’s May requirement. This is a larger volume than most market analysts anticipated being possible out of Russia. Russia historically has supplied 10-15% of Brazil’s potash imports at this time of year.

    This may all point to downwards price pressure, until more potash supply emerges, prices are not likely to change.

    Asian markets have been struggling to source their full needs and trade data for the year to date is indicating that Asian buying is 15-20% lower than the same period in 2021. Not only is this a sizable reduction to potash consumption but is a major concern for crop yields and thus food security.

     

    General Market Outlook 

    Brent crude oil price remains very strong this week, as some recovery in the Rand gives relief on local commodity prices.

    Crude oil had a very bullish week with the price rising steadily from $111/bbl to touch above $117/bbl by Thursday. In early trading this morning prices appeared to drop a little but oil prices remain very elevated. On the natural gas front, the US Henry Hub price leapt from $8/MMBtu to go above $9.5/MMBtu as June options expired on Thursday and some players had to scramble to get cover. European gas prices dropped to $26/MMBtu earlier in the week before moving up to $28/MMBtu currently.  

    Maize prices declined on the international front over the past week, and the stronger rand exacerbated the drop in Safex prices for both white and yellow maize of over 4%. Local soya and sunflower prices bucked the maize trend, overcoming weaker CME prices and the stronger rand to gain around 2% over the week.

    The rand strengthened against the dollar for the second week running, gaining just under 1%.

    Latest Direct Hedge quotes for urea and MAP swaps in USD:

     

     

    Arab Gulf
    27 May 2022

    Arab Gulf
    20 May 2022

    Week-on-week change

     

    Bid

    Ask

    Bid

    Ask

    Bid

    Ask

     

     

     

     

     

     

     

    Jun-22

    680

    720

    700

    720

    -20

    -

     

    Q3-22

    680

    720

    700

    750

    -20

    -30

     

     

    Jul-22

    680

    720

    700

    720

    -20

    -

     

     

    MAP Brazil CFR
    27 May 2022

    MAP Brazil CFR
    20 May 2022

    Week-on-week change

     

    Bid

    Ask

    Bid

    Ask

    Bid

    Ask

     

     

     

     

     

     

     

    Jun-22

    1,050

    1,100

    1,050

    1,100

    -

    -

     

    Jul-22

    1,100

    1,200

    1,100

    1,200

    -

    -

     

     

     

    As we speculated might be possible last week, the urea Swaps price softened slightly to align with the physical urea market. A question that could be asked is why the forward urea price did not decline more considering the negative sentiment in the market around urea prices. We probably need to see increased trading volumes to make any predictions around the urea price direction – currently, trading volumes are so limited that it’s difficult to draw robust conclusions about where urea prices will be in the next month or two.

    There was no change on the Brazil MAP forward prices this week, as the MAP market remains subdued and most market participants are waiting for the IFA conference next week to get some pricing signals.

    If you would like to discuss these fertilizer price trends in more detail, or discuss other fertilizer products not addressed in this report, we would love to hear from you. We would also be happy to discuss your fertilizer procurement needs with you.

    Andrew Prince 


    This email address is being protected from spambots. You need JavaScript enabled to view it.


  • South Africa has a globally competitive agribusiness sector and a highly developed value chain with well-established economic institutions and techniques. 

  • A large share of the 2017/18 maize crop has already been delivered to commercial silos, hence the weekly producer deliveries have slowed in the recent weeks. In the week of 05 October 2018, maize producer deliveries amounted to 31 986 tonnes, down by 62 percent from the previous week. About 55 percent of this was white maize, with 45 percent being yellow maize. 

  • South Africa is divided into a number of farming regions according to climate, natural vegetation, soil type and farming practices.

  • Nitrogen

    The big surge in urea prices that started late last week played through the market this week, with large gains seen in most urea benchmark locations.

    High gas prices in Europe are the motivation for bullish nitrogen prices but this is mostly sentiment as the global supply-demand balance remains unchanged.

     

    Urea continues to rebound this week. Phosphates and Potash slide steadily downwards on weak demand.

      

     

    4 August price (ex-WH)

    28 July price (ex-WH)

    Week-on-week change

    Urea gran

    R12,096

    R10,602

    14.1%

    MAP

    R16,020

    R15,466

    -2.7%

    KCl gran

    R17,177

    R17,812

    -3.6%

     

    Cost per kilogram of nutrient (R/kg):

     

    4 August

    28 July

    Week-on-week change

    Nitrogen (N)

    R26.29

    R23.05

    14.1%

    Phosphate (P)

    R57.83

    R61.37

    -5.8%

    Potash (K)

    R34.35

    R35.62

    -3.6%

     

     

    Nitrogen

    The big surge in urea prices that started late last week played through the market this week, with large gains seen in most urea benchmark locations. High gas prices in Europe are the motivation for bullish nitrogen prices but this is mostly sentiment as the global supply-demand balance remains unchanged.

     

    The international urea market is full of hype about strengthening prices but this is driven by suppliers, who are keen to reverse the discounts that the market gave on the recent Indian tender. The latest European gas price events gave them ammunition to push this story. In reality, almost all European urea plants have been idled for many months now, so the lack of gas or high gas prices really do not translate into more expensive urea in Europe because no urea is being made there. Europe does have to import its shortfall of nitrogen that has resulted from domestic production being stopped but this import requirement has existed for close to 6 months now. In other words, the European nitrogen supply-demand balance has not shifted in recent weeks. In fact there is a good counter-argument that European demand could drop away any time as the fertilizer season is over (i.e. beyond some scattered top-dressing requirements, there is no urgent need for nitrogen) and the European stocking programme for next spring usually only starts in earnest in Q4.

    In general urea demand is quiet around the world. North America is experiencing mixed sentiment with southern states facing a drought which has ruled out most late season top-dressing interest, while northern states start their refill programme ahead of winter. Many Asian markets are reporting low demand and the next Indian tender is expected at the beginning of September only. South America still has relatively high stocks so buyers are ignoring the recent price increases for the most part. Urea prices are likely to be volatile for the coming month at least and further ups and downs are probable.

    Ammonium sulphate prices which have been falling in recent weeks, stabilized somewhat this week with the urea price hike helping support them. At best the amsul market is seen as stable at current levels, with ample supply and moderate demand. It would need urea to continue rising for amsul to see any big price increases. Ammonium nitrate remains firm as its biggest market, Europe, deals with the high gas price issue mentioned above. Any European production of AN/CAN would be based on imported ammonia, which would translate into a high cost of production – this is what is supporting the high AN prices currently.

    Ammonia settled down this week as increased availability from a number of regions kept prices in check. The wide delta between urea prices and ammonia has encouraged some ammonia-urea producers to cut back on urea production and rather sell their ammonia because of the higher returns ammonia offers. Cutting back on urea production also demonstrates these producers’ lack of confidence in urea prices being sustained, irrespective of what they may be saying in public about high prices. The outlook for ammonia is for stable pricing for the next few months.

    Half year trade data (January to June 2022) for urea shows that South Africa is around 75,000 tons (22%) behind on urea imports compared to the same period last year. This underlines the message that we have been giving for some weeks now: local importers have paused on purchases because fertilizer is not moving from port to farm. This leaves the country vulnerable to stocking out when the season does start because the lead-time on imports is a good 60 to 90 days as a result of delays in local ports. There is a high risk that once growers do start buying fertilizer the current inventory will deplete faster than it can be replaced and growers late on ordering may have a long wait to get product.
    .
     

