BFAP BASELINE

1 PUTTING PLANS INTO ACTION: AGRICULTURE AND ECONOMIC GROWTH IN SOUTH AFRICAA gricultural Outlook2016 - 2025 August 2016 bfap BASELINEPUTTING PLANS INTO ACTION: AGRICULTURE AND ECONOMIC GROWTH IN SOUTH AFRICAPUTTING PLANS INTO ACTION: AGRICULTURE AND ECONOMIC GROWTH IN SOUTH AFRICAA gricultural Outlook2016 - 2025 August 2016 bfap BASELINEBFAP TEAMS teering CommitteeFerdinand Meyer bfap Director, University of PretoriaJohann Kirsten University of Pretoria Bongiswa Matoti Department of Agriculture, Western Cape PG Strauss VKB Lulama Ndibongo-Traub University of Stellenbosch Nick Vink University of Stellenbosch Contributors:University of Pretoria office University of Stellenbosch office Babatunde AbidoyeTracy DavidsMegan DavenportMarion Delport Dalene FlynnMarnus GouseVuyolwethu Gxotiwe Mmatlou KalabaMarlene LouwTatenda MutungiraNico ScheltemaHettie Sch nfeldtGerhard van der BurghDivan van der WesthuizenDepartment of Agriculture, Western CapeAndrew PartridgeLouw PienaarDirk TroskieOthersJulian Binfield FAPRI University of Missouri, USAT homas Funke South African Cane Growers AssociationThom Jayne Michigan State University Christopher Knye bfap consultant NamibiaHolger Matthey FAO Rome, ItalySakkie van Zyl bfap consultant Hester Vermeulen bfap consultantPatrick Westhoff FAPRI University of Missouri.

2 USAiBFAP BASELINE | agricultural Outlook 2016 -2025 Johann BoonzaaierLuke BraeutigamJan GreylingRyan JayneJan LombardPaul MazungunyeInga NdibongoCecilia PuntJohn SchaferJohan van RooyenACKNOWLEDGEMENTSMain Sponsors of the bfap BaselineABSA AgribusinessDepartment of Agriculture Forestry and Fisheries (DAFF)Department of Agriculture, Western CapeJohn DeereOther collaboratorsagri benchmark, Th nen Institute, Braunschweig, GermanyDST-NRF Centre of Excellence in Food SecurityExcelsusFood and agricultural Policy Research Institute (FAPRI), University of MissouriFood and agricultural Organization of the United Nations (FAO)GWK SAHortgro Services (SAAPPA)Maize TrustMilk Producers Organisation (MPO)National agricultural Marketing Council (NAMC)NWK AgriPotatoes SA (PSA)Protein Research Foundation (PRF)Red Meat Producers Organisation (RPO)Senwes African Breweries (SAB)South African Cane Growers AssociationSouth African Feedlot Association (SAFA)South African Grain Information Service (SAGIS)South African Milk Processors Association (SAMPRO)South African Poultry Association (SAPA)South African Pork Producers Organisation (SAPPO)South African Wine Industry Information & Systems (SAWIS)Water Research Commission (WRC) bfap BASELINE | agricultural Outlook 2016 -2025iiFOREWORDTHE BUREAU FOR FOOD AND agricultural POLICY ( bfap ) was founded in 2004 with the purpose to inform decision-making by stakeholders in the agro-food, fi bre and beverage complex by providing independent research-based policy and market analyses.

3 bfap has offi ces at the University of Pretoria, the University of Stellenbosch, and the Western Cape Department of Agriculture and consists of 42 public and private sector analysts and experts who pool their knowledge and research to inform decision-making within South Africa s food and beverage sector. bfap has become a valuable resource to the agro-industrial complex by providing analyses of future policy and market scenarios and measuring the simulated impact on farm and fi rm profi tability. bfap collaborates with various international institutions and is a founding partner in the Regional Network of agricultural Policy Research Institutes (ReNAPRI) in Eastern and Southern Africa. The Bureau consults to both national and multinational private sector entities as well as to government on national and provincial level. bfap acknowledges and appreciates the tremendous insight of numerous industry specialists and collaborators over the past all industry partners comments and suggestions are taken into consideration, bfap s own views are presented in this BASELINE : The views expressed in this document refl ect those of bfap and do not constitute any specifi c advice as to decisions or actions that should be taken.

4 Whilst every care has been taken in preparing this document, no representation, warranty, or undertaking (expressed or implied) is given and no responsibility or liability is accepted by bfap as to the accuracy or completeness of the information contained herein. In addition, bfap accepts no responsibility or liability for any damages of whatsoever nature which any person may suffer as a result of any decision or action taken on the basis of the information contained herein. All opinions and estimates contained in this report may be changed after publication at any time without BASELINE | agricultural Outlook 2016 -2025 bfap TEAM ..iACKNOWLEDGEMENT ..iiFOREWORD ..iiiCONTEXT AND PURPOSE OF THE BASELINE ..vEXECUTIVE SUMMARY AND IMPLICATIONS ..1 OVERVIEW: LESSONS FROM THE BASELINE FOR AGRICULTURE AND ECONOMIC GROWTH IN SOUTH AFRICA ..3 KEY BASELINE ASSUMPTIONS ..15 SOUTH AFRICAN CONSUMER PROFILE ..17 SOUTH AFRICAN OUTLOOK.

