BFAP baseline projections
The 2020 edition of the BFAP (Bureau for Food and Agricultural Policy), South African Baseline, presenting an outlook of agricultural production, consumption, prices and trade in South Africa for the period 2020 to 2029, was recently released.
According to BFAP, the fundamental factors that underpin meat consumption are income levels and the resultant changes in spending power, population growth, and urbanisation. With income growth stagnating in recent years, growth in meat consumption has also slowed substantially relative to the early 2000’s. The prolonged impact of the measures imposed to curb COVID-19 and the resultant increase in unemployment will likely result in markedly slower meat consumption growth in the coming decade.
As the effects of recent herd rebuilding start to show, additional supply is expected in 2020 and 2021. This results in a second consecutive year-on-year decline in prices in 2020, and an average annual price increase of just 4% over the coming decade – marginally less than general inflation. This real price decline lends some support to consumption growth, which equates to 12% by 2029 relative to the base period of 2017-2019. Despite the decline in real prices, the beef to maize price ratio continues to trend upwards over the outlook period, as maize prices decline more in real terms than beef. Consequently, over the course of the next 10 years, beef production is projected to increase by an annual average of 1.3%.
The industry moved successfully from a net importing to a net exporting position over the past decade, broadening its market beyond the limited domestic growth. Its competitiveness in the export market will benefit further from the persistently weak exchange rate, but the constant risk of disease outbreak and the implications that this can have for market access reduces the incentive to invest in large scale export driven expansion.
The impact of disease outbreak and resultant loss of market access was evident through the first quarter of 2019. If a system of identification and traceability can be introduced successfully in the national herd, as (again) proposed in the Agriculture and Agro-processing Masterplan (2020), export growth can be accelerated substantially, which would enable greater participation from developing producers in suppling additional weaner calves. To date, the bulk of export growth has been attributed to high value cuts destined for the Middle East and Asia.
While the strategy of exporting high value-cuts optimises the value of the carcass, enabling competitively priced domestic sales, it also limits the share of total production that can realistically be exported. Apart from the fact that only A2 and A3 carcasses are typically utilised for exports (more or less 80% of total slaughters), discussions with industry stakeholders suggest that primal cuts typically included under tariff lines associated with fresh and frozen bovine meat account for roughly 15 to 25% of a beef carcass. This can be expanded to 50 to 60 if trimmings are considered as well. While trimmings can yield viable export products, the value of such products is typically lower than that of primal cuts.
It would therefore be expected that South Africa would not likely export more than 30% of total production in any given year. Even a major exporter such as Brazil only exports 24% of total production and the USA only 11%. For South Africa to reach in excess of 20%, exports would likely need to diversify, with high value cuts still destined for the Middle East and Asia, and remaining parts of the carcass sold both in South Africa and exported into the rest of Africa, where the demand structure is similar to South Africa’s domestic market.
If a successful national identification and traceability system is implemented, combined with strict biosecurity measures to reduce the risk associated with animal disease, an accelerated growth scenario is predicted for the beef industry. The scenario also incorporates expanded market access for exports, enabled by the traceability system, and improved productivity for developing producers to supply 450 000 additional weaners by 2030, relative to the baseline. Under this scenario, by 2030 the gross value of beef production, in nominal terms, can be increased by approximately R12.3 billion. This represents an increase from R57.8 billion by 2030 under the baseline to R70 billion by 2030 as a result of the interventions. Cumulatively, the total gains over the baseline for the 10-year period equates to R54 billion. Under this scenario, South Africa would export 24% of beef production by 2030.
As the most expensive meat type, weak economic conditions are also negatively affecting the consumption of lamb and mutton. At the same time, the persistently weak exchange rate has resulted in higher prices over the first part of the year, further deterring consumers with limited spending power.
While higher prices would be expected to support expansion, the continued challenges associated with livestock theft and predation reduce the incentive to increase production. This persistent risk, combined with contracting demand, results in a largely sideways trend in sheep meat production over the coming decade and imports remaining a fairly stable, but small share of consumption.
Global meat production decreased by almost 2% in 2019 to 325 million tons. In 2020, the global impact of the Covid-19 pandemic and the associated measures to combat it led to a decline in demand for imports and prices in general. From January to June 2020, poultry prices fell by 16%, pork prices fell by 7.5%, beef prices fell by 5% and mutton prices fell by 1.3%. Global meat consumption is expected to increase by 12% over the next 10 years relative to the 2017-2019 base period. In many developed countries, consumption has reached a saturation point and in per capita terms, future gains may be related to quality rather than volume. In the short term, a decline in purchasing power due to the economic recession should limit growth in developing countries. The demand response is expected to lead to herd building in regions such as the Americas, where land is less of a limiting factor, combined with significant productivity gains. Developing countries should provide most with additional supplies.