As the country’s agriculture is export-orientated, the focus must be on safeguarding its seamless continuation. Attention should be centred on improving logistics efficiency, intensifying the promotion of South African products in export markets, and sustaining solid relations with existing critical export markets while securing expansion into new markets.
This is particularly important in the context of growing tensions between the East and the West, as highlighted by the potential loss of SA’s benefits through the US African Growth and Opportunity Act (AGOA) and more onerous regulations being imposed by the European Union (EU.
One of these potential issues is the objective of the European Green Deal to reduce the environmental and carbon footprint in the way food is produced and consumed in the bloc. An obvious challenge is South Africa’s dependence on fossil fuels, which is unlikely to meet the criteria required for EU targets.
However, equally problematic is the EU’s ever more stringent regulations, with the high cost of compliance likely to negate the benefits of South Africa’s existing preferential trade arrangements with the region.
A case in point is the EU’s decision to institute cold treatment requirements for orange imports originating from Southern Africa in June last year in a ruling that was allegedly made to protect against false codling moth that feeds on many crops, including citrus.
The impact of this decision would be dire for South Africa’s citrus farmers, who send up to 800 000t of produce per year to the EU. Additional costs and potential loss of income may amount to more than R500 million in 2023, while investment in cold storage technology and capacity of nearly R1,4 billion will be required to enable full compliance.
The citrus sector currently sustains 140 000 jobs and brings in R30 billion in export revenue annually. However, projected growth will potentially enable the industry to sustain a further 100 000 jobs and generate an additional R20 billion in annual revenue, but it is clear that additional markets need to be sought for these exports to mitigate against potential loss in the EU market.
These threats highlight the importance of nurturing existing partner relationships while aggressively developing new markets in both the East and West.
Currently, South Africa only has free trade agreements (FTAs) in two of its biggest markets, Africa and Europe, which collectively account for 62% of total agricultural exports. The Middle East, Asia, the Americas and the UK currently account for 36% and are perhaps where attention is critical.
Some of South Africa’s fiercest competition is from other ‘Global South’ producers, who have various trade agreements in place with third markets in Asia, the Middle East, and the Americas.
The fact that these countries have either preferential or bilateral trade agreements means that South Africa is effectively facing higher tariffs in these markets. In turn, it means that local producers must overcome tariffs primarily through farm-level efficiency.
Nedbank does not shy away from working on challenges, such as these, that hinder the potential of the agricultural sector, and the group embraces the opportunities they present. We collaborate with key organisations and stakeholders to enhance depth of understanding, and, by combining this with a long-term and client-centred approach, we gain a 360-degree view of the unique risk drivers, as well as mitigation and growth strategies of our clients’ agribusinesses and the entire sector.
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Think Nedbank Commercial Banking.