Lower fruit export volumes may lead to surpluses being diverted to the local market causing a short term respite in local prices, FNB Agri-Business senior economist Paul Makube said yesterday.
Apart from port problems in South Africa, the citrus fruit sector has warned that new European Union regulations mean that some 20% of oranges destined for Europe may not make it out of the country this year.
Normally when export volumes contract in a high production season, the surplus is diverted to the local market with significant downside pressure on prices, he said.
Makube said this was particularly the case with fresh fruit and vegetables, and consumers benefited in the short term.
“However, reduced earnings at farm level may discourage reinvestment and production expansion, which may result in shortages and another round of a surge in food prices in the longer term. So, there has to be some balance in the equation.”
South Africa’s agricultural exports fell by 2% year-on-year (y/y) in the first quarter of this year, to $2.9 billion. However, the exports were up 5% from the last quarter of last year.
Makube said this decline was consistent with this year’s first quarter agriculture GDP, which fell sharply by 12.3%, reflecting a downturn in economic activities and commodity prices in field crop and animal product industries.
He said although there had been some strides in the co-operation between industry and Portnet to alleviate logistical challenges, it appeared there was still a long way to go, as delays had slowed export activity in Cape Town.
South Africa’s agricultural sector had a rough start to the year in relation to production and exports. Excessive rains brought production challenges that caused delays in summer crop planting activity by roughly a month but later improved.
With regards to exports, slowing agricultural commodity prices reduced profitability from the levels farmers enjoyed a year ago.
The country’s top exportable products are grapes, maize, apples and pears, wine, wool, apricots and peaches, sugar, fruit juices amongst other products.
FNB Agri-Business said it was imperative that South Africa maintained and gained more market share for its agriculture produce since it was difficult to open new ones.
The bank said the agriculture sector has been on an expansionary path over the past few years particularly with the flagship export commodity, citrus fruit.
Makube said slow exports hurt producers’ earnings and made it extremely difficult to attain return on investments if sustained.
“For the economy, agriculture exports contribute positively to the balance of payments in terms of foreign exchange earnings, thus a decline contributes to the trade deficit with potential pressure on the currency. Further, we are operating in an open economic system with more competitors in the global market,” he said.
Recently Citrus Growers’ Association of South Africa (CGA) CEO Justin Chadwick said the EU’s regulations on False Coddling Moth (FCM) and Citrus Black Spot (CBS) were creating a threat to the future of the local citrus industry.
“AU and EU Ministers of Agriculture will be attending the conference … which makes it a crucial opportunity for the South African government to push for a resolution on these critical matters in order to safeguard the 140 000 jobs our sector sustains,” Chadwick said at the time.
The agricultural organisation said the orange export season would start towards the end of this month and the impact of the new FCM regulations were expected to be devastating.
Their introduction in the middle of last year’s export season had already resulted in R200 million in losses for growers with this number expected to spiral out of control in the current season.
Current estimates were that around 20% of oranges produced for Europe would not be shipped this year because of the new regulations.
This meant that about 80 000 tons of oranges might not make it to European supermarket shelves, resulting in a further R500m economic blow to the industry.
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