5 29 OUTLOOK FOR FIELD CROPS ..29 SUMMER WINTER GRAINS ..46 OILSEEDS AND OILSEED PRODUCTS ..57 SUGARCANE AND OUTLOOK FOR ANIMAL PRODUCTS ..77 MILK AND DAIRY PRODUCTS ..93 OUTLOOK FOR HORTICULTURAL PRODUCTS ..97 POTATOES ..97 FRUIT ..99 WINE GRAPES AND , BREAD AND MONEY FOOD INFLATION DYNAMICS AND NUTRITIONAL IMPLICATIONS FOR CONSUMERS IN SOUTH AFRICA ..130 AFRICAN agricultural TRANSFORMATION ..141 REFERENCES ..155 TABLE OF CONTENTSBFAP BASELINE | agricultural Outlook 2016 -2025ivTHE 2016 EDITION OF THE bfap BASELINE presents an outlook of agricultural production, consumption, prices and trade in South Africa for the period 2016 to 2025 and relates these to potential actions aimed at increasing the agricultural sector s contribution to economic growth. The information presented is based on assumptions about a range of economic, technological, environmental, political, institutional, and social factors.

6 The outlook is generated by the bfap sector model, an econometric, recursive, partial equilibrium model of the South African agricultural sector. For each commodity, important components of supply and demand are identified and equilibrium established in each market through balance sheet principles where demand equals supply. A number of critical assumptions have to be made for BASELINE projections. One of the most important is that stable weather conditions will prevail in Southern Africa and around the world: therefore yields grow constantly over the BASELINE as technology improves. Assumptions regarding the outlook of macroeconomic conditions are based on a combination of projections developed by the International Monetary Fund (IMF), the World Bank and the Bureau for Economic Research (BER) at Stellenbosch University. BASELINE projections for world commodity markets were generated by FAPRI at the University of Missouri.

7 Once the critical assumptions are captured in the bfap sector model, the Outlook for all commodities is simulated within a closed system of equations. This implies that, for example, any shocks in the grain sector are transmitted to the livestock sector and vice year s BASELINE takes the latest trends, policies and market information into consideration and is constructed in such a way that the decision maker can form a picture of equilibrium in agricultural markets given the assumptions made. However, markets are extremely volatile and the probability that future CONTEXT AND PURPOSE OF THE BASELINE prices will not match BASELINE projections is therefore high. Given this uncertainty, the BASELINE projections should be interpreted as one possible scenario that could unfold, where temporary factors ( weather issues) play out over the short run and permanent factors ( biofuels policies) cause structural shifts in agricultural commodity markets over the long run.

8 The BASELINE , therefore, serves as a benchmark against which alternative exogenous shocks can be measured and understood. In addition, the BASELINE serves as an early-warning system to inform role-players in the agricultural industry about the potential effects of long-term structural changes on agricultural commodity markets, such as the impact of a sharp increase in input prices or the impact of improvements in technology on the supply summarise, the BASELINE does NOT constitute a forecast, but rather represents a benchmark of what COULD happen under a particular set of assumptions. Inherent uncertainties, including policy changes, weather, and other market variations ensure that the future is highly unlikely to match BASELINE projections. Recognising this fact, bfap incorporates scenario planning and risk analyses in the process of attempting to understand the underlying risks and uncertainties of agricultural markets.

9 Some of the boxes in the publication present results of a number of specific or commissioned analyses through the past 18 months. Farm-level implications are included in the commodity specific sections and the scenarios and risk analyses illustrate the volatile outcome of future projections. Further stochastic (risk) analyses are not published in the BASELINE , but prepared independently on request for clients. The bfap BASELINE 2016 should thus be regarded as only one of the tools in the decision-making process of the agricultural sector, and other sources of information, experience, and planning and decision making techniques have to be taken into consideration. vBFAP BASELINE | agricultural Outlook 2016 -2025 bfap BASELINE | agricultural Outlook 2016 -20251 SOUTH AFRICAN AGRICULTURE HAS performed well over the past decade; despite some volatility owing to its dependence on global markets and on an inclement climate, gross value added by the sector expanded by more than 15% in real terms since 2005.

10 However, this expansion peaked at over 30% in 2014, before declining rapidly in the past two seasons as a result of extreme drought in the summer rainfall regions. The severity of the current drought has re-emphasized the importance of a vibrant and sustainable agricultural sector, yet contrary to the past decade, where performance was supported by factors such as the commodity super cycle, progress in the coming decade will have to be achieved in an environment of weaker economic growth and lower commodity prices, mainly through increased productivity. While 2016 in particular will be remembered as a challenging year, the sector s resilience and ability to recover from a shock such as the current drought is underpinned by a combination of key underlying fundamentals linked to the long-term competitiveness of the , agricultural commodity prices have fallen well below the peaks of 2013, as generally high production levels have replenished stocks.