Economical Impact of drought & disasters on agriculture Drought - PowerPoint PPT Presentation

Economical Impact of drought & disasters on agriculture Drought Dialogue – Western Cape Government Prof Ferdi Meyer Bureau for Food and Agricultural Policy (BFAP) 23 June 2016

When talking about the impact of the drought on the Agriculture, Food and Beverage sector… • People matter • The Environment matters • Profits matter Are we on track with NDP 2030 goals?? 2 |

Example of Monitoring Drought Nov Oct 2015 Dec 2015 2015

The Region and the drought

Impact of drought: 3 Thresholds Mrch Oct Jan Feb • • Area planted summer crops • Critical for all dams Critical for yields • Pastures – first summer • and boreholes etc Pastures-late summer • growth Long-term damage on growth • Impact on irrigation • pastures Heat affecting fruits .. • agriculture still limited • All three industries Smaller dams and affected boreholes affected

Dams levels 120 100 80 60 % Full 40 20 0 Last Year (%Full) This Week (%Full) Source: DWS, 2016

White maize prices White maize 7000 2500 6000 2000 Thousand tons 5000 1500 4000 R/ton 3000 1000 2000 500 1000 0 0 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 White maize imports White maize exports White Maize - Import parity Randfontein SAFEX White Maize White Maize Export parity africa

Livestock numbers Cow herd 700 600 National Average 500 Eastern Cape No. Animals Free State 400 KwaZulu-Natal Northern Cape 300 Limpopo North West 200 Western Cape 100 0 2013 2014 2015 2016 Source: UFS survey for RPO

Livestock numbers Herd Size: National 110 105 100 95 Index 90 85 80 75 2013 2014 2015 2016 Cow herd Replacement Heifer Steer: 7-36 Months Source: UFS survey for RPO, BFAP calculations

Drought impact on food inflation

Food Inflation in the context of total inflation % Share of CPI Basket % Share of CPI Food Basket 7 5 14.20 25 11 2 44.85 4 16.43 12 32 3 24.52 Bread and Cereals Meat Fish Milk, eggs and cheese Food Transport Housing and utilities Other Oils and Fats Fruit Vegetables Sugar and Confectionary Source: StatsSA, CPI Brief (2015) Other foods

What are we producing & consuming? 2024 2005 2010 Net trade/SA consumption (%) 100 100 80 80 60 60 40 40 20 20 0 0 0 0 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 10 10 11 11 -20 -20 -40 -40 -60 -60 -80 -80 -100 -100 Share of food expenditure (%) Share of food expenditure (%)

Drought impact on staple basket Inflation R364 per R350 per R282 per household per household per household per Imports of month month GMO White month Maize – 10% reduction in White Maize Price ↑24% ↑29% January Average 2015 Projected Increase 2016 Average Projected Increase 2016 with mitigating factors Low-income households = R82 more per month

Drought impact on trade Agri Net Trade: R12 billion - R15 billion

Source: Van der Burgh, AGIS 2014

Historic overview of drought impact Real Gross Income 50000 45000 40000 35000 Million Rands 30000 Horticulture 25000 Field crops 20000 Livestock 15000 10000 5000 0 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

Agricultural growth Year on year quarterly change in Agriculture, Forestry and Fisheries GDP 30% 25% 20% 15% Percentage 10% 5% 0% Q1/05 Q3/05 Q1/06 Q3/06 Q1/07 Q3/07 Q1/08 Q3/08 Q1/09 Q3/09 Q1/10 Q3/10 Q1/11 Q3/11 Q1/12 Q3/12 Q1/13 Q3/13 Q1/14 Q3/14 Q1/15 Q3/15 -5% -10% -15% -20% 17 |

-100% -80% -60% -40% -20% 18 | 20% 40% 60% 80% Mixed results & overall growth not fast enough – more can be done! Total growth over past 4 years = 7.6% on average across industries 0% Agricultural production growth: 2011-2015 Canola Soft Citrus Lemons Soybeans Table Grapes Rooibos Sunflower Sheep meat Barley Poultry Yellow maize Beef Macadamias % Change 2015 vs. 2011 Dairy Pork Wool Eggs Pears Groundnuts Apples Organges Nectarines Potatoes Avocado Pears Mangos Litchis Wine grapes Sugar cane Plums Grapefruit Peaches White maize Wheat Apricots Cotton Prunes Pineapples -25% -20% -15% -10% -5% 0% 5% 10% 15% 20%

