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Meeting the Needs of South Africa’s Ag-Chem Market
 

Meeting the Needs of South Africa’s Ag-Chem Market

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Dr John Purchase presented at the AgChem Asia Summit on Meeting South Africa's Ag-Chem Market. ...

Dr John Purchase presented at the AgChem Asia Summit on Meeting South Africa's Ag-Chem Market.
This presentation addresses:
Overview of South Africa’s agriculture landscape
Overview of its pesticide demand
Identifying opportunities for trade and future business development
Market analysis: Understanding what works and what doesn’t

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    Meeting the Needs of South Africa’s Ag-Chem Market Meeting the Needs of South Africa’s Ag-Chem Market Presentation Transcript

    • Meeting the Needs ofSouth Africa’s Ag-Chem Market AgChem Asia Summit 2011 20-21 October 2011 Dr John Purchase
    • Outline of Presentation• Overview of South Africa’s agriculture landscape• Overview of its pesticide demand• Identifying opportunities for trade and future business development• Market analysis: Understanding what works and what doesn’t• Concluding remarks
    • Overview of South Africa’s agriculture landscape
    • Overview of SA’s agriculture landscape • Well developed commercial sector and subsistence oriented sector – dual economy • Only ~12% of land area arable, of which 22% high potential • ~1.3 million hectares under irrigation • Water major limiting factor – SA mostly semi-arid • Deregulation & market economy • Number of competitive advantages - ‘World-class’ infrastructure - Counter-seasonality to Europe/Asia - Biodiversity - Trade agreements - Competitive input costs - Access to latest technology & innovation
    • Role of Agriculture in SA Economy• Strategic sector – provides food, fiber, wine & beer, satisfying two basic needs of man (+ others!)• Has provided national food security since the start of the 20th century (Pop: ~4,0 million), right through to the 21st century (Pop: ~50,0 million, ~60% in urban areas)
    • Status and Trends South Africa
    • Contribution of Primary Agriculture to GDP (Source: Statssa)54%32 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Graph: ABC
    • SA economic growth: Tradable goodssectors lag the non-tradable goods sectors GDP % per Sector of Economy 300 250 GDP 200 Agric Mining INDEX 150 Manufacturing Construction 100 Trade Transport 50 Finance 0 20002001200220032004200520062007200820092010 Source: StatsSA Graph: ABC
    • InflationSource: AMT, 2011
    • Exchange rateSource: AMT, 2010
    • SAARF LSM Segments: Proportion of SA adult population and average monthly household income in 2009 Source: SAARF (2010a) & BFAP, 2010
    • LSM class mobility: All adults during the period 2004 to 2010 Source: SAARF AMPS data for the period 2004 to 2010, as quoted by BFAP
    • SA Resource Situation• Land issue: sensitive now, Green Paper released.• Energy crisis and energy security situation - Electricity price hikes (31% + 25% pa over 3 years)• Scarce high potential agricultural land to mining, esp. Mpumalanga, and urban development.• Water management and water quality crisis• Climate Change effects create uncertainty• Soil degradation/erosion• Biosecurity threats (FMD, Avian Flu, etc.)• Question: Resources for sustainable expansion?!• Greater competition for resources – price effect?
    • Performance of Sector Gross Value of Production in Rand million 70000 Field Crops Horticulture Animal Production 60000 50000Rmillion 40000 30000 20000 10000 0 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 Source: DAFF, 2010. 1 Chinese Yuan = 1.2 South African Rand
    • Field crops• Maize – major importance, net exports, GM• Wheat – also staple food, net imports• Sugar – net exports, move into Africa• Soya – growing importance, cake imports, GM• Sunflower – growing importance, S/D balance• Groundnuts – net exports, but declining• Dry beans – net imports, also from China
    • Horticulture• Totally deregulated market• Viticulture & Wine – major export industry• Citrus – 2nd biggest global exports, growing• Deciduous fruit – major net exports• Table grapes – major net exports• Sub-tropical fruit – net exports• Vegetables – S/D balance, some imports/exports
    • Animal Production• Value of production in 2009: - Broilers R22.5 billion - Beef R13.3 billion - Fresh milk R9.1 billion - Eggs R6.6 billion - Mutton R3.1 billion - Pork R3.1 billion - Wool R1.1 billion
    • SA Agribusiness• Strong input sector: Seed, fertilizer, crop protection and veterinary chemicals, animal feed, packaging, agricultural machinery, fuel, etc.• Financial sector: Major banks, DFI’s, insurance companies, auditors, agribusinesses, etc.,• Storage, trade and agro-logistics• Agro-processing and packaging• Retail Sector
    • Agricultural tradeAgricultural trade trends Total 25 20 Primary 15 35 R billion 10 30 25 Processed 5 20 15 - R billion 2004 2005 2006 10 2007 2008 Year 5 Primary exports Primary imports Primary trade balance - 2004 2005 2006 2007 2008 -5 -10 Year Source: DAFF/NAMC, 2009. Processed exports Processed imports Processed trade balance 1 Chinese Yuan = 1.2 South African Rand 19
