Logistics: the weak link in SA’s raisin industry

Ideal climatic conditions and access to irrigation have helped to propel South Africa’s raisin industry to ever-greater heights. But deficient logistics infrastructure and a lack of processing capacity are hampering further expansion, says Pieter Botha, Nedbank Business Banking’s area client manager for the Northern Cape.

Logistics: the weak link in SA’s raisin industry
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Raisin production contributes R2 billion annually and about 30 000 jobs to South Africa’s economy, making it a relatively small industry in the country. Nonetheless, it is a growing one.

South Africa is the world’s fifth-largest producer after Turkey and currently produces 6% of the world’s raisins, but production has almost doubled since the 2006/07 season, with particularly strong growth over the past five years. Are raisins another success story for South African agriculture?

There are approximately 1 100 raisin producers and seven major raisin processors
and packers in the country. Production is concentrated along the Orange River in the Northern Cape, accounting for at least 90% of South Africa’s total annual raisin output, with the Olifants River region in the Western Cape making up the remaining 10%.

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Raisin production is prolific in the Northern Cape because of the province’s year-round availability of irrigation water from the Orange River and its relatively stable hot and dry climate, making it ideal for growing and sun-drying grapes. Sun-drying is the most common method used in South Africa, as it is quicker and more cost-effective.

Logistics upgrade needed

Raisins South Africa’s (Raisins SA) revised forecast for the 2021/22 season is 65 000t of marketable product, but annual yields are expected to increase to 100 000t by 2025 due to new plantings and the replacement of vineyards that were started in 2014.

At about the same time (eight years ago), the Northern Cape provincial government, in partnership with Raisins SA, launched a 200ha development in Eksteenskuil in the Orange River region to support the growth of small-sector farmers.

As a result, these producers’ volumes have grown from 800t to more than 2 000t per annum, and growers’ annual earnings have increased from R15 million to R45 million since the 2013/14 growing season.

However, the major raisin processors and packers currently have an annual capacity of 90 000t to 100 000t, so expansion of existing facilities or the development of new ones is urgently required. This is particularly so given the growth in raisin production and the fact that some processors are already approaching full capacity.

In addition, there is increasing concern about the substantial impact that South Africa’s failing logistics infrastructure could have on all exports. In the World Bank and IHS Markit’s report titled ‘A comparable assessment of container port performance’, South Africa’s ports of Cape Town, Gqeberha, Durban and Coega were at the bottom of 351 ports in various countries.

Our ports operate at around 30% of international norms, which means they are processing a third of what they could in a day in terms of loading and offloading containers.

Export markets growing, despite supply chain woes

Almost 90% of South Africa’s raisins are exported, with the major markets being Europe, the US, Canada, the UK and Africa. Germany is the largest export market for South African raisins because of that country’s strict standards on maximum residue limits, and South Africa’s sun-dried raisins contain less residue.

The trend towards healthier snacking has seen exports to the UK increase 25% over the past two seasons, and while exports to the US and Canada are slightly down, South African raisin exports enjoy duty-free access to the US under the African Growth and Opportunity Act, which make them competitively priced.

Another plus for South African producers is that they are becoming accredited by SA-GAP, an offshoot of the GlobalGAP certification, which requires high product quality, traceability, chemical controls and consistency of supply, and puts the country in good standing in international markets.

South African producer prices for raisins are sensitive to supply and demand factors, and the foreign exchange rate. Production is contracted mainly to processors, and both parties agree on price and supply contracts in advance of each season.

With this arrangement in place, stock is considered sold at the end of each season, which means there is minimal or no closing stock by the end of each marketing year. This is a good position for the producers to be in.

However, when global trade is affected, as it has been in recent years, the country may carry stock over into the next marketing year, which was the case last year. The COVID-19 pandemic presented several challenges to global trade, including a shortage of labour and shipping delays. Unfortunately, these issues look set to continue with the ongoing Russia-Ukraine conflict.

Effect of war on local raisin industry
Russia imports approximately 20 000t of raisins, or 1,6% of total global raisin production, annually, so the direct trade threat is expected to be limited, particularly as Russia represents less than 0,2% of South Africa’s total raisin exports. However, the indirect impact is likely to be more substantial through the rising costs of inputs such as fuel and fertiliser.

Market uncertainty may also see the strengthening of the US dollar, which would provide a benefit over the short term, as raisins are traded in the same currency. However, this would be offset against higher inflationary pressure over the medium term, as many inputs are imported.

Weighing up the naturally favourable environment that South Africa offers this crop, and the fact that rising input costs and global supply chain disruptions are likely to be temporary, we believe that the local raisin industry has the potential to grow considerably and could expand from its current position of largest raisin producer in the Southern Hemisphere to one of the top three in the world.

However, it is vital to address areas that need improvement and engage with key logistics and infrastructure role players and government to find solutions.

The views expressed in our weekly opinion piece do not necessarily reflect those of Farmer’s Weekly.

This is an edited excerpt from an article originally published on Nedbank’s website