South Africa Agribusiness Report Q3 2014
- Sugar production growth to 2017/18: 21.9% to 2.4mn tonnes. This is based on our view that macroeconomic fundamentals, together with the increasing use of sugar for biofuels, will have a positive impact on sugar production levels over the long term.
- Poultry consumption growth to 2018: 24.8% to 2.2mn tonnes. As more South African consumers move towards diets containing higher levels of protein, poultry (predominantly chicken but also turkey and duck) is increasingly being viewed as a convenient, healthy and affordable source of nutrition.
- Corn production growth to 2017/18: 15.4% to 14.2mn tonnes. This relatively high growth rate reflects the influence of base effects. Growth will be supported by an improved macroeconomic outlook and the introduction of new corn varieties that generate higher crop yields.
- Real GDP growth: 2.2% in 2014, up from 1.9% in 2013; predicted to average 2.9% over the five years to 2018. GDP per capita is expected to rise to USD11,685 in 2018 (from an estimated USD6,646 in 2013).
- Unemployment: 22.8% in 2014, from 25.0% in 2013
- Consumer price inflation: 6.3% in 2014, up from an average of 5.7% in 2013.
- BMI universe agribusiness market value: 6.4% year-on-year (y-o-y) decrease to USD17.2bn in 2013/14; growth forecast to average 6.4% annually between 2012/13 and 2017/18.
Key Revisions To Forecasts
- Corn: 2013/14 production revised up from 12.2mn tonnes to 13.0mn tonnes
We have revised up our South African corn production forecast for 2013/14 on latest official estimates, and expect output to increase further to 13.1mn tonnes in 2014/15. Initial estimates for plantings have shown that area planted with corn has remained stable at 3.2mn hectares for the 2014/15 season and that yields are projected to be slightly higher thanks to favourable weather conditions. This will take the country's production surplus to 1.8mn tonnes, slightly lower than in 2013/14 but slightly higher than the five-year average.
Astral Foods announced in March that it intends to buy poultry assets from Darling Fresh Chicken, which is in liquidation. This will be the second purchase of distressed assets that the company makes this year. The Western Cape based abattoir has been bought for ZAR5.2mn on a liquidation auction. The company had already bought assets from Argyle Poultry Farms in KwaZulu-Natal.
We hold a positive view on the South African agricultural sector and see particular growth potential in the grain and livestock sectors. Both sectors' growth will be boosted by regional export demand. The sugar sector also presents interesting growth opportunities, mainly thanks to renewed investment and improved technologies. Overall, the country's grain and livestock producers have been hit by recent hikes in grain prices and subdued corn supply on the domestic market. Margins have plummeted, and foreign competition for exports has made it even more difficult for producers to stay afloat. However, the recovery is under way. We believe the country's main companies, AFGRI, Rainbow Chicken and Astral Foods, can only see profitability bounce from current subdued levels.
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