The latest trends on producer price inflation (final manufacturing) showed a modest deceleration in headline PPI to 4.2% y/y in July 2024 relative to the June outcome of 4.6%. Monthly, headline PPI decreased further by 0.2% m/m in July 2024.Food manufacturing fell by 0.1% m/m and decelerated by 0.7ppts from the previous month to 3.3% y/y in July 2024. The annual “meat and meat products” subindex slowed to 4.1% y/y in July from 4% previously, and monthly decreased by 0.3% m/m. After lifting by 1.2% m/m in June, the monthly agriculture PPI reversed course and fell by 2.6% m/m in July 2024. Annually, agriculture PPI decelerated sharply from the prior three consecutive months of double-digit growth by 5ppts from June to 5.4% y/y in July 2024.The “live animals and animal products” PPI showed an even sharper monthly decrease of 4.8% m/m in July after falling by 0.4% m/m in June 2024. Annually, the “live animals and animal products” PPI posted a sharp deceleration of 6.5ppt to 6.1% y/y in July 2024. The “live animals” PPI fell by a whopping 6.1% m/m and further decelerated sharply by 8.5ppts from the previous month to 4.9% y/y in July 2024.On the energy front, the uninterrupted electricity supply with the country now over 150 days without loadshedding have contributed immensely to reduced costs for livestock operations such as poultry businesses, piggeries, abattoirs, and other intensive production systems. Further, fuel costs decreased in July 2024 with the two grades of diesel of 0.05% and 0.005% sulphur content cut by 30.38 and 24.38 cents/ litre respectively relative to the previous month. Similarly, the ULP and LRP grades of petrol decreased by R1.05/l and 99 cents/l respectively which reduced distribution costs. We saw further decreases in fuel costs in August, and the good news is that the wholesale prices of the 0.05% and 0.005% sulphur content diesel was cut by R1.05/l and R1.03/l respectively effective from the 4th of September 2024. This will go a long way in helping offset the impact of elevated raw feed input prices such as yellow maize which increased by 12% (+R441/t) y/y at an average of R4,068/t, while its white counterpart was up 48% y/y at R5,358/t in August 2024.This has forced processors and feed manufactures to look for alternative cheaper supplies such as imports from Argentina and Brazil for the coastal areas. Meat prices moderated in August on the back of subdued demand. Our analysis of trends on the domestic livestock market shows moderation in monthly prices across the meat complex underpinned by the seasonal downturn in demand in August 2024. In the beef market, average contract class A beef prices fell by 0.7% (-R0.39/kg) m/m but were still 6.1% (+R3.16/kg) higher y/y at R55.22/kg in August 2024. Class C beef eased by 0.4% (-R0.19/kg) m/m at R43.20/kg which is 7.9% (-R3.71/kg) below the same month last year (figure 2).The weaner market was also depressed on weak season demand. The average weaner calf price for August was R31.90/kg live weight (LW) which is down 0.8% m/m (-R0.24/kg/LW) and still below last year by 6.6% (-R2.27/kg LW) (figure 2).On the chicken side, the price trend was mixed with frozen whole birds posting monthly gains of 0.7% (+R0.23/kg) m/m and 1.1% (+R0.38/kg) y/y at R35.19/kg. The individually quick frozen (IQF) category also increased marginally by 0.7% (+R0.22/kg) m/m but still down by 8.6% (-R2.81/kg) y/y at R29.71/kg. A good build-up of the IQF stock during the month helped limit further upside for prices. The fresh whole bird category however extended losses and averaged R33.76/kg which is down by 0.5% (-R0.17/kg) m/m and 2.1% (-R0.74/kg) y/y. The pig market however surprised on the upside with monthly gains across the board. Average pork prices for August increased by 0.5% (+R0.16/kg) m/m and 1.4% (+R0.44/kg) y/y at R31.99/kg, while baconers jumped 1% (+R0.31/kg) m/m and 1% (+R0.30/kg) y/y at R31.46/kg. In the case of sheep, weaner lambs posted good gains of 2.3% (+R1/kg LW) m/m and 1.8% (+R0.81/kg LW) at R44.92/kg LW. Mutton prices edged 2.1% (+R1.33/kg) higher m/m but still 3.9% (-R2.57/kg) below last year at R63.35/kg. Contract class A lamb however eased marginally by 0.3% (-R0.28/kg) m/m at R87.20/kg, which is still 1.5% (-R1.34/kg) lower y/y. Unrelenting price pressure on raw feed inputs but upbeat about the longer-term outlook. Elevated raw feed input prices continue to pose upside risk to livestock profitability. Average YMAZ and WMAZ maize prices surged by 12% (+R441/t) and 48% (+R1,742/t) y/y respectively in August 2024 which is an indication that feeding margins remain tight. Nonetheless, the price outlook for the year ahead has turned positive for livestock feeders with the latest Jul-25 YMAZ falling to R3,702/ ton which is 9% (-R366/t) lower than the current average for August 2024. This indicates a potential decline in feed prices should YMAZ sustain this trend. The return of the La Nina weather pattern will encourage farmers to increase production thus replenishing domestic maize supplies in 2025. This is a further downside risk for maize prices. See the attached for further details.