    Phosphates

    Buying interest was absent for phosphates this week as buyers push for further price reductions, on the grounds that the collapse in sulphur prices has reduced the cost of phosphate production.


    Phosphate prices continue to head down at major benchmark points such as Brazil and India. These reductions have in turn pushed the Middle Eastern price down by $30/t. Shipping from the Middle East to South Africa has eased off a few dollars too, which yielded a 3% lower import cost this week. The increase in the nitrogen (urea) value this week means that the remaining value of phosphate after deducting the value of nitrogen in MAP is close to 6% cheaper again this week. Phosphate has fallen from R66/kg to the current R58/kg in four weeks, a drop of almost 14%. The rand has played a role in that change but it gives an idea of the extent to which phosphates prices are trending down.

    Most of the fundamentals for phosphates indicate that prices are likely to continue easing downwards slowly over the coming months. The lack of Chinese product in the market has now played out in terms of pricing and the Chinese production rates are now down to 40%. A meaningful change in Chinese production (either up or down) would be enough to shift phosphates prices away from their current level but there is no sign of any big change currently.

    Phosphates look set to continue their slow but steady decline for the next month or two, which will give South African growers some relief. The ongoing decline in prices also has the unfortunate effect of delaying purchases, which raises the risk of fertilizer stocking out in the local market.
     

    Potash

    Potash prices continue to slide downwards as suppliers unsuccessfully try to stimulate demand. Falling crop prices and high stocks in Southern Hemisphere markets are maintaining downward pressure on potash. 


    Most of the potash benchmarks around the world showed moderate declines in price. Potash suppliers are now avoiding Brazil because of the high stocks already in country and trying to direct cargoes elsewhere to avoid forcing the price down even further. Potash is now more than 20% down from the peak in April. Market commentators are now suggesting that the potash price will continue to reduce at a slow rate over the coming 6 months, as supply remains stronger than expected and high prices have done lasting damage to demand.

    Half year trade data indicates that South African potash imports are almost 30% down year on year, at around 125,000 tons versus 170,000 tons for the same 6 months last year. This data is a bit misleading because the difference  can be ascribed to a single large vessel that arrived in June last year whereas an equivalent vessel was delayed in the Durban congestion this year and is only berthing now. The inventory status in South Africa is very high, so no short term concerns about availability of potash.
    .
     

    General Market Outlook 

    Crude oil prices reverse direction and head below $100/bbl as demand declines. Grain prices recovered some of their recent losses as hot, dry conditions in the US are increasing the risk of some yield declines.

    Oil prices headed downwards strongly this week US monthly reports showed higher than expected oil inventories and the ongoing concerns of recession quietened demand. Brent crude that was $105/bbl a week ago was down to $95/bbl today.  EU gas prices sat above $60/MMBtu for most of the week before being pulled down by the oil price to drop to $59/MMBtu today. US gas prices continue to fluctuate sharply up and down between $7.5 and $8.5/MMBtu as influences like oil price negativity is balanced against peak seasonal demand due to hot weather.

    Latest Direct Hedge quotes for urea and MAP swaps in USD:

     

     

    Arab Gulf
    5 August 2022

    Arab Gulf
    29 July 2022

    Week-on-week change

     

    Bid

    Ask

    Bid

    Ask

    Bid

    Ask

    Aug-22

    630

    680

    650

    700

    -20

    -20

    Sep-22

    625

    650

    660

    700

    -35

    -50

     

    Q4-22

    625

    650

    680

    720

    -55

    -70

     

     

    Oct-22

    625

    650

    680

    720

    -55

    -70

     

     

    MAP Brazil CFR
    5 August 2022

    MAP Brazil CFR
    29 July 2022

    Week-on-week change

     

    Bid

    Ask

    Bid

    Ask

    Bid

    Ask

     

     

     

     

     

     

     

     

    Aug-22

    800

    900

    800

    900

    -

    -

     

     

    Sep-22

    800

    900

    800

    900

    -

    -

     

     

    As suggested last week, the urea Swaps market saw a correction this week as the market over-reacted to increases in the physical market. The short term outlook for urea remains bullish but this is based mostly on sentiment in our view. The Q4 outlook does appear to be more realistic and balanced.

    If you would like to discuss these fertilizer price trends in more detail, or discuss other fertilizer products not addressed in this report, we would love to hear from you. We would also be happy to discuss your fertilizer procurement needs with you.

     

    This email address is being protected from spambots. You need JavaScript enabled to view it.

    Andrew Prince 


    This email address is being protected from spambots. You need JavaScript enabled to view it.

     

     

  • Prof. Ashok Chapagain has recently been appointed as senior professor in the department of agricultural economics in the faculty of natural and agricultural sciences at the University of the Free State (UFS).

  • Many people are worried about the uncertainty surrounding the discussion about land reform policy in SA. However, some allow the fear to get ahead of themselves. I have heard folks saying “farmers stopped planting” in SA, possibly due to uncertainty caused by land reform.

  • South African new-truck market has increased overall sales by 2.3% year-on-year for the first nine months of the year, defying a slew of negative economic indicators.

  • One major challenge that emerged this past week that directly impacts South Africa's agriculture is labour-related tensions at Transnet. The logistics utility declared a force majeure at its port operations last week, citing an illegal strike. There is a risk that disruptions could escalate this week. The weekend papers cited statements by the representatives of the South African Transport and Allied Workers Union (Satawu) and the United National Transport Union (Untu) that workers are demanding a wage increase of a minimum of 10%, slightly down from the initial demand of 13,5%. However, this is still far from the current offer by Transnet at 4%. Against this, Satawu said over the weekend that it has served Transnet with a 48-hour notice that its members will be striking from today. Disruptions to the flow of goods to and from other countries could negatively impact South Africa’s food, fibre and beverages sector, depending on its duration.

    While agricultural production tends to be seasonal, South Africa has diverse agriculture, and there is large trade activity each quarter of the year. For example, exports of food, fibre and beverages in Q4 2021 amounted to $US2.8bn, 23% of the total value of exports in that year. Some of the products that dominated the export activity were citrus, maize, apples and pears, wine, grapes, nuts and berries, wool, soybean oil, apricots, cherries and peaches. Not all these exports were facilitated through Transnet. Still, the point is that the fourth quarter of each year is a high export activity quarter. Given that agricultural production has generally been resilient, we expect that there are substantial volumes of exports of various products scheduled for this month.

    Similarly, South Africa imports a range of food products in the fourth quarter of the year. For example, in 2021, during this period, we saw imports of wheat, palm oil, rice, spirits, poultry meat, sunflower oil, and soybeans oilcake, amongst various products. The total imports of food, fibre and beverages in the last quarter of 2021 amounted to US$1,9 billion. In the same way, as the exports, labour-related disruptions would disrupt this import activity.

    Importantly, we are not outlining these trade values to signal that this will be the direct loss if there is a strike. Instead, we are outlining the importance of trade in South Africa's food, fibre and beverages sector. Any costs would ultimately depend on the scale and timeframe of disruptions. The focus should be on supporting both parties to find common ground. Indeed, the whole logistics industry is the bloodline of South Africa's export-oriented agriculture or food, fibre and beverages sector.

    In the export business, especially of high-value products, the reliability of South African suppliers is key in a highly globalized competitive world. Therefore, any potential prolonged delays would negatively impact the business activities of the South African suppliers to various markets in the world. Different agricultural groupings and commodity associations have already been vocal in the weekend newspapers about the possible negative impact of the Transnet strike on their businesses and the agricultural economy.

