Friday, 04 October 2024

Evertol | Business News

Russia-Ukraine Geopolitics creates Opportunity for SA Agri-Commodities

All war affects geopolitics and has a direct impact on global economics by reshaping demand and supply. From an international trade perspective, the current Russia-Ukraine dispute has created opportunity for largest African agricultural commodity exporters like South African, into Russia and EU as well. Global maize, wheat, fruit, and so forth, will never be the same.

 

South African stone fruit has increased in demand in Russia, and equally so in Western Europe, Fresh Plaza reported. The conflict is realigning agricultural demand and supply in EU and Russia, from African countries, and South Africa as the leading exporter in the continent stands to benefit more.

 

Fresh Plaza reported that the absence of European Conference pears creates big SA opportunity. An expert noted that “the season has gone really well so far and currently the pear market for South African pears in Russia is fantastic. The demand is unbelievable because of the import freeze on European Conference pears and consequently the unavailability of alternative product. We’re seeing very high prices on pears. South African pears get first option.” Russia has received 21% of South African pears up until week 7 (February 20th, 2022). 

 

Another commodity that shall increase in demand because of this crisis will be Wheat. Excluding the combined countries of the European Union, Russia is the world’s single largest wheat exporter and Ukraine is two notches lower just behind Australia. The United States comes in fourth after Ukraine. Combined, Russia and Ukraine are expected to account for nearly 30% of global wheat exports in 2021-22, according to data from the US Department of Agriculture, World Grain reported. 

 

Creation of sanctions around Russia, and uncertainty on logistics in Ukraine, will impact global supplies. The ripple effect will create demand in African markets that South African can easily tap into. The most important wheat producing countries in SSA in 2019/2020 were Ethiopia, South Africa, Sudan, Kenya, Tanzania, Nigeria, Zimbabwe, and Zambia in descending order. Whilst Ethiopia is the largest producer, South Africa is the largest exporter of wheat in Africa. In 2019, South Africa exported US$92.6 million worth of Cereal groats, meal, and pellets.

 

China’s customs agency on February 24th, 2022, approved imports of wheat from all regions of Russia, the Associated Press reported. This move gives Russian President Vladmir Putin an alternative to Western markets that might be closed under sanctions. African countries will need wheat, and they will look to South Africa, as the global supply tightens during changing environment created by this conflict. 

 

On the same day, February 24th, 2022, Grain SA reported that the U.S. wheat market had another great trading session with prices rising almost 3.5% today following yesterday’s 5% increase. The price increase is because of technical buying spurred by the Ukraine-Russian conflict which escalated heavily overnight and is by far the biggest market driver. According to the USDA only 26% of the Kansas winter wheat crop is in good-to-excellent condition. Kansas is the biggest wheat producer in the U.S. The local wheat market performed the best in comparison to corn and soybeans but still underperformed. The Wheat market only increased by 0.6% as the American market moved 5%. The exchange rate was slightly lower which could have dampened the price increase.

 

Another key commodity affected by this conflict is Maize (Corn). 

 

World Grain reported that Ukraine is forecast to account for 16% of global corn exports in 2021-22, coming in after the United States (30%), Brazil (21%) and Argentina (19%). Imagine the impact on African markets when the maize supplies reduce. This creates demand of other producing nations, and South Africa is at the top of maize exporters in Africa. In value terms, South Africa ($452M, 2019) remains the largest maize supplier in Africa, comprising 73% of total maize exports, the Global Trade Magazine reported. The second position in the ranking was occupied by Uganda ($70M), with a 11% share of total exports. It was followed by Zambia, with a 6.3% share. 

 

In 2018, white maize was mainly exported to Botswana, Lesotho, Namibia, Swaziland (the BLNS countries) and Zimbabwe, Grain SA reported. Botswana was the largest importer of white maize at 33%, followed by Namibia at 22%. There is scope for increased exports for South African maize, as the shift geopolitics creates regional sources of maize instead of international markets, that will be focused on feeding their own key markets first.

 

Of course, there are other factors at work in the grain markets, mostly weather related with a dose of lingering COVID logistics snarls thrown in, although most pale compared with the acute impact of the Russia-Ukraine situation.

 

The new market dynamics, if explored well, could help create more opportunities for South Africa, as the economy recovers from the Covid19 Pandemic. The agricultural sector contributed around 10 percent to South Africa’s total export earnings in FY2020 at a value of $10.2 billion.  Citrus, wine, table grapes, corn and apples accounted for the largest exports by value. South Africa also exports wool, nuts, sugar, mohair, and pears to name just a few products. 

 

Compared to the rest of Africa, South Africa has by far the most modern, productive, and diverse agricultural economy. South Africa has a well-developed agricultural sector, which will stand the country in good stead in the face of continuing uncertainty both economically and in terms of the weather. There are many factors impacting on the industry – including credit ratings downgrade, land reform concerns, volatile exchange rate, ongoing weather concerns and the latest Covid-19 pandemic. 

 

There are approximately 32,000 commercial farmers in South Africa, of which between 5,000 and 7,000 produce approximately 80 percent of agricultural output. To increase production, these farmers need more investors, whether local or foreign, as the window of opportunity to increase production is now. Russia-Ukraine and the Covid19 Pandemic are crises that have risen back-to-back, meaning demand will increase for all produce that SA exports. 

 

Capital expenditure is a major challenge for most farmers and must be addressed.

 

Production capital investment is a necessity for the agricultural economy of South Africa to grow and export more. This entails increasing of equipment such as Tractors, Combine Harvesters, Drone Technology, Balers, Planters, Precision Agriculture Equipment and Technologies, Sprayers, Irrigation, Storage, Soil Testing Equipment, Spare Parts and Service Facilities.

 

The South African Agricultural sector also needs to grow and diversify as the demand for agricultural produce in the EU and Russia increases, with South Africa being the leading exporter of stone fruit in Africa. There are many options for South African producers to expand and intensify production, such as increasing their area under cultivation, improving infrastructure, and utilising new technologies (such as precision agriculture). 

 

South Africans already utilise new technologies that have improved yields and profitability. South African farmers have adopted biotechnology techniques in the form of genetically modified (GM) seed so that they can produce higher quality fruit at lower costs.

 

For the African, the Russia-Ukraine War is not about sides or politics, but about opportunity created in international trade, whose spaces and niches must be filled with African agricultural commodities, and more.

 

Sources: US State Dept, Fresh Plaza, Global Trade, World Grain, Grain SA