South Africa beneath the surface
South Africa was and is not immune to the feeling of loss of competitveness with dire socioeconomic consequences. The country’s challenges have been long in the making, made worse by the long period of deindustrialization. To arrest further declines and reignite the economy, the government developed a Reimagined Industrial Strategy (RIS) in 2019. Aligned to this strategy, the government further developed masterplan guide and a toolkit to guide co-development of the sectors’ masterplans by the tripartite partners, composed of government, business and labour. So far, eight masterplans have been co-developed with 20 more in the pipeline. These master plans, like Operation Vulindlela, are to remove inhibitors to growth of the target sectors. One underlying theme among many of them is the promotion of local industry through insourcing, and commitment by business to procure locally. While countries such as the United States are also embarking on nearshoring and friendshoring, South Africa is intently focused on insourcing.
So far, the masterplans are proving successful, leading to creation of much needed jobs. For instance, the Retail-Clothing Textile Footwear Leather Master Plan led to creation of 26 000 jobs while the Sugar and Poultry Masterplans led to significant decreases in the volumes of imports, creating spaces for the domestic industries to grow or stabilize. As a regional hegemon, successes with insourcing imposes costs on the neighbouring countries in the South African Customs Union (SACU). These costs can the form of either high unemployment or high private debt. There is also a feedback loop to South Africa through immigration.
South African Customs Union
The South African Customs Union (SACU) is a centenarian, established in 1910 and composed of Republic of Botswana, the Kingdom of Lesotho, the Republic of Namibia, the Republic of South Africa and the Kingdom of Swaziland (now Eswatini). The combined Gross Domestic Products (GDP) of SACU was estimated at R7.3 trillion in 2022 with a population of 69.7 million. Intra-SACU trade amounted to R472 million over the same period or 6% of the combined GDP. In all dimensions, South Africa is dominant and a hegemon. Further, South Africa is the only country in the Union that consistently maintains trade surplus with the rest of the member countries. Eswatini maintains a somewhat balanced trade while the other three maintains trade deficits with South Africa. It is these other three trade deficit countries imposing import bans on South Africa’s produce. Ala, the US, busy trade-blocking China, also maintains a persistent trade deficit with Chinathe country. In his opening remarks to the official talks with President Xi Jinping on the occasion of South Africa state visit to the People Republic of China to attend the 2024Forum on China-Africa Cooperation (FOCAC), President Ramaphosa stated “…as South Africa, we would like to narrow the trade deficit and address the structure of our trade.” Therefore, South Africa,along with the US,Namibia,Lesotho, Botswana and others are concerned about persisting trade imbalances.
Under free market conditions as articulated in the SACU agreements, success of the masterplans should lead to worsening trade imbalances within the Union in favour of South Africa.
One of the objectives of the SACU Agreement of 1969 is to encourage the economic development of the less advanced members of the Customs Union, diversification of their economies and ultimately, economic convergence. Worsening trade imbalances impose either economic costs (rising unemployment) or financial costs (higher private debts) on the trade deficit countries. Being poorer than South Africa, unemployment will be the price to be paid by the trade deficit countries within the Union.