    Aside from the immediate strike concerns, the logistics industry requires improvements, from roads, rail and ports, to support a growing agricultural sector. Road networks have deteriorated severely across South Africa over the recent past, weighing on agribusinesses and farming entities. Notably, some are using the capital resources which could have been allocated to business expansion, and thus long-term employment, to maintain and build roads. This is a public sector function and shouldn't be covered by private businesses. Similarly, there are long-standing challenges with rail and ports. Fortunately, on this part, Transnet has been working closely with agribusinesses, commodity associations and farmer groupings to refine their agricultural strategy that responds to the sector's needs and devise a long-term solution. This is crucial as South Africa already exports half of its agricultural produce. Any improvements in production going forward will have to be linked to potential export markets, and the logistics industry will be at the heart of this process.

    In sum, the current labour disputes at Transnet are an important risk for South Africa's food, fibre and beverages sector. The fourth quarter of the year is as busy as any other quarter in terms of trade. Therefore, stoppages would negatively affect both imports and export activities. The actual costs of it, however, will depend on the duration of the strike. We hope a solution is found quickly between Transnet and the labour unions to minimize disruptions to trade.

     Weekly highlights

    SA agriculture machinery sales paint a mixed picture in September 2022

    After a solid run since the start of the year, South Africa’s agricultural machinery sales painted a mixed picture in September 2022. For example, tractor sales were up by 4% year-on-year (y/y), with 777 units sold. Meanwhile, the combine harvester sales were at 17 units, down 19% from September 2021. Still, a monthly decline in the combine harvester sales does not change the fact that agricultural machinery sales have been on solid footing since the start of 2020.

    These strong sales over this period indicate a primary agricultural sector still in a reasonably better financial condition and continues to invest in movable assets. As we have previously argued, when farmers have a good year, allied industries benefit from spending the financial gains or the produce of the farming businesses. Agricultural machinery is one such industry that benefited from farmers' spending in 2020, 2021 and the first nine months of 2022.

    The farmers, specifically grain and oilseed producers, expanded their area planted in the past two years and maintained a decent area in 2022. Weather conditions were favourable, specifically in the past two seasons, resulting in a large harvest for two consecutive seasons.

    This was also when commodity prices remained elevated, supported by global events such as dryness in South America and Indonesia and rising demand for grains and oilseeds in China. Had it not been for higher global agricultural prices, the local grain and oilseed prices would have softened due to large harvests, and that would have weighed down the profitability. Therefore, these past few years' financial gains went to agricultural equipment improvement, among other farm activities. This year, the factors above continued to support grain and oilseed prices, along with the Russia-Ukraine war, which disrupted the supplies.

    Importantly, this year the reasonably higher input costs and rising interest rates did not reduce farmers’ spending on machinery as we initially anticipated. In a way, this speaks also to the farmers’ confidence about the 2022/23 production season which has recently started.

     

    Data releases this week

    As always, we start the week with a global focus. On Tuesday, the United States Department of Agriculture (USDA) will publish its Weekly US Crop Progress data. In these data, our focus is on the US crop-growing conditions as the season progresses, and the harvest has started. This data also helps us form a view of the crop quality in the US. In the previous release, in the week of 02 October 2022, about 52% of the maize crop was rated good/excellent, which is the same level as the previous week. Importantly, this is down by 7% from the same week a year ago. This general decline is mainly explained by the drier weather conditions in some States over a few couple of months.

    Moreover, about 20% of the crop had already been harvested, slightly behind last year's pace of 27% in the same week. Meanwhile, about 55% of the soybean crop was rated good/excellent, also unchanged from the previous week. This is down by 3% from the previous year's rating in the same week. In terms of the harvest, about 22% of the crop had already been harvested, compared with 31% in the same week last year.

    In addition, on Wednesday, the USDA will release its monthly flagship report, the World Agricultural Supply and Demand Estimates report. This report will provide an updated view of the world grains and oilseeds supply and demand conditions, and notable adjustments on it could be "market moving". The USDA will release the US Weekly Export Sales data on Thursday.

    On the domestic front, on Wednesday, SAGIS will release the Weekly Producer Deliveries data for 07 October 2022. This data will help us get insight into the size of the crop as harvesting has been recently completed in most regions of the country. In the previous release of the week of 30 September, about 13,6 million tonnes of maize had already been delivered to commercial silos, out of the expected harvest of 15,3 million tonnes. In the same week, about 2,1 million tonnes of soybeans had already been delivered to commercial silos out of the expected harvest of 2,2 million tonnes. Moreover, 831 876 tonnes of sunflower seed had already been delivered on the same day out of the expected harvest of 845 550 tonnes.

    On Thursday, SAGIS will publish the Weekly Grain Trade data for 07 October 2022. In the previous release on 30 September 2022, which was the 22nd week of South Africa's 2022/23 maize marketing year, the weekly exports amounted to 128 998 tonnes. About 37% of this went to Taiwan, 31% to Mexico, 22% to Japan, and the rest to the Southern Africa region. This brought the total 2022/23 exports to 1,8 million tonnes out of the seasonal export forecast of 3,5 million. This is slightly down from 4,1 million tonnes in the past season due to an expected reduction in the harvest.

    South Africa is a net wheat importer, and 30 September was the 53rd week of the 2021/22 marketing year. The total imports are now 1,6 million tonnes, far surpassing the seasonal import forecast of 1,5 million tonnes (and the 2020/21 marketing year imports of 1,5 million tonnes). The major wheat suppliers are Argentina, Lithuania, Brazil, Australia, Poland, Latvia and the US. As we stated in our previous notes, if one looks into South Africa's wheat imports data for the past five years, Russia was one of the major wheat suppliers, accounting for an average share of 26% yearly. Next week, the focus will be on the new marketing year of 2022/23.

     

  • Yes, land reform in South Africa is an urgent issue; the landless will almost certainly not be put off much longer for at least some movement in their direction.

  • Nearly a week has passed since South Africa’s 2018 jobs summit. The two-day gathering produced some useful agreements between the social partners: government, organised labour and business (essentially, big business).

  • It seems like the global agricultural observers have not fully factored in the possible effect of a weak El Niño in their grain production forecasts, specifically on South Africa.

  • October 16 marked World Food Day, commemorating the founding of the United Nations Food and Agriculture Organization in 1945. Across the world, this day offers an opportunity for countries to assess their food security conditions and efforts to boost agricultural production. One of the measures that some often use to evaluate the food security condition of each country relative to the world is The Economist's Global Food Security Index, which Corteva sponsors. This latest index ranks South Africa at 59 out of 113 countries, an improvement from the 70th position in 2021. This places South Africa as the most food-secure country in the African continent, followed by Tunisia at 62nd.

    This improvement is commendable. When looking at the index scoring's technical position, it becomes clear why South Africa's food security ranking has improved. South Africa's scoring came in at 61,4, up from 57,8 in 2021. This shows that South Africa's progress in the Global Food Security Index is not merely because other countries have regressed, particularly since the start of the Russia-Ukraine war, which increased global food prices but that there has been an actual improvement in its own underlying conditions.

    The Global Food Security Index comprises four subindices, namely; (1) food affordability, (2) food availability, (3) food quality and safety, and (4) sustainability and adaption. The affordability and availability subindices carry a combined weighting of two-thirds of the total index. The affordability subindex includes the change in average food costs, agricultural trade, food safety net programs, and funding for food safety net programs. Meanwhile, the availability subindex includes the sufficiency of supply, agricultural infrastructure, and political and social barriers to food.

