/ 23 June 2023

SA to prioritise EU agricultural trade over the US, Russia

The growth of labour-intensive organic farming is creating more jobs.

South Africa’s agricultural sector is largely export orientated, making it imperative for the country to maintain trade relations with its key markets, including the EU and the US.

Wandile Sihlobo, chief economist at the Agricultural Business Chamber of South Africa, made the comment against the backdrop of South Africa’s fraught relations with the US over Pretoria’s refusal to condemn Russia’s invasion of Ukraine.

Sihlobo noted that South Africa had recorded $12.8 billion in agricultural exports in 2022, with Africa accounting for 40%, Asia for 27% and the EU for 20%, while the UK and the US each made up 4%.

“Russia is nowhere in our exports — it’s less than 2% of our agricultural exports,” he told a  webinar this week, hosted by financial investment consulting firm PSG.

There has been talk recently of the consequences if South Africa was elbowed out of duty-free access to the US trade market under the African Growth and Opportunity Act (Agoa).  

This follows a letter by US lawmakers asking President Joe Biden’s administration to sanction South Africa for its perceived support of Russia. Officially, Pretoria has taken a non-aligned stance on the Russia-Ukraine conflict.

“The US is important [in terms of exports] but I think that sentiment is broadly true in other markets. The EU is one of the more important markets and we want to nurture that relationship,” Sihlobo said.

The sector is also grappling with the impact of a weaker rand. On one hand, Sihlobo pointed out that the period between May and the end of the year is the peak export period and so the softer currency makes South African products more competitive on the global market.

But, he added, the “dilemma” comes when the industry has to import agricultural goods using a weaker rand.  

“When you’ve enjoyed good earnings selling at a weaker rand, then you have to bring in fertiliser, agro-chemicals, machinery and that, on a net basis, really makes your maths complicated when you look at the financials,” Sihlobo said. 

South Africa’s agricultural sector exported about 51% of the food it produced in 2022, even as the country dealt with food inflation hitting a 14-year high. But Sihlobo said exporting about half of what the country produced in value terms was not responsible for driving domestic prices higher.

“The poverty we have is an income poverty in the sense that we have a number of South Africans who are out of work — there is no income. In such instances, even if you drop a price from R20 to R10, if there is no income, that will still be expensive to a consumer,” he said.

“If you look at the global food price index, South Africa has one of the more affordable food products but the issue is that we have a number of people that, as a country, we have not been able to assist in getting into the labour market.”

According to data released by Statistics South Africa, the country’s jobless rate rose to 32.9% of the labour force in the first quarter of 2023, up from 32.7%. 

The Competition Commission has said some price increases were unjustified and has launched an inquiry into the fresh produce supply chain in the country, looking for indications of uncompetitive behaviour or price fixing.

Sihlobo said the commission had “missed the mark”, arguing that South African food processors actually absorbed some of the rising costs of production, without passing them on to the consumer. 

“South Africa was one of the countries that saw moderate food price increases last year. We averaged at 9.5% in 2022 while other countries were seeing double-digit food price inflation,” he said.