It is in this context that bans on imports of agricultural produce from South Africa by Botswana, Lesotho and Namibia should be understood. Unfortunately, however, regional trade is disintegrating at a time when the African Continental Free Trade Area (AfCFTA) held so much promise for the economic development and convergence on the continent.
In closing, the current global trade tensions have not led to deglobalization, but rather re-globalization characterized, in part, by nearshoring and friendshoring. But can trade tensions within SACU be defined in similar terms or amounts to de-regionalization?
South Africa beneath the surface
South Africa was and is not immune to the feeling of loss of competitveness with dire socioeconomic consequences. The country’s challenges have been long in the making, made worse by the long period of deindustrialization. To arrest further declines and reignite the economy, the government developed a Reimagined Industrial Strategy (RIS) in 2019. Aligned to this strategy, the government further developed masterplan guide and a toolkit to guide co-development of the sectors’ masterplans by the tripartite partners, composed of government, business and labour. So far, eight masterplans have been co-developed with 20 more in the pipeline. These master plans, like Operation Vulindlela, are to remove inhibitors to growth of the target sectors. One underlying theme among many of them is the promotion of local industry through insourcing, and commitment by business to procure locally. While countries such as the United States are also embarking on nearshoring and friendshoring, South Africa is intently focused on insourcing.
So far,the masterplans are proving successful, leading to creation of much needed jobs. For instance, the Retail-Clothing Textile Footwear Leather Master Plan led to creation of 26 000 jobs while the Sugar and Poultry Masterplans led to significant decreases in the volumes of imports, creating spaces for the domestic industries to grow or stabilize. As a regional hegemon, successes with insourcing imposes costs on the neighbouring countries in the South African Customs Union (SACU). These costs can the form of either high unemployment or high private debt. There is also a feedback loop to South Africa through immigration.
South African Customs Union
The South African Customs Union (SACU) is a centenarian, established in 1910 and composed of Republic of Botswana, the Kingdom of Lesotho, the Republic of Namibia, the Republic of South Africa and the Kingdom of Swaziland (now Eswatini). The combined Gross Domestic Products (GDP) of SACU was estimated at R7.3 trillion in 2022 with a population of 69.7 million. Intra-SACU trade amounted to R472 million over the same period or 6% of the combined GDP. In all dimensions, South Africa is dominant and a hegemon.Further, South Africa is the only country in the Union that consistently maintains trade surplus with the rest of the member countries. Eswatini maintains a somewhat balanced trade while the other three maintains trade deficits with South Africa. It is these other three trade deficit countries imposing import bans on South Africa’s produce. Ala, the US, busy trade-blocking China, also maintains a persistent trade deficit with Chinathe country. In his opening remarks to the official talks with President Xi Jinping on the occasion of South Africa state visit to the People Republic of China to attend the 2024Forum on China-Africa Cooperation (FOCAC), President Ramaphosa stated “…as South Africa, we would like to narrow the trade deficit and address the structure of our trade.” Therefore, South Africa,along with the US,Namibia,Lesotho, Botswana and others are concerned about persisting trade imbalances.
Under free market conditions as articulated in the SACU agreements, success of the masterplans should lead to worsening trade imbalances within the Union in favour of South Africa.
One of the objectives of the SACU Agreement of 1969 is to encourage the economic development of the less advanced members of the Customs Union, diversification of their economies and ultimately,economic convergence. Worsening trade imbalances impose either economic costs (rising unemployment) or financial costs (higher private debts) on the trade deficit countries. Being poorer than South Africa, unemployment will be the price to be paid by the trade deficit countries within the Union.
It is in this context that bans on imports of agricultural produce from South Africa by Botswana, Lesotho and Namibia should be understood. Unfortunately, however, regional trade is disintegrating at a time when the African Continental Free Trade Area (AfCFTA) held so much promise for the economic development and convergence on the continent.
In closing, the current global trade tensions have not led to deglobalization, but rather re-globalization characterized, in part, by nearshoring and friendshoring. But can trade tensions within SACU be defined in similar terms or amounts to de-regionalization?