    In 2022, South Africa experienced a mild deterioration in the food affordability subindex of 7 points. Meanwhile, the rest of the other subindices improved significantly. This decline in the affordability subindex is unsurprising as the country has witnessed a broad acceleration in consumer food price inflation since the start of the year. South Africa's consumer food price inflation averaged 8,0% y/y in the first eight months of 2022, from 6,5% over the same period in 2021. Still, what is worth emphasizing is that this challenge speaks to the rising cost of food in an environment of generally high unemployment.

    Notably, the rise in food prices is a global phenomenon and not unique to South Africa. The dryness in South America, which negatively affected the crops in the 2021/22 production season, combined with growing demand for oilseeds and grains in China, and higher shipping costs, and recently, the Russia-Ukraine war, are some of the factors that have underpinned the global food price inflation surge. This, in turn, lifted prices in South Africa, despite the large domestic agricultural harvests in the past three seasons.

    Nevertheless, global food prices have come off the levels we saw in the months immediately after Russia invaded Ukraine. For example, in September 2022, the FAO's Global Food Price Index was down by 1% from the previous month. This marked a sixth monthly decline and was underpinned by the deterioration in the prices of vegetable oils, sugar, meat and dairy products. This means that affordability for all countries has far improved from the third quarter of the year. Still, the current price levels are higher than in 2021. For example, the FAO's Global Food Price Index is still 6% up from September 2021. Another key point to emphasize is that food prices were already elevated in 2021 due to disruptions in the supply chains, drought in South America, and increased demand for grains in China, amongst other factors.

    A major issue to keep in mind when observing global agricultural indices, such as the Global Food Security Index, is that subjectivity can never be fully eliminated from the authors' judgment. Resource constraints can hinder objective data collection on the ground in each country, and they sometimes rely on blueprint models that might not be site specific. Sources of bias can stem from inconsistency in data quality, frequency and reliability across all countries. The weightings and rankings are also tricky because they must be tailored to suit different socio-economic contexts.

    Still, the key message is that South Africa is in a better place regarding food security and leading the continent. This does not mean there should be complacency. South Africa will need to continue improving food security through expansion in agricultural production and job creation in various sectors of the economy. As we have previously stated, at a technical level, the ideas of expanding agriculture and agro-processing capacity to boost growth and job creation were well established as far back as in the National Development Plan in 2012. They were again highlighted in the 2019 National Treasury paper and, most recently, in the 2022 Agriculture and Agro-processing Master Plan.

    These include expanding agricultural activity in the former homelands and government land, enhancing government-commodity organizations' partnerships in extension services, investment in the network industries (water, electricity and road infrastructure), port infrastructure, and state laboratories. Some interventions are more regulation-focused and therefore do not require significant capital spending by the government, although these still need institutional capacity building. Such regulatory interventions include modernizing regulations such as the Fertilizers, Farm Feeds, Seeds and Remedies Act 36 of 1947, with which many role players in agriculture continue to express dissatisfaction. The Agricultural Product Standards Act's enforcement to ensure that the Department of Agriculture, Land Reform, and Rural Development leads the implementation and does not assign it to third parties is another critical intervention that could be explored. Regarding regional focus, Limpopo, KwaZulu-Natal and the Eastern Cape, the most food-insecure provinces, also have vast tracts of underutilized land. These provinces should be a priority in agricultural development plans. With a commercial focus where conditions permit, agriculture improvement would help job creation and household food security in South Africa.

    Weekly highlights

     

    Kenya’s decision to open the door to GM maize is a good omen

    In the first week of October 2022, Kenya lifted the ban on the cultivation and importing of genetically modified (GM) white maize. This change is in response to growing food insecurity in the country. Kenya has struggled with drought in the recent past and remains a net importer of maize. Still, this adjustment doesn’t mean the borders are automatically open, there will be an assessment of each GM trait by the Kenyan Biosafety Authority before actual imports and cultivation can occur. Assuming some of this scientific legwork has already been done, we could see imports start in the next few months or a year.

    If the work can be completed in months, this could save Kenya some trouble. In the 2022/23 season, Kenya needs to import a substantial volume of maize, estimated at about 700 000 tonnes. This is roughly unchanged from the previous season, which also posted poor domestic production. In the 2021/22 season several sub-Saharan African countries, including Zambia, Tanzania, Zimbabwe and South Africa, had ample maize harvests. This made it easy for them to meet Kenya’s import needs, with Tanzania and Zambia leading the way. However, this year things are different. Tanzania’s maize harvest is down roughly 16% year on year to 5.9-million tonnes due to sparse rainfall at the start of the season combined with armyworm infestations and reduced fertiliser usage in some regions because of prohibitively high prices.

    The fall in production and firmer domestic consumption mean Tanzania will have less maize to export. Tanzania’s available maize for export is about 100 000 tonnes. This is well below the previous season’s exports of 800 000 tonnes, which saved Kenya when the country was most in need of maize. The country in the region with the most abundant supply of maize at present is South Africa, whose maize exports for the 2022/23 season are forecast at 3,5-million tonnes. South Africa struggled to access the Kenyan market for many years because of its ban on imports of GM products. But this change in regulations offers a new opportunity for South African maize exporters (provided the Kenyan Biosafety Authority gets its ducks in a row soon).

    In future, the liberalisation of the Kenyan seed market should benefit its farmers in the same way as in South Africa, Brazil and the US. In fact, the sentiment towards the cultivation and importation of GM crops is changing worldwide, partly because of the global food crisis and countries’ efforts to boost domestic production. For example, at the beginning of June the Chinese National Crop Variety Approval Committee released two standards that clear the path for cultivating GM crops. Now that this hurdle has been cleared, the commercialisation of GM crops in China is a real possibility. The EU is also reviewing its regulations on cultivating and importing GM crops, an essential step in a region that has long had an anti-GM stance.

    South Africa was an early adopter of GM technologies. We began planting GM maize seeds in the 2001/2002 season. Before their introduction, average maize yields in South Africa were about 2,4 tonnes per hectare. This has increased to an average of 5,6 tonnes per hectare in the 2020/2021 production season. Meanwhile, the sub-Saharan African maize yields remain low, averaging below 2,0 tonnes per hectare. While yields are also influenced by improved germplasm (enabled by non-GM biotechnology) and improved low and no-till production methods (facilitated through herbicide-tolerant GM technology), other benefits include labour savings and reduced insecticide use, as well as enhanced weed and pest control. With Kenya struggling to meet its annual maize needs, using new technologies, GM seeds and other means should be an avenue to boost production in future.

     

    Data releases this week

    We start the week with a global focus, and today the United States Department of Agriculture (USDA) will publish its Weekly US Crop Progress data. In these data, our focus is on the US crop-growing conditions as the season progresses, and the harvest has started. This data also helps us form a view of the crop quality in the US. In the previous release, in the week of 09 October 2022, about 54% of the maize crop was rated good/excellent, which is the same level as the previous week. Importantly, this is down by 6% from the same week a year ago. This general decline is mainly explained by the drier weather conditions in some States over a few couple of months.

    Moreover, about 31% of the crop had already been harvested, slightly behind last year's pace of 39% in the same week. Meanwhile, about 57% of the soybean crop was rated good/excellent, also unchanged from the previous week. This is down by 2% from the previous year's rating in the same week. In terms of the harvest, about 44% of the crop had already been harvested, compared with 47% in the same week last year. In addition, the USDA will release the US Weekly Export Sales data on Thursday.

