The plot thickens for the global agriculture and food sectors as the Black Sea continues to be treacherous territory because of the ongoing Russian-Ukrainian conflict. Much has been said about the potential havoc that such a war could and will have on global agricultural and food markets. Some of these disastrous ramifications are already a reality. For example, the international prices for Urea and mono-ammonium phosphate (MAP) fertilizers and crude oil have skyrocketed since the invasion as illustrated by the March 2022 prices and this is only the beginning.
It is worth reiterating here that both Russia and Ukraine are internationally significant suppliers agricultural production inputs such as fertilizers, agrochemicals and fuel. Russia, due to its natural resources endowment such as natural gas and crude oil is one the largest producers of fertilizers in the world and Africa, especially North Africa, is heavily reliant on Russia for the supply of agricultural inputs. Although South Africa has a well-developed agriculture and agribusiness (agri-food) sectors, it still is a net-importer of agricultural inputs which predisposes the country to the vagaries of international commodity markets which are, in turn, heavily influenced by the efficiency and unfretted functioning of international trade and its determinants.
The Russian Federation (hereafter simply referred to as Russia) is a global heavy weight player in production and trade of agricultural inputs such as fertilizers, agro-chemicals (pesticides, herbicides, etc.), crude oil (diesel) and natural gas. For example, Russia is the number one exporter of nitrogen (N) fertilizer accounting for approximately 18 percent of the global exports of N fertilizers in 2021. Russia is also the third largest global exporter of phosphorus (P) fertilizers accounting for about 15 percent of global exports in 2021 and number two in the world in the export of potassium (K) fertilizers –second only to Canada- accounting for approximately 25 percent of global exports in the same period. This underscores the importance of Russia as a source of indispensable agricultural inputs imports by countries such as South Africa. South Africa depends on Russia for 11 percent of its fertilizer inputs and fertilizers accounts for a substantial portion of production costs in agriculture, be it crops or livestock production. Livestock farmers still practice significant crop production in the form of forage, grazing and silage production for supplementary feed production for their livestock. The ongoing conflict in the Black Sea is thus a significant threat to the South African agricultural sector and food prices, thus accessibility, going forward. Farmers and other agribusinesses will invariably pay exorbitant prices for their production inputs putting them under a precarious cost-price squeeze situation which will weaken their financial viability, particularly for small-to-medium and new farmers who already have a weak balance sheet thus questionable business viability and sustainability. The high cost of production incurred by the producers will invariably be passed on consumers and this will manifest in high food prices, a situation South Africa can ill afford given the effects of the Covid-19 pandemic, rampant unemployment and general economic decline and tenuous food security situation. Hence, this unfortunate turn of events presents both challenges and opportunities for the South African agriculture sector.
The deleterious effects of the Russia-Ukraine conflict will be exacerbated by the embark on trade and sanction imposed on Russia and Belarus by major nations such as the USA, UK and NATO which will restrict the supply of major agricultural inputs and commodities in the international markets thus pushing up their prices due to increased demand in the face of restricted supply. Hence, it becomes important for countries like South Africa to lead in the production of agricultural inputs on the African continent thus capitalizing on the Africa Continental Free Trade Area as engendered by the Africa Continental Free Trade Agreement (AfCFTA) which will provide an unfettered Africa-wide market. South Africa has the wherewithal to step-up the domestic production of agricultural inputs and essential agricultural commodities such as wheat, albeit with limited comparative advantage when it comes to the latter. However, with sufficient and long-term investment in research and development, South Africa can develop suitable drought-tolerant wheat cultivars to reduce the country’s reliance on international markets for its wheat requirements, especially given that wheat has become a staple crop through the majority of South African’s dependence of bread for its sustenance.
Perhaps, now is the time for South Africa, explore and develop new additional export markets for its diversified agricultural produce portfolio and the African Free Trade Agreement presents a perfect opportunity to do just that. This is particularly important given that both Russia and Ukraine are important markets for South African agricultural products. To illustrate this point, South Africa’s agricultural exports to the Russian Federation and Ukraine were approximately R4.1 billion in 2020. Horticulture is an important sector in this regard. For example, horticultural products such as citrus, deciduous fruits, fresh grapes and wine contributed a staggering R3.4 billion to value of exports to both countries in 2020. The Russia-Ukraine conflict will also increase the costs of import and export logistics as it is already causing congestions at several ports making it difficult to transport goods by sea thus increasing transportation costs and time to the market.
Bold initiatives at the policy level are required to turn the situation around and there are indications that that the appetite for such exists in certain pockets of the country. For example, the province of KwaZulu-Natal will be investing R800 million into a tractor manufacturing plant and the establishment of several agri-hubs (in partnership with the private sector) in province as pronounced by the Premier Sihle Zikalala in his State of the Province Address. These are encouraging endeavours at changing the status quo and striving towards less reliance on external sources for the needed agricultural inputs while creating jobs and supporting economic development. The importance of completing and adopting the eagerly awaited Agricultural and Agroprocessing Master Plan (AAMP) cannot be over-emphasized as this will go a long way in providing the policy leadership and clarity necessary for this fledgling sector to burgeon. Perhaps, it is now time to have a White Paper on Agriculture and Agro-processing?
Dr Thulasizwe Mkhabela is an experienced agricultural economist and is currently Senior Partner at Agriculture House (thulam@agrihouse.co.za) and Managing Director at Outcome Mapping (thulasizwe.mkhabela@gmail.com).
