Farmers in South Africa face energy cuts and a weak rand – however numerous components are working of their favour too

Winter is a vital season for South African agriculture, with a few of its key subject crops being produced throughout the chilly months of June, July and August, and maturing after that, with harvesting in December. Preparation of the land for winter crops begins in April, which can be the identical time harvesting of the summer time crops begins.

Farmers within the Western and Northern Cape, Free State, Limpopo and different winter crop rising areas are making preparations for rising winter wheat, canola, barley and oats.

The entire nation’s wheat manufacturing takes place throughout the winter months, making the winter season an vital contributor to the nation’s wheat wants. South Africa produces roughly 60% of its wheat requirements and imports the balance. It additionally produces, on common, about 90% of its barley annual consumption. Home manufacturing of oats is about 64% of annual consumption. The nation is self sufficient in canola production.

This yr, the outlook for winter crops is clouded by a tough working surroundings, particularly the areas which are beneath irrigation.

The 2 greatest headwinds are energy cuts and greenback power. Nonetheless, there are additionally positives which ought to take the stress off meals worth rises which have hit shoppers arduous. These positives embrace a fall in the price of inputs, like fertiliser and agrochemicals, in addition to good harvests from the summer time season simply ending.

Headwinds

The primary contributing issue is the rise in recurring energy cuts which can have an effect on irrigation. South Africa’s agriculture has by no means confronted a interval of energy cuts as extreme as the present ones.

The agricultural sector generally is closely reliant on sustainable vitality. For instance, latest work by the Bureau for Food and Agricultural Policy (BFAP) exhibits that roughly a 3rd of South Africa’s farming earnings is instantly depending on irrigation. This exhibits that disruptions in energy provide typically places in danger a substantive share of the South African agricultural fortunes.

Of all South Africa’s subject crops, wheat has the most important manufacturing – about half – beneath irrigation. Of the opposite key subject crops, about 15% of soybeans, 20% of maize and 34% of sugar production are under irrigation.

The potential disruption of irrigation would result in poor yields, and in the end a poor harvest. Such an eventuality would result in a rise in wheat imports.

Trade role-players and the federal government are alert to the issue and are monitoring the affect carefully by a ministerial task team. As well as, Eskom, the ability monopoly, together with the federal government, are exploring potentialities of lowering power cuts that are anticipated to spike throughout the winter when demand often rises.

The second headwind is that South African farmers haven’t benefited totally from the decline over the previous yr within the US greenback costs of a few of their key inputs equivalent to agrochemicals. That is due to the weakening of the South African rand towards the greenback, shaving off a few of the advantages of the value decline in US greenback phrases.

Thirdly, farmers are experiencing decrease commodity costs in contrast with final yr. However a drop in enter costs is offering a vital monetary cushion.

There are positives

On the plus aspect, the realm plantings for all South Africa’s main crops are anticipated to be above the five-year common space. That is based on Crop Estimates Committee, a authorities and trade physique that screens crop manufacturing.

Secondly, enter costs have come off from final yr’s highs. For instance, in February 2023, important agrochemicals equivalent to glyphosate, acetochlor, and atrazine have been down in rand phrases by 32%, 18%, and 2%, respectively in comparison with February 2022. These worth declines have continued by to March 2023.

These declines would have been increased had the South African Rand not weakened towards the US greenback over the identical interval. That’s as a result of in US greenback phrases, the costs of the exact same agrochemicals are down by 30% from February 2022. Costs of pesticides and fungicides have additionally declined notably from final yr’s ranges.

Additionally value noting is that in February 2023, important fertilisers equivalent to ammonia, urea, di-ammonium phosphate and potassium chloride have been down 6%, 36%, 28% and 14% in rand terms, respectively. Once more, in US greenback phrases, the value decline was extra notable, which speaks to the affect of the comparatively weaker South African rand on imported merchandise.

These worth adjustments in inputs are important as they affect huge parts of the grain enter prices. For instance, fertiliser accounts for a 3rd of grain farmers’ enter prices, whereas different agrochemicals account for roughly 13%.

A 3rd optimistic issue is that the climate situations for the winter crops additionally stay optimistic. In its Seasonal Climate Watch update revealed on 03 April 2023, the South African Climate Service noted that the winter crop rising areas of South Africa will obtain rains.

A fourth optimistic issue is that the summer time crops, that are nearing the harvest course of, are in moderately good situation. I typically count on an ample harvest in most summer time crops, which is aligned with the view of the Crop Estimates Committee.

Takeways

From a client perspective, developments are broadly optimistic and bode effectively for some moderation in client meals worth inflation within the second half of the yr, when the decline in commodity costs may start to filter into the retail costs.

The one main threat is electrical energy stability. That is as a lot a threat for farmers as it’s for shoppers.

Nevertheless, I’m hopeful that the federal government’s interventions, such because the load curtailment and diesel rebate, to restrict the injury of the electrical energy disaster to meals manufacturing will assist.

If the federal government’s proposed interventions assist throughout irrigation intervals – afternoons and evenings – South Africans can count on a beneficial winter season. The discount in energy cuts may even be significantly useful for meals processors.