    On the domestic front, on Wednesday, SAGIS will release the Weekly Producer Deliveries data for 14 October 2022. This data will help us get insight into the size of the crop as harvesting has been recently completed in most regions of the country. In the previous release of the week of 07 October, about 13,7 million tonnes of maize had already been delivered to commercial silos, out of the expected harvest of 15,3 million tonnes. In the same week, about 2,1 million tonnes of soybeans had already been delivered to commercial silos out of the expected harvest of 2,2 million tonnes. Moreover, 832 610 tonnes of sunflower seed had already been delivered on the same day out of the expected harvest of 845 550 tonnes.

    On Thursday, SAGIS will publish the Weekly Grain Trade data for 14 October 2022. In the previous release on 07 October 2022, which was the 23rd week of South Africa's 2022/23 maize marketing year, the weekly exports amounted to 58 514 tonnes. About 42% of this went to Japan, 40% to Taiwan, and the rest to the Southern Africa region. This brought the total 2022/23 exports to 1,9 million tonnes out of the seasonal export forecast of 3,5 million. This is slightly down from 4,1 million tonnes in the past season due to an expected reduction in the harvest.

    South Africa is a net wheat importer, and 07 October was the first week of the 2022/23 marketing year. The total imports are now 44 406 tonnes, from Australia, Germany and Poland. The seasonal import forecast is 1,53 million tonnes, slightly down from 1,58 million tonnes in the previous season. In the 2021/22 season, the major wheat suppliers are Argentina, Lithuania, Brazil, Australia, Poland, Latvia and the US. As we stated in our previous notes, if one looks into South Africa's wheat imports data for the past five years, Russia was one of the major wheat suppliers, accounting for an average share of 26% yearly.

  • The Expropriation Bill guarantees that expropriation can only be used as a last resort after all other attempts to buy the property have failed. The extent of expropriation is therefore not determined by any political party’s land reform targets.

    So much has been written and said regarding expropriation and the Expropriation Bill over the past number of years, and yet, there still seem to be many misconceptions about the bill and what it is trying to achieve.

    The possibility of government or some organ of state taking private property against the will of the owner understandably instils fear in and resistance from individuals and companies. The state is powerful and the idea of the state targeting one’s property for expropriation leaves people feeling very vulnerable.


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    Having said that, expropriation is internationally entrenched as a legitimate part of the functions of a state, and is recognised as such, even by the United Nations.

    In the Encyclopaedia Britannica, “expropriation” is defined as follows: “expropriation implies legal process and just compensation for goods or property taken for public use, with judicial redress as a remedy for inadequate compensation. Expropriation is not ordinarily a method of supplying the common needs of the government but is directed toward the satisfaction of specific government objectives.”

     
    Because expropriation is such a drastic intervention, its application is limited and its use qualified by international and national law. The right of the property owner to be adequately compensated for losses incurred by expropriation is recognised in international law and finds constitutional protection in many jurisdictions.

    International context
    Every government in the world can resort to expropriation as a means to acquire property for certain public purposes. The Food and Agricultural Organization (FAO) of the United Nations published a guide on international best practice for expropriation in 2009. In the document the FAO explains why expropriation or compulsory acquisition is important.

    It states: “Sustainable development requires governments to provide public facilities and infrastructure that ensure safety and security, health and welfare, social and economic enhancement, and protection and restoration of the natural environment. An early step in the process of providing such facilities and infrastructure is the acquisition of appropriate land. That land may not be on sale at the time it is required. In order to obtain land when and where it is needed, governments have the power of compulsory acquisition of land: they can compel owners to sell their land in order for it to be used for specific purposes.”

    Compensation and fair procedure lie at the heart of expropriation. The right not to be arbitrarily deprived of property and the right to fair compensation in the event of expropriation is protected in one form or another in international human rights instruments such as the United Nations’ Universal Declaration of Human Rights, the European Convention on Human Rights and the African Convention on Human Rights (African Charter on Human and Peoples’ Rights).

    The modern approach to compensation is based on the principle of equality in the bearing of public burdens. This is a principle adopted by French, German and American law.

    According to this approach, “where one or more individuals must bear a sacrifice (being the loss of property) for the common good, their individual and excessive burden should be compensated by the community (thus the State).”

    The point of departure of the document is that forced acquisition of property is a necessary power for the state but that measures should be in place to prevent abuse. The guide requires, among other things, clear and transparent procedures for forced acquisition of property, and compensation that will ensure that the affected persons are not worse off after expropriation than they were before.

    It further states that affected persons must not only be compensated for the loss of land but also for improvements made and for the disruption that accompanies expropriation. Subject to a few issues that have consistently been raised by Agbiz, the Expropriation Bill seems to incorporate these elements.

    The South African Constitution
    The Constitution deals with expropriation and compensation in section 25(3). Sections 25(2), (3) and (4) are of relevance and provide as follows:

    “Property may be expropriated only in terms of law of general application–

    (a) for a public purpose or in the public interest; and

    (b) subject to compensation, the amount of which and the time and manner of payment of which have either been agreed to by those affected or decided or approved by a court.

    (3) The amount of the compensation and the time and manner of payment must be just and equitable, reflecting an equitable balance between the public interest and the interests of those affected, having regard to all relevant circumstances, including–

    (a) the current use of the property.

    (b) the history of the acquisition and use of the property.

    (c) the market value of the property.

    (d) the extent of direct state investment and subsidy in the acquisition and beneficial capital improvement of the property; and

    (e) the purpose of the expropriation.

    (4) For the purposes of this section–

    (a) the public interest includes the nation’s commitment to land reform, and to reforms to bring about equitable access to all South Africa’s natural resources.”

    There was a failed attempt from 2018 to 2021 to amend section 25 of the Constitution. This means that section 25 remains as it is and that all expropriations and expropriation legislation must be compliant with these provisions. This is very important, as the test in section 25(3) for compensation requires that it must be just and equitable and also requires that the court is the final arbitrator in any disputes regarding expropriation and compensation.

    The Valuer-General attempted to implement regulations regarding compensation that were not completely aligned with the Constitution and as a result had to settle a dispute in the Melmoth restitution claim in KwaZulu-Natal and lost a case regarding the Moloto community restitution claim in Gauteng.

    The Valuer-General tried to reduce the concept of just and equitable compensation to a fixed formula and bring in a concept of “current use value”, which in many cases reduced the compensation amount offered to the landowner drastically.

    The Land Claims Court found that: “In the absence of any other information and satisfactory evidence upon which just and equitable compensation can be assessed, this Court is constrained to conclude that market value is, in the circumstances of this case, just and equitable compensation as the landowners contend.”

    The courts will only consider factors in coming up with just and equitable compensation where there is proof of the quantum of such factors and if it is justifiable to take such factors into consideration. In this case there was no concrete proof that “current use value” was a relevant factor.

    Businesses and property owners understandably seek to pin compensation to predefined norms such as “market value” while radical calls have been made for a discounted value to be paid, including no compensation. Neither option aligns with international standards nor our own constitutional framework.

    Compensation is a normative judgment that looks at the subjective circumstances of the owner in addition to the objective value of the property itself to strike a fair balance between the public interest and the owner.

    Advantages of enacting the bill
    Firstly, it must be emphasised that we do have a current Expropriation Act on the statute books and in many respects the bill is an improvement on the 1975 Expropriation Act. It provides for a uniform process that must be followed when property is expropriated and remedies many of the deficiencies contained in the current act.

