The agricultural sector is not holding its breath over so-called benefits deriving from two accords signed recently by government to increase local procurement and advance the bio-fuel industry.
The Local Procurement Accord (LPA) and the Green Economy Accord (GEA) were signed by government and the private sector as part of the New Growth Plan, which aims to create five million jobs and reduce unemployment from 25% to 15% over the next 10 years. The GEA aims to grow the green economy by providing a supportive regulatory environment to develop the local biofuels industry.
The recently published mandatory blending regulations that set targets of 2% bio-ethanol and 5% bio-diesel standards for the South African market will also be finalised.
But Dr Ferdi Meyer, agricultural commodity analyst at the University of Pretoria, dismissed this accord as mere window-dressing to make the government look proactive before the 17th Conference of the Parties on climate change, held in Durban at the time of publication.
“Just because you have mandatory blending doesn’t mean you suddenly have a biofuels industry. Mandatory blending cannot be seen in isolation and won’t be beneficial unless it’s accompanied by legislation stipulating where the bio-ethanol will come from. Trade policies need to be looked at to ensure that the bio-ethanol is not imported from places such as Brazil, which can supply it far more cheaply than SA,” he said.
Meyer explained that the proposed 2% bio-ethanol inclusion translates to 200 million litres, too small an amount for the sugar industry to be viable. “Only if the inclusion standard is 8% would it be worthwhile for them. It is also not profitable to produce bio-ethanol from sorghum.
“The production of bio-diesel doesn’t make economic sense either because vegetable oil sold for human consumption ’fetches a price of 30% to 40% more per litre than it would if it were sold for bio-diesel. This [bio-diesel] would require subsidies to make it profitable,” he said.
As far as the LPA goes, cotton and wool appear to be the only sectors within agriculture that could possibly benefit from the accord. A target of 75% local procurement has been set for goods that include clothing products and certain food products.
But Prof Nick Vink, chairperson of the Department of Agricultural Economics at Stellenbosch University, said that the accord would have no impact on agriculture as a whole, because South Africa produces over 80% of its food consumption. In addition, he argued, the “accord could be detrimental in chasing up prices in the textile industry”.
However, Dawie Maree, economist at Agri SA, said that the LPA might result in indirect benefits. “The local procurement of canned goods will stimulate production in the processed foods sector. The wool and cotton industries will also benefit from the local procurement of textiles, but shouldn’t influence prices unless demand far outweighs supply,” he said. – Lindi van Rooyen