South Africa is mostly self-sufficient in food production, although it is susceptible to periods of drought requiring imports. The sector consists of both large commercial agricultural production and subsistence farming.
Agricultural policy. South Africa's agricultural policies have changed radically in the past few years, moving from a protected, regulated and subsidized sector to a free-market, free-trade environment. This transformation occurred amid the country's commitment to use exports as the engine for economic growth and the subsequent need to implement market reforms under the General Agreement on Tariffs and Trade.
According to the country's agricultural policy white paper, the goal is to strike a balance between producers and users, with an emphasis on ensuring that South African agriculture is in a position to compete with other countries in export markets. A corresponding policy shift is a focus on food security, rather than complete self-sufficiency.
Previously, South Africa enforced one channel marketing programs for wheat and maize, as well as most other agricultural products. Under the one-channel programs, which had been in place since the early 1930s, both domestic and export markets were controlled through government boards using statutory floor prices, stabilization levies and other control measures.
Liberalization of the domestic and export maize markets began in 1995, but the Maize Board still ran an export pool system where farmers could deposit surpluses. When international prices soared in 1996, the Maize Board profitably exported these surpluses, but that activity created a de facto floor price in the domestic market, raising objections from processors and other buyers.
When the industry could not reach a consensus on a revised system for 1997, the Minister of Agriculture in December scrapped the Maize Board entirely, effective at the start of the1997-98 crop year in May. The current maize crop will be marketed both domestically and for export under the free market system, although a Marketing Council will monitor developments.
The National Maize Producers Organization (NAMPO) complained that a price floor remained necessary because the market was not yet sophisticated enough to use hedging tools effectively. (The South African Futures Exchange began trading maize futures contracts in 1996.) NAMPO also warned that farmers were likely to plant less maize, which eventually could undermine the country's food security and require regular net maize imports. Plantings for the 1997-98 marketing year, at 3.2 million ha, were down 5% from the previous season and down 7% from the five-year average.
The South African wheat market will be liberalized beginning Nov. 1, although quantitative import restrictions and import duties already have been lifted. The need for wheat regulations traditionally was based on the relatively small size of the industry. Another concern was the vulnerability of western farmers to competition from imported wheat because of the high cost of moving domestic wheat to eastern urban areas.
Flour milling. White maize meal has been the traditional food staple for 75% of the population. About 80 commercial maize mills process an estimated 3.5 million tonnes of white maize annually for food use.
Consumption of maize meal has remained static in the past 10 years, despite population growth totaling about 2.5% in the same period, as consumers gradually have increased demand for convenience products such as bread, pasta and rice. As a result, wheat flour production has increased since 1981. International Grains Council statistics show that South Africa's wheat flour production climbed above 2 million tonnes for the first time in 1994, the most recent year for which data are available. At 2.03 million tonnes, 1994 production was up 35% from 1981.
The growth in South African wheat and flour consumption experienced a temporary setback immediately following the partial deregulation of wheat-based food prices in 1991. Although wheat prices continued to be regulated, price controls were removed on flour, bread and wheat-based products.
To lessen the effects on consumers, bakers reduced the size of the standard bread loaf to 800 grams from 850 grams, negatively influencing flour sales. These changes temporarily halted South Africa's steady growth in wheat use, but they also forced millers to intensify their focus on quality and price.
Within a year of the lifting of price controls, millers introduced a protein grading system for wheat and began to take other steps to improve flour quality. The baking industry also began to improve its product quality and to offer a wider range of products at competitive prices.
The growth trend in wheat use resumed in 1992-93, and 1997-98 consumption, projected at 3.1 million tonnes, will be 42% higher than six years earlier.
The South African wheat flour milling industry is highly concentrated, dominated by fewer than 10 large companies. Most of the large companies have well-equipped mills using advanced technology in the grinding process and in finished products handling. Most also are well-integrated, involved in maize milling, baking and feed production.
South Africa produces the majority of its wheat needs each year, although imports increase when drought cuts into the harvest. Canada and Australia are major suppliers, with the European Union and the United States typically supplying lesser amounts.
Feed and livestock. Yellow maize is the primary ingredient in South Africa's feed supplies. The deregulation of the maize market has affected the feed industry dramatically, especially because it coincided with the run-up in international maize prices in 1996. Feed producers in 1996 faced an 80% increase in the price of maize, according to industry sources. Prices for competing ingredients also soared, with fish meal and soybean meal, both of which are imported, up 55% and 40%, respectively.
The feed price effects have rippled through the meat and poultry industries. The broiler industry historically operated in a free market, but most of its feed inputs were subject to control. The higher prices resulting from liberalizations drove up feed prices and put pressure on the processing industry. In addition, the government reduced trade tariffs and import duties, opening the door to increased meat imports.