    For instance, it provides for extensive consultation with affected parties, including financial institutions that hold bonds over the affected property and persons who have rights to the land but are not landowners. It also provides for a series of offers and counter-offers in an attempt to promote agreement between the owner, bond holder and authority on the amount of compensation. Should it be impossible to reach agreement, then compensation must be decided upon by a court of law.

    It also contains many checks and balances, including a provision that there must be an attempt to settle before the state decides to expropriate and an opportunity to object to the intention to expropriate. This is absolutely vital as it cements the role of expropriation as a last resort.

    In many respects, this provision allays fears that the state could go on a large-scale expropriation drive akin to Zimbabwe or Venezuela that threatened food security.

    In fact, this provision calls into question any economic modelling done to try to predict the impact that the Expropriation Bill could have on property prices, investments or food security as there is simply no way to determine how often expropriation will be used.

    The bill guarantees that expropriation can only be used as a last resort after all other attempts to buy the property have failed. The extent of expropriation is therefore not determined by any political party’s land reform targets but rather by the degree to which landowners and the state hold out in negotiations or choose to make a genuine attempt at reaching a fair settlement.

    South Africa’s Expropriation Bill poses a threat to property rights for the future

    Simply put, there is no way to accurately predict the impact that expropriation will have because there is no way to predict how often it will be used.

    Challenges posed by the bill:
    Nil rand compensation
    One of the concerns regarding the Expropriation Bill is that it provides in clauses 12(3) and (4) for the possibility of nil rand compensation in certain circumstances. The clauses are worded as follows:

    “(3) It may be just and equitable for nil compensation to be paid where land is expropriated in the public interest, having regard to all relevant circumstances, including but not limited to–

    (a) where the land is not being used and the owner’s main purpose is not to develop the land or use it to generate income, but to benefit from appreciation of its market value;

    (b) where an organ of state holds land that it is not using for its core functions and is not reasonably likely to require the land for its future activities in that regard, and the organ of state acquired the land for no consideration;

    (c) notwithstanding registration of ownership in terms of the Deeds Registries Act, 1937 (Act No 47 of 1937), where an owner has abandoned the land by failing to exercise control over it;

    (d) where the market value of the land is equivalent to, or less than the present value of direct state investment or subsidy in the acquisition and beneficial capital improvement of the land; and

    (e) when the nature or condition of the property poses a health, safety or physical risk to persons or other property.

    (4) When a court or arbitrator determines the amount of compensation in terms of section 23 of the Land Reform (Labour Tenants) Act, 1996 (Act No 3 of 1996), it may be just and equitable for nil compensation to be paid, having regard to all relevant circumstances.”

    While there is certainly criticism to be levelled at this wording and some of the categories listed, it is still subject to the test of whether it is just and equitable. Awarding little or no compensation will have to be justifiable in an open and democratic society and the state will have to show exactly how and why it arrived at nil rand compensation.

    It remains unclear what the impact will be of listed specific circumstances on compensation, but many of the country’s best legal minds have consistently argued that it is unnecessary and short sighted to list specific circumstances in a framework bill that will have wide application.

    Any attempt to award nil compensation will have to be justified and a calculation would need to be made using the values afforded to all relevant factors to show how a nil rand value was arrived at.

    The definition of expropriation
    Constitutionally speaking, there are two concepts that are relevant when it comes to the taking of property, namely deprivation and expropriation. Deprivation is the wider concept, expropriation is a form of deprivation. Only expropriation attracts compensation. That is why the definition of expropriation is so important – if an action by government that has an impact on property falls outside the definition of expropriation, it will be regarded as a deprivation and no compensation will be payable.

    The definition in the Expropriation Bill is very narrow and has a strong focus on the acquisition of the property by the state. It does not consider the loss that the property owner suffers. The definition reads as follows:

    “‘Expropriation’ means the compulsory acquisition of property by an expropriating authority or an organ of state upon request to an expropriating authority, and ‘expropriate’ has a corresponding meaning.”

    This definition may have the effect of excluding all instances where the state does not acquire the property but nevertheless limits the owners’ rights to such an extent that it becomes of no value. It opens up the possibility of all sorts of regulatory limitations on property with no compensation and of the state acquiring property on behalf of third parties, while now acquiring the property for itself.

    It should be noted that this cannot be done at the discretion of an official but only through the enactment of laws or the implementation of a law that places limitations on the use and enjoyment of property by an owner.

    Internationally, the concept of “expropriation” has been developed by the courts on a case-by-case basis over a considerable length of time. The majority of these jurisdictions have opted for the courts to retain the discretion as to when government action which encroaches upon an owner’s right to use and enjoy the property will amount to an expropriation. Ideally this should also be the case in South Africa.

    The definition of expropriation should be scrapped from the bill to allow our courts to consider each case that comes before them on its own merits and decide whether the deprivation amounts to an expropriation or not.

    Conclusion: the bill on balance
    There is no doubt that South Africa needs a new Expropriation Act. It is important to note that the Expropriation Bill is merely a procedural bill, it grants no powers of expropriation to anyone other than the minister of public works and infrastructure and only for purposes connected to his/her mandate.

    Powers to expropriate for various purposes already exist in more than 200 other pieces of legislation and these powers may be extended by legislation such as the proposed Redistribution Bill. Stopping this bill will not take away the state’s powers to expropriation as this originates directly from the Constitution. Should the bill fail to pass, the powers of expropriation will still exist but the processes, checks and balances in this bill will fall by the wayside.

    It is very likely that there will be a lot of litigation over the nil rand compensation clauses and eventually jurisprudence will hopefully develop regarding what is just and equitable in this regard and what is not.

    The definition of “expropriation” and how that will be applied and interpreted does remain a cause for concern. 

    Annelize Crosby is Head of Legal Intelligence at Agbiz.

  • Successful farmers run their operations like a business.

  • Further substantial fuel price hikes are lined up for the end of October, based on the unaudited mid-month fuel price data released by the Central Energy Fund.  

  • October 16th is World Food Day and maybe the most fitting thing to do would be to boast about South Africa’s progress in terms of food security, having been ranked by the Economist Intelligence Unit’s 2017 Global Food Security Index the top in Africa.

  •  

    Sharp rebound in Urea raises questions over fertilizer prices bottoming out.

     

     

     

    29 June price (ex-WH)

    22 June price (ex-WH)

    Week-on-week change

    Urea gran

    R6,556

    R5,910

    10.9%

    MAP

    R8,389

    R8,192

    2.4%

    KCl gran

    R8,171

    R8,256

    -1.0%

     

    Cost per kilogram of nutrient (R/kg):

     

    29 June

    22 June

    Week-on-week change

    Nitrogen (N)

    R14.25

    R12.85

    10.9%

    Phosphate (P)

    R30.05

    R29.86

    0.6%

    Potash (K)

    R16.34

    R16.51

    -1.0%

     

     

    Nitrogen

    Urea rebounds sharply as recent sales give producers the upper hand in lifting prices


    To the surprise of much of the market, urea prices jumped up significantly at all benchmark points around the world. The price move is being explained as producers being in a more comfortable position after improved sales in the past few weeks and are therefore prepared to push their luck for higher prices as they are less concerned about losing sales volume. We are not so sure that recent sales have been remotely high enough to tighten a very oversupplied market to the extent that an 11% price hike is justified. Be that as it may, urea remains a highly volatile commodity that can respond quickly to market sentiment and this week’s price is further evidence of that tendency.

