LOW-HANGING FRUIT

South Africa’s export farmers could take advantage of new demand from China on the back of increased household savings in that country. But they’ll need to be quick off the mark

Any economist worth their salt has a favourite chart. The gurus who delve into the phenomena behind some deceptively simple line appreciate just how much it means.

For some macroeconomists, the line depicting household savings over time is that beloved image. It certainly struck a chord with the Centre for African Management & Markets (CAMM) team when we spotted it in the latest AgriTrends report from Absa. We’ve all used this figure in various ways, usually applying the mathematics conjured by our teammate Adrian Saville years ago.

In short, household savings are always and everywhere a key driver of long-term prosperity: savings fund investment. Governments and corporations aren’t designed to be savers — they can access savings from overseas, or print money. But it is healthy household savings that sustainably fund the projects that best grow the economy.

“Across markets, every 1% increase in the saving rate adds about a quarter of a percent to economic growth,” explains Saville. “Yet South Africa’s household saving rate averages zero. Compare that with the global average of 10%.”

There is one obvious short-term solution to this problem: leverage someone else’s diligent saving practices — like China’s.

Absa’s chart shows an important finding: lockdown seems to have sparked a surge in household saving in China. “Excess savings in China have amounted to $2.5-trillion during Covid,” say the report authors.

Absa also demonstrates how household saving levels are linked with more spending on food.

Taken together, these findings offer a potent guideline for South Africa’s exporting farmers. And they pose an important question: what is the low-hanging fruit (and meat) for agricultural exporters?

Getting to grips with the data

CAMM research fellow and trade expert Francois Fouche has spent the past week puzzling over the Absa report. He gets very animated about the topic. His pithy one-liner? “Trade is the quickest way out of the ghetto.”

There is no hiding Fouche’s optimism about the prospects for gains from trade with China. “For 20 years China has done things for its economy that make me feel sheepish as a South African. Frankly, they have left us in their dust,” he says.

“As this study shows, China has taken record quick time to become the world’s largest agricultural importer. Our minor contribution to this story is that we export considerable quantities of things like red meat, table grapes, nuts, beef and citrus to them. But don’t get despondent. We can win at this game too.”

Fouche believes the data offers two critical lessons if South Africa is to build on its R8bn-a-year agricultural exports to China.

The first concerns immediacy. In a sector with “infuriating lags”, he says, “it is not uncommon for a trade bureaucracy to take years for a decision that should have taken 47 seconds.”

On this, he cites the Absa report, which refers to recent negotiations over the protocol for exporting lemons into China. The report shows that it can take up to 15 years to gain access to a new market.

As Fouche explains it, South Africa has to analyse the data — and fast — and then act.

This, however, all needs to be understood in the context of serious volatility.

“The pork industry benefited from some smart management of the Chinese pig herd over the past five years, after millions were culled due to disease. That’s good for pork farmers. The effects on corn and soy, which pigs eat, are a story on their own,” he explains. “However, as the report says: ‘Pork prices in China have been noted to have bitcoin-like volatility over the past four years.’”

So this is a long-term game, “not designed for wimps”.

“Picking the tasks and products to focus on is half the battle, but it’s a long, hard battle regardless.”

Fouche moves to the minutiae. “There are renminbi lying on the ground for those who pick apart the data to find the ‘easy’ wins. The decision on what to grow and who to spend time selling it to is worth billions of dollars. This report gives an excellent example to explain this with,” he says.

He’s referring to the severe lockdown in China, which put festivities there on hold, stifling demand for agricultural products such as nuts, “which are favourites during festive seasons”.

As travel and entertainment reopen, it’s clear there’s similar pent-up demand for meat and citrus.

“The farmers who will win are those who get to grips with this data, consider it in light of long-term trends, and make bold but considered choices earlier than competitors.”

The Centre for African Management & Markets at the Gordon Institute of Business Science conducts academic and practitioner research and provides strategic insight on African markets. Macleod is a founding member