    • South African Agricultural Trade(Source WTA & GTA, USDA-FAS) (US$ billions) 2007 2008 2009Agricultural exports $4.0 $5.2 $5.2% of total SA exports 5.7% 6.5% 8.3%Agricultural imports $4.2 $4.7 $4.2 % of total SA imports 5.3% 5.2% 6.4%
    • Major agricultural products exported: (US$ millions) 2007 2008 2009Wine $673.6 $753.9 $727.5Citrus $613.1 $711.4 $667.1Corn $32.1 $510.3 $444.6Table grapes $364.5 $387.6 $379.7Apples $329.5 $367.3 $364.7Sugar $276.1 $217.9 $386.7
    • Major export destinations (2009) China United States Germany Mozambique Kenya Zimbabwe Netherlands United Kingdom 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
    • Major agricultural products imported: (US$ millions) 2007 2008 2009Rice $302.1 $463.9 $458.8Wheat $261.6 $444.6 $282.0Soybean cake $209.8 $311.9 $297.1Palm oil $195.7 $299.3 $232.1Soybean oil $212.0 $288.5 $106.9Whisky $212.5 $202.9 $201.6
    • Major countries imported from (2009) United States Indonesia Netherlands China Malaysia Germany Thailand Brazil Argentina 0% 2% 4% 6% 8% 10% 12% 14% 16%
    • Challenges• Government: - Food security, both household and national: Access to safe, nutritious and affordable food for all - New Growth Path: Job creation, Shared Growth & Opportunities - Empowerment of PDI’s, e.g. AgriBEE, EE, etc. - Land Reform & Rural Development - Industrial Policy Action Plan II: Agro-processing - Competitive environment (Competition Act) - Sustainable resource management, e.g. CC - African development, etc.
    • Challenges• Private Sector: - Profitability and competitiveness - Transparent and reliable markets (Integrity!) - Engage Govt ito enabling policy environment: Create confidence for long term investment - Need for inclusive Strategic Framework/Plan - Sustainable transformation - Institutional and value chain support (R&D, SPS matters, resource base management, trade facilitation, training & skills development, agro-logistics, Act 36 of 1947, etc.) - African opportunities
    • Overall Prospects• Much greater food security awareness, both globally and locally – very positive. Priority for G20, Paris.• Awareness by government to work closer with Private Sector• Greater awareness by all of the need to support both commer- cial and developing agriculture. Better implementation NB!• Substantial markets: locally, regionally, globally, and especially to the East. Need market development, though!• General commodity and agribusiness infrastructure is good basis – build on this & other institutional capacity.• New technology/expertise through especially multinationals.• New global investors looking to Africa for food production - major development.
    • Conclusion• Healthy and robust agro-food industry• Technologically advanced, globally competitive• Challenges: ‘Nationalisation talk’, Agro-logistics, climate change, water availability and quality, environmental sustainability, food safety regulations, R&D, etc.• Opportunities: Growing population, consumer spending trends, new markets (esp. to East), etc.• Major contributor to Food Security, growth and employment in RSA.
    • Conclusion• We live in uncertain times – many risks and variables, some controllable, others not or less so.• Must fully understand both macro- and micro- environment, and the risks and opportunities posed.• Develop strategic plan and develop business plan accordingly.• Must clearly articulate and live the value proposition you bring to the value chain.• BUT, maintain flexibility and adaptability.
    • Overview of its crop protection chemicals demand
    • South African sales for crop protection products: (At grower level, in millions) Year 2000 2001 2002 2003 2004 2009 est*SALES (Rand) R 1 712 R 2 092 R 1 850 R 1 500 R 2 100 R 3 104 (x1 000 000)EX RATE (R/$) 6.92 8.58 10.54 7.55 6.50 7.34 US$ $ 247.4 $ 243.8 $ 175.5 $ 198.7 $ 323.1 $ 422.9(x1 000 000)VOLUME (kg) 50.0 46.6 42.0 35.0 49 53.7(x1 000 000) R PRICE/kg R 34.24 R 44.89 R 44.05 R 42.86 R 42.86 R 57.80 $ PRICE/kg $ 4.95 $ 5.23 $ 4.18 $ 5.68 $6.59 $ 7.88 Source: AVCASA, 2011 • *Industry Estimate, as no official figures available since 2004. ~95% accurate. • AVCASA no longer collects data as it could be in breach of Competition Act 1 Chinese Yuan = 1.2 South African Rand
    • Identifying opportunities for trade and future business development
    • Market and market features• Highly competitive market – requires innovation and new product lines continuously.• Crop protection market comprises 4 major segments: - Insecticides - Herbicides - Fungicides - Other chemicals (Adjuvants, PGR’s, etc.)• South Africa is ± 1.5% of the world market• Rest of Africa is ± 1.5% of the world market• Total Africa is ± 3.0% of the world market• SA has growing market (~2% consumption growth in real terms)