    The Middle East saw prices escalate by almost $30/t this week, with a large range between the high and low prices once again being evident. Egypt has also seen large price increases this week on the back of spot sales into Europe. Both Egypt and the Middle East have entered into the Eid al-Adha holiday in the latter part of the week, so the volume of trade/sales has been limited. Again, this causes us to speculate on whether the urea market has really turned as dramatically as the published prices suggest or whether the price movement is based on a small volume of trade that might not accurately reflect the real state of the market.

    One region where the supply-demand balance has tightened materially is in South East Asia where urea sales have been fairly strong and a number of production facilities are down for various reasons. This is supporting increased import volumes, which Middle Eastern sellers have targeted and achieved their highest netback prices of the week. What is not clear is why China, which is the natural supplier from a geographic perspective, is not supplying much urea despite China having ample stocks and actively looking for buyers. Chinese product would land in SE Asia at much lower prices than the transactions reported this week.

    Another contributor to positive price sentiment was the rumour of the next Indian urea tender pointing to a 1 million ton tender in mid-July.

    The Brazilian urea price moved up by $25/t to $315/t at the high end of the range but this price was reported to be limited to one buyer who had an urgent requirement and most trades were done nearer $300/t.

    With the Middle East price rising by $30/t and the Rand slipping by more than 1% against the dollar this week, the local import parity cost of urea rose by 11% to bounce back to the R6,500/t range. This should serve as strong encouragement for any local growers that have not yet fixed their urea/nitrogen requirements for the upcoming season to do so promptly or risk paying considerably higher prices later in the season.

    The resurgence in the urea price gave some support to Ammonium sulphate prices which gained around $5/t this week. While by no means shooting the lights out, this small recovery in amsul values ended a 10 week slump in prices. There was increased buyer interest from Brazil ahead of their upcoming summer rainfall season which is giving amsul traders some hope of firmer prices in the coming months.

    Unsurprisingly in light of recent higher gas prices, European ammonium nitrate and CAN prices have firmed this week. Urea buying in the region has also boosted nitrogen prices, which is helping EU AN producers achieve higher prices on late season sales.

    Ammonia news was dominated by the Tampa contract price being cut by $55/t to $285/t – a price reduction was expected but not to this extent in light of urea prices moving in the opposite direction. This ammonia price is indicative of the usual Northern Hemisphere summer lack of demand.

     

    Phosphates

    Phosphate prices go nowhere as most regions see small adjustments. The Q3 Indian phos acid price looks like settling at $850/t

    Phosphate markets were broadly stable as a mixture of small price changes were seen across the regions. DAP prices were slightly down in China and India but up in the USA.

    As Q3 is about to commence, the Indian quarterly phos acid contract price negotiations are underway. So far one of the players has reported settling on a price of $850/t CFR India, which is $120/t down on the Q2 contract price. Thus far no other sellers or buyers have confirmed pricing although it appears likely that $850/t will be the outcome.

    MAP prices were boosted by the $5/t increase seen in Brazil supported by improving demand in the country. This small increase was the first weekly upturn in MAP prices seen in Brazil since the start of the year. The positive sentiment from Brazil pulled through to the Saudi MAP price, which rose by $5/t as well – the Saudi benchmark price remains just below $400/t.

    The Bangladeshi tender for 630,000t of various phosphate product was canceled due to zero bidder interest. The Bangladeshi government is over $700 million in arrears from prior tenders and this has led to banks withdrawing any credit facilities and no producers or traders are prepared to take a chance.

    As we have mentioned previously, any strengthening in phosphate prices is heavily dependent on the operating rates of the major exporters, particularly the Moroccans and Chinese. Both have been operating at below 50% for some time now – already there are reports of the Chinese upping their production to above 50%. Our view of phosphates bottoming out at the $400/t mark remains – at sustained prices much below this level, a number of producers would likely cut back on production which would tighten the supply-demand balance and support prices.

     

    Potash

    Potash prices appear to be stabilizing as regional adjustments take place to align the overall market


    As was seen with nitrogen and phosphates in Brazil, the emergence of their summer season buying is supporting all fertilizer prices and Brazilian potash prices rose by $5/t this week. While this is a very small increase, market analysts are pointing to this inflection point as a sign that the market may have hit the bottom.

    In South East Asia, the potash price dropped more than $40/t as it adjusted towards the recent Chinese contract price. The SE Asian price is now around $320/t compared to the Chinese contract price of $307/t. Unless there is a major, unexpected disruption in the Asian potash sector, it seems probable that these prices will prevail for the next few months at least.

    The Indian renegotiations of their contract price have not been concluded yet but it seems a safe prediction that they will achieve a price somewhere in line with the Chinese value.

    The South African import price moved down by $10/t in sympathy with world market prices. With prices still close to $400/t, there appears to be some scope for further reductions for committed buyers. It is a risky game for local buyers to delay purchasing in anticipation of further reductions versus the probability of port congestion and delays in discharging vessels in Durban as Q3 approaches.

     

    General Market Outlook 

    Energy prices stable this week but the weakening Rand and falling Crop prices are a concern.

    After a short dip to $72/bbl midweek, Brent crude oil is closing out the week where it began, at $75/bbl. The OPEC+ group is set to cut oil production but oil demand is also declining on ongoing fears of recession so oil prices remain in the mid-70/bbl range. Gas prices were stable this week, with the EU TTF gas price trading at $11/MMBtu and the US natural gas price $2.7/MMBtu.

    The Rand lost 25c to the US Dollar this week, fast approaching R19 to the dollar once again. While Rand weakness is nothing new, the timing is unfortunate as the bulk of agri-inputs are being imported and priced now, meaning that growers are faced with an increasing US Dollar exposure (in other words, if the Rand strengthens closer to harvest time, growers will face reduced profit margins).

    In a big reversal, crop futures lost all their gains of last week. CME maize dropped 12% week on week to reach a new low for 2023. Rainy weather in the US overturned concerns of hot weather impacting the current crop and prompted a sell off. Despite the Rand continually weakening, the Safex maize fell by 8% and local maize prices are once again below export parity. The international wheat was also a big loser this week as good yields in North America point to surpluses – this will be of concern to local growers that have winter wheat on the lands.

    Latest Direct Hedge quotes for urea and MAP Swaps in USD:

     

     

    Arab Gulf urea
    30 June 2023

    Arab Gulf urea
    23 June 2023

    Week-on-week change

     

    Bid

    Ask

    Bid

    Ask

    Bid

    Ask

    Jul-23

    315

    325

    285

    305

    +30

    +20

    Aug-23

    320

    330

    295

    310

    +25

    +20

     

    Sep-23

    325

    335

    300

    315

    +25

    +20

     

    Q3-23

    315

    335

    300

    310

    +15

    +25

     

     

    MAP Brazil CFR
    30 June 2023

    MAP Brazil CFR
    2316 June 2023

    Week-on-week change

     

    Bid

    Ask

    Bid

    Ask

    Bid

    Ask

    Jul-23

    420

    440

    420

    440

    -

    -

     

    Aug-23

    420

    450

    420

    450

    -

    -

     

     

     

    This week saw a marked upwards adjustment in the Middle East urea Swaps quotes, as the physical urea price leapt up. The biggest revision was for the July forward market where the ‘buy’ increased by $30/t. The Q3 price quotes are now in the $320-325/t range which is more in line with our expectations for the urea price direction. Early indications for Q4 show values of $340/t which broadly matches our predictions, although we do feel that there is $10-20/t possible on the upside (i.e. $350-360/t during Q4).

