South Africa is a country full of contrasts. In agriculture that means a successful commercial farming sector in a country with many subsistence farmers. It’s a net food exporter, even though much of its land is too dry for viable food production.

Maize is by far South Africa’s most important cereal crop. According to the International Grains Council (IGC), maize production in 2009-10 is estimated at 10 million tonnes, while its estimate for 2008-09 is 11.2 million tonnes. This includes 6.5 million tonnes of white maize and 4.7 million of yellow maize.

In 2008-09, South Africa imported 100,000 tonnes of maize and exported 2.3 million tonnes.

The IGC puts wheat production in 2008-09 at 2.1 million tonnes, compared with 1.9 million in 2007-08. Wheat imports were 1.3 million tonnes.

The country also imports 900,000 tonnes a year of soybean meal, while 2008-09 imports of rice are also put at 900,000 tonnes, up 200,000.

MILLING AND BAKING INDUSTRIES

According to the South African Grain Information Service, 65 wheat mills and 245 maize mills are registered in South Africa. They include four major companies: Premier, Tiger, Sasko and Ruto Mills, which play a key role in the industry. "The basic trend is that the number of wheat millers is decreasing," Jannie de Villiers, executive director of the Chamber of Milling, told World Grain. "Since the deregulation in 1997, the number of wheat mills (initially) increased, but over time has decreased as these new entrants find it more and more difficult to meet the requirements of the market."

The number of maize millers, in contrast, has steadily increased since deregulation. The market share of the informal maize milling sector has increased from 15% in the 1980s to 40% currently, he said.

The Chamber of Milling represents 13 companies that process wheat and 22 white maize processors.

The estimated wheat milling capacity of South Africa is 3.3 million tonnes, while the maize milling capacity is 4.7 million tonnes. "We estimate that the current utilization, on average, is 85%," de Villiers said. "The capacity utilization has decreased since deregulation in 1997." The amount of white maize milled in South Africa had fallen by around 1% per year in recent years. But that changed in 2009, as the crisis in neighboring Zimbabwe has caused what the Chamber of Milling describes as "a huge increase in wheat maize consumption." Currently demand is up by around 12%, although the increased demand is expected to be short-lived since Zimbabwe does have its own milling capacity.

The wheat milling industry has expanded by around 1% a year. Although it’s still growing, de Villiers said the current economic downturn could mean a temporary slowing in growth.

The growth in consumption of cereals follows the population trend which is for steady growth at around 1.5% a year. There is a steady drift toward more processed products and more wheat as affluence has increased.

After a long period of consolidation, which saw the number of baking plants decline from 250 to 70 in a period of seven years leading up to 2001, consolidation in the bakery sector has largely come to a halt. The big plant bakers are building on their role, and their share of the market has gradually risen, getting to 42.4% of wheat flour usage in 2007-08. The plant bakers need to expand, according to de Villiers, but the low level of profitability in the sector makes it hard to find the necessary funds to invest.

GRAIN FARMING

South African grain producers are some of the least supported farmers in the world. According to Wessel Lemmer, senior economist at the farmers’ organization Grain SA, the Organization for Economic Cooperation and Development (OECD) has calculated the producer support equivalent (PSE) for South Africa at 2%. "Two percentage points is made up of subsidies to the sugar industry," he told World Grain. "Support from government in our free market environment is therefore minimal."

He said that because of low domestic prices and the relatively low yields for wheat achieved in South Africa, wheat producers are potentially going to take a loss on what they are planting. Wheat prices in South Africa trade at import parity with HRW wheat from the United States (U.S.).

In contrast, white and yellow maize, sorghum, sunflower and soybean follow export parity. The South African rand is expected to strengthen, which will mean lower food prices and a probable reduction in the interest rate.

Because of farming’s vital role in the economy, with about 35% of farmers dependent on what they produce, he did not believe they would have trouble getting necessary credit. "In South Africa, the risk of a credit crunch harming producers is not noteworthy," Lemmer said. But he did note that finance depended on a producer’s ability to pay it back.

He said the deregulation of the market in 1997 left producers with a lack of market information. "The majority of the former cooperatives changed into private entities," he said. "Thus, unlike in the U.S., several cash bids are not published at our local elevators and it is also not compulsory by law to publish cash bids in South Africa."

"The cash market in South Africa developed to a degree, but it is not transparent for the individual producer," he said. "The Safex futures exchange, introduced after deregulation, is functioning properly, however, and is used to a large extent by producers for hedging purposes."

South Africa’s exports are limited by its relatively high production costs, low average yields for maize in some production areas because of low rainfall, and by the support offered by other countries to their exporters. "It is simply not possible to produce for the export market and, simultaneously, at a reasonable profit, to sustain production," said Lemmer, noting that the area under production had decreased as a result.

South Africa has been a leader in the use of genetically modified (GM) crops on a continent where most governments have opposed the development of biotechnology. There are about 1.8 million hectares of GM maize, soybeans and cotton in South Africa.

Meanwhile, the government has held back development of biofuels by excluding maize as a feedstock and by not introducing any mandatory blending of ethanol. "The incentive is simply not good enough to get things going," he said.

RECORD OILSEEDS AREA

According to a recent U.S. Department of Agriculture attaché report, which cited figures released by the South African Crop Estimates Committee on March 25, 2009, approximately 915,100 hectares of oilseeds were planted in 2008. That was 16.74% more than in 2007 and the second highest since the deregulation of the South African agricultural marketing system.

Sunflowers accounted for about 69%, soybeans 25% and peanuts 6%. The increased area and favorable weather during the second part of the season is expected to lead to an increase in production to 1.374 million tonnes in 2009, up from 1.243 million in 2008. A slight fall in area is expected for the following year.

"The sunflower area will decrease while the soybean area will increase… to support biodiesel production," the report said.

The same report also gave details of a big investment in biofuels, with the announcement by Rainbow Nation Renewable Fuels Limited of a 1.5-billion-rand ($189 million) biofuel processing plant in the Eastern Cape.

The plant is expected to produce biodiesel and pharmaceutical glycerine from imported and domestically produced soybeans, using 1.36 million tonnes of soybeans a year to produce 288 million liters of biodiesel, making it the largest soybean processing facility in Africa. It is expected to begin operations at the end of 2009.

HOPING FOR MORE INFLUENCE

Lemmer was optimistic that the influence of producers would increase after the May 2009 election of Jacob Zuma as president.

"President Zuma appears to be more approachable by taking producer organizations requests into consideration by replacing the current Minister of Agriculture and appointing Dr. Pieter Mulder as the Deputy Minister of Agriculture, Forestry and Fisheries – a new Department focusing primarily on agriculture and not land affairs," he said. "Land affairs is a political driven issue."

"The new minister must implement the agreed upon strategies in order for producers to deliver affordable food to the people of this country, but at a profit," he said.

Chris Lyddon is World Grain’sEuropean editor. He may be contacted at: chris.lyddon@ntlworld.com.

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