SA faces stiff maize export competition
The maize industry has made a remarkable rebound and is expecting a bumper crop this season. However, new developments have compelled me to revise parts of my recent maize export market analysis, particularly regarding maize export opportunities in Africa.
The dynamics in African agricultural markets have changed dramatically. While South African maize farmers are struggling to break even due to lower prices, white maize prices in East Africa are well above R7,200 a tonne, treble JSE prices. This uptick in East African maize prices is largely due to lower supplies in the region.
The South African maize market is depressed due to an expected 14.5-million tonne harvest, well above an average production of 12.5-million tonnes. SA has consequently regained its status as a net exporter of maize after being a net importer for two consecutive marketing seasons — 2015-16 and 2016-17. The 2017-18 exports are set to reach 2.7-million tonnes. About 52% of this is set to be white maize and 48% yellow maize. This will be the largest maize export volume in two decades.
The last time SA exported a larger volume of maize was in the 1994-95 season (4.7-million tonnes). The second-biggest volume since then was in the 1996-97 season (2.6-million tonnes), followed by 2.2-million tonnes in the 2005-06 season.
My initial expectation was that a part of these exports would be absorbed by the East African market and SA would benefit from the prevailing higher prices in those markets. However, this is unlikely to happen mainly due to competition from other African maize-producing countries that produced above market expectations and genetically modified (GM) seed restrictions. About 85% of SA’s maize production is grown with GM seeds, which could prevent SA from penetrating many African markets.
Despite fears that fall armyworm would decimate maize crops in Zambia and Malawi earlier this season, the pest caused minimal damage and bumper harvests are expected in both countries.
As a result, even within markets that permit GM maize imports, SA will face stiff competition from the likes of Zambia and Malawi.
Maize production in Zambia and Malawi could reach 3.6-million tonnes and 3.2-million tonnes in 2017, respectively, increases of 29% and 36%, respectively from 2016. Zambia and Malawi are expected to pose strong competition, not only from upticks in production, but also from the lifting of maize export bans earlier in May.
Another major importer of white maize, Zimbabwe, is set to harvest a bumper maize crop of 1.8-million tonnes, treble 2017’s 512,000 tonnes. According to data from the US department of agriculture, Zimbabwe’s annual maize consumption is about 2.2-million tonnes, which means there will be a need for imports later in the season of about 400,000 tonnes. This will be a notable improvement after 2016’s higher maize imports of 1.4-million tonnes.
These developments resonate with concern I have raised over the need for SA’s maize industry to penetrate new maize export markets, particularly outside Africa. My MSc thesis addressed the same concern. Japan, Mexico, Taiwan, the United Arab Emirates, Thailand and Zimbabwe were identified as key and attractive markets that SA should prioritise to increase its export share in the short to medium term.
Mexico will probably fall out of the equation in 2017 due to large domestic supplies, with recently imported maize volumes from South America to bolster the country’s maize reserves.
Markets such as Japan, Taiwan, the United Arab Emirates and Thailand typically import yellow maize for animal feed industries and are likely to show a similar trend in 2017. This poses a further challenge for SA, where 60% of maize produced is white.
Indonesia, Malaysia, Saudi Arabia, Mauritius, Iran, the Democratic Republic of Congo and Yemen were also identified as attractive markets for South African maize exports. They also have more appetite for yellow maize imports.
This is likely to be a challenging year for SA’s white maize producers due to lower global demand. Yellow maize could see a better uptake in the global markets.
A possible short-term option is for SA to increase white maize consumption within the domestic animal feed market and export yellow maize. If that is done, white maize prices will remain depressed in the short to medium term and that will weigh on farmers’ financials. In the longer term, a possible shift towards more yellow maize production could prove to be a viable option.
MARKETS SUCH AS JAPAN, TAIWAN, THE UNITED ARAB EMIRATES AND THAILAND TYPICALLY IMPORT YELLOW MAIZE FOR ANIMAL FEED INDUSTRIES