Economical Impact of drought & disasters on agriculture · Economical Impact of drought & disasters on agriculture Drought Dialogue – Western Cape Government Prof Ferdi Meyer Bureau

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 Oct 2015 Nov 2015 Dec 2015

The Region and the drought

Impact of drought: 3 Thresholds

• Area planted summer crops • Pastures – first summer

growth • Impact on irrigation

agriculture still limited

• Critical for yields • Pastures-late summer

growth • Heat affecting fruits .. • Smaller dams and

boreholes affected

• Critical for all dams and boreholes etc

• Long-term damage on pastures

• All three industries affected

Oct Jan Feb Mrch

Dams levels

0

20

40

60

80

100

120

% F

ull

Last Year (%Full) This Week (%Full)

Source: DWS, 2016

White maize prices

0

500

1000

1500

2000

2500

0

1000

2000

3000

4000

5000

6000

7000

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023

Th

ou

sa

nd

to

ns

R/t

on

White maize

White maize imports White maize exports

White Maize - Import parity Randfontein SAFEX White Maize

White Maize Export parity africa

Livestock numbers

0

100

200

300

400

500

600

700

2013 2014 2015 2016

No

. An

imal

s

Cow herd

National Average

Eastern Cape

Free State

KwaZulu-Natal

Northern Cape

Limpopo

North West

Western Cape

Source: UFS survey for RPO

Livestock numbers

Source: UFS survey for RPO, BFAP calculations

75

80

85

90

95

100

105

110

2013 2014 2015 2016

Ind

ex

Herd Size: National

Cow herd Replacement Heifer Steer: 7-36 Months

Drought impact on food inflation

Food Inflation in the context of total inflation

% Share of CPI Basket % Share of CPI Food Basket

14.20

16.43

24.52

44.85

Food Transport Housing and utilities Other

25

32

3

12

4 2

11

5 7

Bread and Cereals Meat

Fish Milk, eggs and cheese

Oils and Fats Fruit

Vegetables Sugar and Confectionary

Other foodsSource: StatsSA, CPI Brief (2015)

What are we producing & consuming?

-100

-80

-60

-40

-20

0

20

40

60

80

100

0 1 2 3 4 5 6 7 8 9 10 11

Ne

t tr

ad

e/S

A c

on

su

mp

tio

n (

%)

Share of food expenditure (%)

2005

-100

-80

-60

-40

-20

0

20

40

60

80

100

0 1 2 3 4 5 6 7 8 9 10 11

Share of food expenditure (%)

2010 2024

Average Projected Increase 2016 with mitigating factors

January 2015

R282 per household per

month

R350 per household per

month

↑24%

Drought impact on staple basket Inflation

R364 per household per

month

↑29%

Average Projected

Increase 2016

Imports of GMO White Maize – 10% reduction in White Maize Price

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

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

500001

97

5

19

78

19

81

19

84

19

87

19

90

19

93

19

96

19

99

20

02

20

05

20

08

20

11

20

14

Mill

ion

Ran

ds

Real Gross Income

Horticulture

Field crops

Livestock

Agricultural growth

17 |

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

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

/15P

erc

en

tage

Year on year quarterly change in Agriculture, Forestry and Fisheries GDP

Agricultural production growth: 2011-2015

18 |

Mixed results & overall growth not fast enough – more can be done! Total growth over past 4 years = 7.6% on average across industries

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

Can

ola

Soft

Cit

rus

Lem

on

sSo

ybea

ns

Tab

le G

rap

es

Ro

oib

os

Sun

flo

we

rSh

eep

mea

tB

arle

yP

ou

ltry

Yello

w m

aize

Bee

fM

acad

amia

sD

airy

Po

rkW

oo

lEg

gsP

ears

Gro

un

dn

uts

Ap

ple

sO

rgan

ges

Nec

tari

ne

sP

ota

toes

Avo

cad

o P

ears

Man

gos

Litc

his

Win

e g

rap

esSu

gar

can

eP

lum

sG

rap

efru

itP

each

esW

hit

e m

aize

Wh

eat

Ap

rico

tsC

ott

on

Pru

ne

sP

inea

pp

les

% Change 2015 vs. 2011

Where should we focus?