    • Market and market features (Cont.) • Use changing with huge adoption of GM-crops, e.g. glyphosate versus atrazine use • Revenue growth very uncertain, depending on exchange rate movements, move to generics, etc. • Generic products from the Far East (mostly PRC) already have major market share in South Africa. • Current market share of generic products is around 75% and growing as increasingly major products come off patent.
    • Regulatory features• Agricultural chemicals are controlled by the Fertilizers, Farm Feeds, Agricultural Remedies and Stock Remedies Act, No. 36 of 1947.• GM-crops controlled by the Genetically Modified Organisms Act, No 15 of 1997.• Current registration process problematic due to capacity problems (toxicologists) at the Department of Health.• Database of Agricultural Remedies on: www.croplife.co.za
    • Registration requirements• The registration holder must be a South African registered company• Requirements are of a high standard and in line with EU and USA requirements• The formulated product is registered, not the active only.• Efficacy, phytotoxicity and residue data must be generated in field and laboratory trials• For generic products 3 successful trials for an identical registration are required• Registration process takes between 6 to 18 months• All products must be re-registered every year• The South African importer/agent is responsible for all the above functions.
    • Registration requirements (Cont.) Chemical equivalence of the technical to be provided by the manufacturer: • Must be proven by an accredited GLP laboratory (University of Beijing?). • All impurities must be identified and quantified. • Full analysis of 5 commercial batches required.
    • General features• South Africa is a good market to do business in because: - It is a reverse season sales opportunity - It has a well developed and stable agricultural sector = predictable use and sales - Legislative and financial infrastructures are very secure = transparent procedures and guaranteed payments - It is the gateway to Sub-Sahara Africa = growth opportunity
    • Major role players in SA CropProtection Chemicals Market • Syngenta • Arysta LifeSciences • Villa Crop Protection • Bayer Crop Science Ag • Monsanto • BASF • Du Pont • Others (~7 more) • Distributors also play a major role in the supply chain and are organized in ACDASA – See www.acdasa.co.za
    • How do foreign manufacturers sell to the SA market? OVERSEAS MANUFACTURER / EXPORTER SOUTH AFRICAN FORMULATORS IMPORTER / AGENT DISTRIBUTORS / DEALERS SALES AGENTS CO-OPERATIVES/ AGRIBUSINESS END USERS / FARMERS
    • Determining factor in entering market• Commercial farmers require the most effective crop protection solution at the most affordable cost, i.e. productivity consideration is of paramount importance.• Suppliers therefore have to ensure that a range of good quality products are provided for a range of crops by reputable distributors to ensure maximum customer satisfaction.
    • Market analysis: Understanding what works and what doesn’t
    • How can manufacturers/exporters fromthe PRC enter the South African market • Not necessary to have own local office in South Africa. • Appoint a reputable South African importing company as your agent. • Provide samples for formulation and local registration tests and field trials. • Provide chemical equivalence of the technical and 5- batch analysis by a recognized GLP laboratory. • Agent then obtains registration. • Chinese manufacturer / exporter then sells technical material or formulated product (in US$) to agent. • Agent then sells to distributors / dealers.
    • Important points• Many PRC origin products already registered and sold in South Africa – limited opportunities however available.• Product must be out of patent in South Africa before generic product can be sold.• After registration the technical or finished product must always come from the same factory.• Quality of the technical or finished product must always be the same as that of the original sample.• Chemical equivalence data, quality and competitive prices are the most important factors determining the market share of products from the PRC.• Severe price competition exists now because of an over supply of Chinese products .• To obtain a significant market share, it is better to work with one local agent only.
    • What doesn’t work• CropLife very active in Africa with Africa Stockpiles Programme (FAO Bilateral Programme) and CropLife Clean Farms Project – major challenge!• Unfortunately significant volumes of counterfeit or fake product emerging from Far East – please don’t bring to Africa – see www.agropages.com .• Counterfeit and fake product having a dreadful effect on man and the environment, whilst the social implications are enormous.• Food safety at serious risk.
    • Concluding remarks• Growth opportunities especially in Africa.• South Africa an excellent gateway to especially Sub-Sahara Africa.• Commercial farmers require the most effective crop protection solution at the most affordable cost.• Focus on chemical equivalence, formulation, labelling, price and especially quality.• Approach industry with responsibility, and the environment with stewardship.
    • THANK YOUwww.agbiz.co.za