Where should we focus? Update on NDP Employment & Investment 2030 Matrix 19 |

Agricultural employment: 2011-2015 Since NDP in 2011, 70 000 new jobs in primary agriculture…but more can be done! Employment in SA primary agriculture 1 000 000 900 000 800 000 700 000 600 000 New sample: Undercounting of agric in 500 000 the past 400 000 300 000 2008_1 2008_3 2009_1 2009_3 2010_1 2010_3 2011_1 2011_3 2012_1 2012_3 2013_1 2013_3 2014_1 2014_3 2015_1 2015_3 20 |

Expansion in irrigation South Africa Field Cropped Boundaries (Excl. Sugarcane) 800 000 12 000 000 700 000 10 000 000 600 000 22% 8 000 000 Hectares Hectares 500 000 400 000 6 000 000 300 000 4 000 000 200 000 2 000 000 100 000 0 0 1990 2000 2010 2014 Pivots Orchards Subsistence & Smallholdings Dryland Left Axis Right Axis Source: GeoTerraImages 2016 21 |

Reasons for vulnerability • Industries important to either job creation or food security are showing signs of vulnerability. Reasons are: • Exchange rate volatility • Labour environment volatility • Trade tariff structures & non-tariff trade measures inhibiting growth • High relative cost of capital • Policy uncertainty with respect to land reform & land ownership dampens investment, innovation & overall drive • Limited availability of water • Unreliable supply of electricity • Lack in cost effective logistics, mainly rail • Lack of coherency between and within different government departments 22 |

Where to fr from here?? The drought in a global, , regional and local context xt

Future Scenarios Domestic Global Macro Drivers Economy South African Food System Regional Drivers & Outlook

Maize global price outlook 350 USD / ton 300 250 200 150 100 50 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Source: OECD-FAO, 2016

Livestock global price outlook Beef Poultry Pork Sheep USD / ton (CWE) 6000 5000 4000 3000 2000 1000 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Source: OECD-FAO, 2016

Low margins – high volumes

Regional implications Maize production 16.0 14.0 12.0 Million tons 10.0 2014 8.0 2015 6.0 EST 2016 4.0 2.0 0.0 SA ZAM MOZ TAN MAL ZIM KEN

Relative shift in area 2500 WM 2000 YM Thousand hectares 1500 WS WW 1000 SF 500 SB CAN 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

White maize prices 36% decline in 2017 White maize 7000 2500 6000 2000 Thousand tons 5000 1500 4000 R/ton 3000 1000 2000 500 1000 0 0 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 White maize imports White maize exports White Maize - Import parity Randfontein SAFEX White Maize White Maize Export parity africa

Farm-level Drought Implication: Cash flow Ending cash surplus / deficit Northern Free State - Cash Flow R 4 000 000 Drought – 2015/16 production season R 2 000 000 R 0 2014 2015 2016 2017 2018 -R 2 000 000 -R 854 548 -R 4 000 000 -R 6 000 000 Negative cash flow -R 8 000 000 positions until 2017/2018 -R 9 001 761 -R 10 000 000 Scn 1 (50% area) Scn 2 (20% area) Scn 3 (0% area)

Production cost comparison Seed Fertilizer Plant protection Crop Insurance Contractor Diesel Total establishment cost Average: South Africa Sample average Crop revenue 250 US$ per ton maize produced 200 150 116 99 97 97 92 100 76 76 73 72 69 67 50 41 41 40 52 53 31 20 19 21 23 15 0 AR330ZN AR700SBA AR900WBA BR1300MT BR195PR UA6700PO* US1215INC US700IA ZA1600EFS ZA1600NFS ZA1700WFS Argentina Brazil Ukraine US South Africa Figure 13.7, Pg. 115

Beef Market

Chicken Market

Shifting Apple Exports – Africa Rising United Kingdom Other Europe Far East and Asia Other Africa Other 100% 12% 13% 90% 13% 80% 12% 70% 43% 60% 50% 24% 40% 20% 30% 7% 20% 39% 10% 17% 0% 2005 2008 2011 2014 Source: ITC Trademap

The Road from DAR to Lusaka

Proposed Interventions • “Keep farmers on the ground” • Best chance of reducing maize meal prices and food security in next season – back to export parity? • Restructuring debt: Security on loans & “Soft - loan” options to finance shortfall (input costs & additional feed demand) • Carefully monitor irrigation water usage and availability • Crop insurance support • Staple food price complex • Allow GM white maize imports from USA. • Identify vulnerable household hardest hit (IVIS spatial map) • SASSA (SA social security agency (social relief for distressed households – R940 million approved) • Increase frequency of food price & marketing margin monitoring by NAMC - efficient pass through of potential commodity price declines

End! Visit us at www.bfap.co.za