South Africa’s pet food industry has in recent months defied constrained economic growth, a volatile local currency, declining but stable grains sector and muted political uncertainty to post growth and even attract investment from key manufacturers in the country.
Despite a drop in the production of wheat in recent months on the back of reducing acreage under the crop and liberalization of the wheat market, South Africa’s pet food industry has recorded an increase in sales since 2014 with the $94.5 million achieved in 2016 being the highest in the last four years. The sales volumes were higher than those of 2014 and 2015 when local manufacturers and importers sold $73.7 million and $89.7 million of pet food, respectively.
Although the 2018 data on the number of pets, particularly dogs and cats, was not immediately available, South Africa is estimated to have had 9.1 million dogs and 2.4 cats by 2014. These pet numbers are driving increase in consumption of pet foods in the country where the domestic pet food market is dominated by Martin & Martin, Mars Africa Pty Ltd and RCL Foods and its subsidiary Food Corp Pty Ltd, among others.
These manufacturers produce their own branded animal food products and also manage their own distribution network alongside other outlets such as retailers/supermarkets, wholesalers and specialty pet food stores.
Currently, South Africa’s pet food market comprise of a mixture of imports and domestic products with the country being a major gateway to regional pet food markets, especially of members of the Southern African Development Community (SADC), a 15-member nation inter-governmental organization based in Gaborone, the capital city of Botswana.
In 2016, South Africa’s value of imported and exported pet foods was estimated at $40 million and $20 million, respectively, by the Global Trade Atlas statistics, a global merchandise trade statistics database. The United States, France and the Netherlands contributed 75% of the total pet food imports, according to the U.S. Department of Agriculture (USDA).
The pet food importation is allowed under South Africa’s Farm Feed Regulation Act 36 of 1947 that allows importation of the products on condition the imports comply with the regulation. In addition, the pet food importer must be a company registered in South Africa or a citizen.
In addition, the Pet Food Industry Association of Southern Africa (PFI), a non-profit body lobbying for high quality nutritional standards of pets, also ensures compliance with stipulated regulations by randomly and regularly purchasing pet foods in the market and subjecting them to independent laboratory tests.
According to the PFI, pet food products that fail to meet the stringent laboratory tests parameters and industry registered requirements would lead the manufacturer being “reported to the Registrar of Act 36 for legal action.”
Wheat production lagging
The current demand and supply trends of South Africa’s pet food market conceals strong undercurrents that have characterized the entire industry value chain, especially the production of grains in this country where the agricultural sector grew by more than 22% and contributed 0.4% to the gross domestic product.
Although the country’s agricultural sector has posted steady growth since 2015, the wheat sub-sector, a key cereal ingredient in the country’s pet food industry, has recorded mixed performance in the recent past largely because of the effects of the liberalization of the wheat market and adverse weather conditions in key growing areas.
The Food and Agriculture Organization attributed the drop in South Africa’s cereal production from 18,808,000 tonnes in 2017 to 15,480,000 tonnes early this year to “price induced contraction in plantings.”
The UN agency said total commercial plantings declined by 12% on a yearly basis and lower yields due to an extended period of below average rainfall in January and early February.
The FAO said South Africa’s winter wheat crop is expected to be harvested in October after the country’s “favorable rains in the main western growing regions and improved moisture levels and benefited crop development.”
“Continued favorable rains are predicted over the main wheat-growing Western Cape province from July through September, boosting production outlook,” the FAO said.
The global food agency has predicted a “slight increase in production compared to the below-average output of the previous year.”
The expected slight increase in wheat production is expected to impact the pet food market in South Africa, especially because grains represent between 40% to 70% of the volume of pet food rations.
However, ensuring a stable future supply of the grains to fuel the pet food market largely would depend on how the government and private sector respond to an emerging trend of falling profitability of the wheat crop.
“Declining trend in hectares planted with wheat will continue in 2018-19, mainly due to the crop’s decreasing profitability,” said the latest report by the USDA on South Africa’s grains industry, which also notes a decrease of 1 million hectares under wheat compared to 20 years.
“Producers will plant 480,000 hectares of wheat, which could on average yields realize a wheat crop of about 1.7 million tonnes,” the USDA said.
In February of this year, South Africa’s Crop Estimate Committee estimated wheat production to be about 1.5 million tonnes for the 2017-18 year, which is a 20% drop from the previous year. The decline in production has been attributed to the severe drought in the Western Cape province where nearly 75% of the crop is grown.
Pet food makers optimistic
Despite the decline in wheat production in South Africa, pet food makers in the country, of which nearly 65% of them are members of PFI, are optimistic the market will keep growing into the future.
Some of the companies have defied political and economic trends such as the sacking of South Africa’s highly regarded former Finance Minister Pravin Gordhan, the recent removal of former President Jacob Zuma by the ruling party Africa National Congress, volatility of the local currency and flat growth projection, to announce new investments that could trigger demand for grains and an increase in the country’s milling capacity to feed the pet food processing space.
For example, leading South African consumer and milling company RCL Foods Ltd, formerly Rainbow Chicken Ltd, recently invested $18.7 million in beverages and pet food infrastructure.
The company’s CEO, Miles Dally, said earlier the investment will “enhance our manufacturing capabilities in higher-margin added-value products.”
RCL, which has one mega grocery plant for the manufacture of culinary and pet food products, said recently it had successfully merged two separate feed businesses of Epol & Molatek, formerly Rainbow and TSB, “to create South Africa’s largest animal feeds business.”
Growth of South Africa’s pet food industry has seen some mergers and acquisitions, an indication of the market’s resilience against a sluggish economy that grew by a mere 1% in 2016 and is projected to grow by 1.1% in 2017 on the back of expected good performance of the agriculture and mining sectors.
Nestle South Africa successfully disposed of its Pet Food/Purina business in mid-2016 to Martin & Martin “as part of on-going strategic reviews of our regional portfolio.”
Martin & Martin acquired the local Pet Food/Purina brands and Nestle’s Pet Food/Purina manufacturing facility in N’dabeni with 96 employees, said Ravi Pillay, who issued the acquisition statement on behalf of Nestle South Africa.
“Nestle South Africa is confident that this decision is in the best interests of the business and employees and other key stakeholders, including its customers, distributors and consumers,” Pillay said.
Analysts said South Africa’s pet care has continued to post strong growth driven mainly through an increase in unit prices.
According to market researcher and analyst Euromonitor International, the market has registered a new trend where “volume growth lagged significantly behind value growth.”
“The South African economy remained constrained by slow growth in 2018,” Euromonitor said in its June 2018 report, “Pet Care in South Africa.” “This combined with the volatile rand, resulted in massive cost pressures with strong rising prices leading consumers to seek more affordable brands and pack sizes.”
But for the pet food manufacturers and suppliers in South Africa, the survey by Euromonitor showed a trend is emerging where consumers are now demanding “a wide range of products across a variety of price points, which allows room for both international and local players in pet food in South Africa.”
Some of the pet food products that utilize wheat or cereal ingredients include Pedigree, Sheba, Perfect Fit and Whiskas by Mars Africa Pty Ltd, Bobtail, Ultra Dog and Dogmor & Catmor by Foodcorp Pty Ltd, and Beeno, Bob Martin, Epol & Lopis by Martin & Martin Pty Ltd.
With political stability in South Africa still a matter to watch, especially with the recent pronouncement of land expropriation without compensation and an economy whose performance is still sluggish, many of the pet food manufacturers and suppliers are likely to focus on consolidation of their existing market share or go for joint ventures as a part of their low-risk strategy in the short and medium term.