19 |

Update on NDP Employment & Investment 2030 Matrix

Agricultural employment: 2011-2015

20 |

300 000

400 000

500 000

600 000

700 000

800 000

900 000

1 000 000

20

08

_1

20

08

_3

20

09

_1

20

09

_3

20

10

_1

20

10

_3

20

11

_1

20

11

_3

20

12

_1

20

12

_3

20

13

_1

20

13

_3

20

14

_1

20

14

_3

20

15

_1

20

15

_3

Employment in SA primary agriculture

New sample: Undercounting of agric in

the past

Since NDP in 2011, 70 000 new jobs in primary agriculture…but more can be done!

Expansion in irrigation

21 |

0

2 000 000

4 000 000

6 000 000

8 000 000

10 000 000

12 000 000

0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

1990 2000 2010 2014

He

ctar

es

He

ctar

es

South Africa Field Cropped Boundaries (Excl. Sugarcane)

Pivots Orchards Subsistence & Smallholdings Dryland

Right Axis Left Axis

22%

Source: GeoTerraImages 2016

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 from here??

The drought in a global, regional and local context

Future Scenarios

Domestic

Macro

Economy

South

African Food

System

Global

Drivers

Regional

Drivers &

Outlook

Maize global price outlook

0

50

100

150

200

250

300

350

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

USD

/ t

on

Source: OECD-FAO, 2016

Livestock global price outlook

0

1000

2000

3000

4000

5000

6000

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

USD

/ t

on

(C

WE)

Beef Poultry Pork Sheep

Source: OECD-FAO, 2016

Low margins – high volumes

Regional implications

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

SA ZAM MOZ TAN MAL ZIM KEN

Mill

ion

to

ns

Maize production

2014

2015

EST 2016

Relative shift in area

0

500

1000

1500

2000

2500

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

20

22

20

24

Tho

usa

nd

hec

tare

s

WM

YM

WS

WW

SF

SB

CAN

White maize prices

0

500

1000

1500

2000

2500

0

1000

2000

3000

4000

5000

6000

7000

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023

Th

ou

sa

nd

to

ns

R/t

on

White maize

White maize imports White maize exports

White Maize - Import parity Randfontein SAFEX White Maize

White Maize Export parity africa

36% decline in 2017

-R 9 001 761

-R 854 548

-R 10 000 000

-R 8 000 000

-R 6 000 000

-R 4 000 000

-R 2 000 000

R 0

R 2 000 000

R 4 000 000

2014 2015 2016 2017 2018

En

din

g c

ash

su

rplu

s /

defi

cit

Northern Free State - Cash Flow

Scn 1 (50% area) Scn 2 (20% area) Scn 3 (0% area)

Farm-level Drought Implication: Cash flow

Negative cash flow positions until 2017/2018

Drought – 2015/16 production season

Production cost comparison

21 19 15 20

41

23

41 31 40 52 53

67 76

69 72

92 76

97

73

116

97 99

0

50

100

150

200

250

AR

33

0ZN

AR

70

0SB

A

AR

90

0W

BA

BR

13

00

MT

BR

19

5P

R

UA

67

00

PO

*

US1

21

5IN

C

US7

00

IA

ZA1

60

0EF

S

ZA1

60

0N

FS

ZA1

70

0W

FS

Argentina Brazil Ukraine US South Africa

US$

per

to

n m

aize

pro

du

ced

Seed Fertilizer Plant protectionCrop Insurance Contractor DieselTotal establishment cost Average: South Africa Sample averageCrop revenue

Figure 13.7, Pg. 115

Beef Market

Chicken Market

Shifting Apple Exports – Africa Rising

Source: ITC Trademap

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2008 2011 2014

United Kingdom Other Europe Far East and Asia Other Africa Other

24%

39%

12%

12%

13%

13%

43%

20%

17%

7%

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!

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