     

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    Andrew Prince 


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  •   

    Urea price does an about-turn, as Phosphate leaps up.

      

     

    10 August price (ex-WH)

    3 August price (ex-WH)

    Week-on-week change

    Urea gran

    R8,541

    R8,663

    -1.4%

    MAP

    R10,020

    R9,566

    4.7%

    KCl gran

    R7,992

    R7,920

    0.9%

     

    Cost per kilogram of nutrient (R/kg):

     

    10 August

    3 August

    Week-on-week change

    Nitrogen (N)

    R18.57

    R18.83

    -1.4%

    Phosphate (P)

    R35.14

    R33.01

    6.5%

    Potash (K)

    R15.98

    R15.84

    0.9%

     

     

    Please note there will not be a report next week (18 August).
     

    Nitrogen

    The Indian urea tender surprised the market with lower-than-expected prices – will this slow the upward price trajectory?


    The latest Indian Urea tender closed earlier this week and delivered a few surprises. Firstly, the price was a good $20/t lower than predicted, settling just below $400/t CFR India. This netted back to around $380/t FOB Middle East and $375/t FOB China. A smaller surprise, given the market gossip about how tight producers are on inventory, was that 3.4 million tons of urea were offered. The Indians indicated that they were looking for approximately 1 million tons, so the tender was more than three times over-subscribed. Hardly a message of product availability being limited.

    A sharp 35% spike in European gas prices raised concerns about European buyers returning promptly to the market, especially in light of the supposed shortage of urea. No European buying interest materialised which suggested that there is no meaningful shortage of product at this late stage of the season and perhaps buyers are unconvinced about the strength of urea prices going forward. Egypt, who is usually the first choice supplier to Europe, reported no sales this week.

    Predictably urea prices in other major markets fell substantially on the news of the Indian tender. Prices in Brazil dropped $30/t and US barge values dropped $45/t. With seasonal lulls fast approaching for both markets, nobody is keen to be stuck with high priced positions.

    Where do these latest developments leave urea prices for the next month or so? The Northern Hemisphere surge in demand for Q4 can be expected to lift prices from October. But for August and September we may well see relative stability in pricing. Once the dust settles on the Indian tender, our feeling is that many producers will be looking for sales but will be cautious about over-selling and sending the price tumbling again. A urea price in the mid to high $300s looks about right (i.e. $350-375/t FOB Middle East) for the next month or so.

    The about-turn in urea prices caused Ammonium sulphate prices to give up much of their recent gains. Granular product dropped almost $10/t and crystalline amsul declined almost $20/t. The recent surge in amsul price has encouraged buyers to be cautious and sales volumes have shrunk this past week. With the Brazilian import window closing, prices in Brazil dropped by $30/t this week as sellers chase buyers.

    Ammonium nitrate prices stabilised this week after urea lost all momentum – it seems likely that AN will soften a little in the coming weeks until urea prices stabilize. CAN prices were unchanged this week.

    Ammoniaprices were flat this week – the market appears tight with a number of producers suffering outages but the urea price drop may have caused ammonia buyers to hold back in hope of ammonia prices being affected. The EU gas price jump this week would also point to European ammonia production being cut back in favour of cheaper imports but as yet, no new import purchases have been seen.

     

    Phosphates

    Phosphates prices climb rapidly as availability from China tightens and buyers act quickly to cover

    It was active buying from India that kept DAP pricing heading upwards this week. There was no confusing the price direction as the Indian price leapt by $70/t to rise above $500/t CFR. The Chinese DAP price rose by close to $75/t as concerns about Chinese supply are clearly rising.

    Other importing markets showed more modest increases, although a $20/t increase in the US and Europe is certainly considerable. Buying activity has picked up across most regions.

    The Moroccans enjoyed a second week of decent sales, with over 200,000t of phosphates reportedly being sold to South America and Europe.

    Despite the lateness of the season, Brazil was prepared to pay an extra $20/t for MAP prices with prices there now above $500/t. The window has now closed for exports from China to reach Brazil in time for the soya planting season so prices in Brazil may start to quieten.

    The Indian quarterly phos acid contract price was finally settled this week – the final number was agreed at $850/t CFR India for 100% P2O5 concentration.

    Opinions remain divided on the direction of phosphates prices for the rest of the year – there is a school of thought that prices will resume their decline by the end of the year because demand overall remains rather weak and farm economics aren’t looking great. But for the short term at least, phosphates look set to remain high.

     

    Potash

    Potash prices edge up slightly in Brazil and the US
     

    The US led potash markets this week as their summer fill programme (stocking up for next spring before winter impacts Canadian exports and US distribution in the Corn Belt) picked up speed. The Canadian port strike now seems to be over thus supplies are expected to resume.

    Late season purchases into Brazil supported another $5/t increase with the Canadian strike possibly adding some support to sellers.  

    As a counter to the recent upward movement in potash, a tender in South East Asia saw 300,000t being sold at a price of $306/t CFR, which is the lowest price seen this year in any region. This deal will give encouragement to other big buyers that low prices are still obtainable.

    A 40,000t cargo of granular potash was reportedly sold to South Africa this week, at a price of $390/t CFR. This is broadly in line with the current price level in Durban.

     

    General Market Outlook 

    Rand keeps weakening as Crude Oil price strengthens.

    Brent crude prices firmed this week as production cuts seem to be taking effect – the price rose from $84/bbl to end the week at $86.7/bbl. There is a fair bit of talk about raising the forecasts for oil for the rest of 2023 and for 2024. The European TTF gas price jumped sharply this week, bouncing from $9.5/MMBtu to approach $13/MMBtu as concerns over strikes at Australian LNG sites sent concerns throughout the global gas market. US natural gas prices reacted too, although to a much lesser extent, finishing the week at $2.8/MMBtu.

    The Rand remained weak this week losing another 1%, briefly rising above R19 to the Dollar and looks set to end the week around R18.8:$.

    Latest Direct Hedge quotes for urea and MAP Swaps in USD:

     

     

    Arab Gulf urea
    11 August 2023

    Arab Gulf urea
    4 August 2023

    Week-on-week change

     

    Bid

    Ask

    Bid

    Ask

    Bid

    Ask

    Aug-23

    380

    410

    390

    410

    -10

    -

    Sep-23

    380

    400

    385

    405

    -5

    -5

     

    Oct-23

    360

    380

    380

    400

    -20

    -20

     

    Q4-23

    360

    380

    380

    400

    -20

    -20

     

     

    MAP Brazil CFR
    11 August 2023

    MAP Brazil CFR
    4 August 2023

    Week-on-week change

     

    Bid

    Ask

    Bid

    Ask

    Bid

    Ask

    Aug-23

    510

    530

    510

    530

    -

    -

     

    Sep-23

    520

    540

    520

    540

    -

    -

     

     

     

    The Urea Swaps quotes last week predicted the pull-back in physical urea prices seen this week. The forward prices saw further reductions, with most of the changes being for Q4. As we warned last week, urea does have a tendency to overshoot and very steep increases are often followed by a sharp downward correction. The Swaps prices given above suggest urea should remain in the high $300s for the rest of the year, which we think is a reasonable prediction overall. But expect some sharp movements along the way.

    If you would like to discuss these fertilizer price trends in more detail, or discuss other fertilizer products not addressed in this report, we would love to hear from you. We would also be happy to discuss your fertilizer procurement needs with you.

     

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    Andrew Prince 


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