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The South African cereals sector: Recent developments and future challenges

09 July 2012

Jannie de Villiers is the chief executive officer of Grain South Africa. Grain SA, established in 1999, is a voluntary association of grain farmers established to represent the interests of its members. It is controlled by farmers for farmers, and structured to ensure members’ democratic control over their elected office bearers. Grain SA provides commodity strategic support and services to South African grain producers to support sustainability.

Q. Can you say a little about Grain South Africa, its role and objectives?

Grain SA is a grain producer organisation.  It is voluntary and self-funded by grain and oilseed producers.  We have about 3,400 commercial farmers (mostly, but not all, white) and 3,800 developing farmers (mostly black) as members.  We render services on information, training and extension to developing farmers.  We also represent the farmers on organised agricultural structures in liaison with government and other industry role-players.  Lastly, we also act as the mouthpiece for the farmers via the media and distribution of magazines.

Q. In October 2011 you warned about an imminent shortage of domestically produced maize in South Africa, and this represented a dramatic turnaround in the market situation compared to the beginning of 2011. What happened?

South Africa produced a surplus of approximately 2 million tonnes of maize.  We expected that given poor infrastructure (rail & port) we would only be able to export a little over 1 million tonnes.  However operators within the value chain did very well, and with the drought in the USA and Mexico we were able to export 2.4 million tonnes.  This created a small shortage domestically which was made good by some imports.  South Africa normally exports and imports maize in the same season.  We export to Africa and import into the Western Cape, mostly from Argentina.  The difference this year was that Southern Africa had enough maize following a great crop in Zambia.

Q. Towards the end of 2011 there was considerable discussion about establishing better market management measures in the maize sector in South Africa. How do you see South Africa’s maize sector trade policy evolving in the light of these discussions?

We do not see any need for market intervention by government.  The free market has not let the country down in terms of availability.  The food price increases in 2007/08 as well as the past season were internationally driven, not because of local circumstances.  The ideal situation is to constantly produce a surplus of maize to enable the local processors to buy at export parity prices.  The improvement we are looking for is more transparent information. 

Only the traders were aware of the quantity of maize sold forward to importing countries.  The stock position appeared to be sufficient.  Local farmers and buyers were unaware that more than the surplus was exported, and could therefore not benefit or cover themselves by hedging.  This situation has been rectified, or rather is in a process to be rectified – hopefully by July 2012.  A formal supply and demand forecast (including forward-looking imports and exports) will be prepared by the government to enable the market to perform better.  

Q. Given the policy discussions which emerged in 2011, how does the private sector make its views known to government on cereals sector trade policy issues?

Government has created an Agricultural Trade Forum, consisting of the various role-players and commodity groups.  It’s working well. We also make use of lobbyists to communicate our views.

Q. 2011 saw a drought in Eastern Africa and cereals shortages and a surge in South African maize exports, but with reduced tonnages being exported to Eastern Africa. What accounts for this development?

The South African grain market is a free market and works on a ‘first come first served’ basis to the highest bidder. Mexico ran short of white maize and we had surpluses.  Seventy-eight per cent (78%) of the South African maize crop is GMO, and very little is stored separately. African countries still prefer GM-free maize. However, GM-free maize is too expensive for African countries.

Q. Given the launch of discussions around the trilateral FTA [of SACU, COMESA and the EAC], what kind of trade arrangements would you like to see set in place in the cereals sector?

It would be a dream come true if we can improve the infrastructure to the extent that we can export out of South Africa and Maputo, and South Africa can import some of its needs from Zimbabwe and Zambia. We also need to think about branding SADC maize as a potential supplier to countries like China.  For that, we need harmonisation and one futures exchange, etc.  We desperately need a proper crop estimate system like that in South Africa for the SADC region, as well as a crop quality reporting system similar to that in place in South Africa.

Q. Do you see negotiations in the tripartite FTA context having any implications for the managed trade arrangements in the cereals sector within the SACU?

Our experience is that South Africa opened our market to SADC, but the opposite is not taking place.  Harmonisation is not progressing.  Zambia got an opportunity to supply to South Africa last season and could logistically do little because of the lack of storage facilities and proper housekeeping for food safety requirements. Lack of infrastructure and political will in countries like Zimbabwe makes it difficult to create a true SADC cereals market.

Q. Given the growing focus on food self-sufficiency since the 2008 food price crisis, how do you see South Africa’s economic weight in the cereals sector being managed within regional trade arrangements?

Grain SA will always support the free market as a price-forming mechanism.  The best option for African farmers is to be profitable at export parity.  To achieve this we need a world without agricultural subsidies and fair trade.  Improvements in infrastructure are absolutely essential for the development of SADC and other grain producing countries in Africa.

Q. How do you see the future of the wheat sector in South Africa?

If we do not urgently address the profitability of wheat, farmers will stop producing it.  For the coming season we already expect SA to import more than we produce.  Government needs to decide on a self-sufficiency level (for example, 85%) and increase the import duty to achieve it. Improvements in technology are too far away to save the wheat industry.  Biofuels from soya and sorghum will also weigh against wheat and even maize.


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