South Africa will regain its status as a net exporter of maize in the 2017/18 marketing year, starting on the first of May 2017. This follows after two seasons of being a net importer of maize due to lower domestic supplies on the back of an El Niño induced drought.
With production set to reach 14.3 million tonnes, this does not only change fundamental factors in the maize market but presents a possibility of hefty exports of 2.5 million tonnes. About 56% of this will be white maize and 44% will be yellow maize.
Exporting such a large volume could pose a challenge due to high concentration of South Africa's traditional export markets. This challenge creates the perfect opportunity to explore new markets. This can be achieved by developing an industry export strategy that explores and prioritises new export markets in line with business interests, and informed by academic research. Such an initiative can be carried out in a public-private partnership, where the private sector can provide business intelligence and government can handle the diplomatic trade relations.
South Africa was last a net exporter of maize in the 2014/15 marketing year. The leading export markets then were Taiwan, Japan, South Korea, as well as the BNLS countries (Botswana, Namibia, Lesotho and Swaziland).
At the time, the aforementioned countries were the traditional markets for South Africa's maize industry. Taking an average five-year trend, from 2010 to 2014, South Africa's annual total maize exports were roughly 2.1 million tonnes.
The leading export markets over this period were Mexico with 21% share of total exports, South Korea with 12% share, Taiwan with 11% share and Japan with 10% share. Regionally, the leading markets were the BNLS countries (Botswana, Namibia, Lesotho and Swaziland), as well as Zimbabwe.
With South Africa emerging once again as a net exporter of maize, the focus will be drawn back to traditional markets. It is worth appreciating that South Africa is interlinked with the global maize market and could face competition from other major maize producing countries, particularly the USA, Brazil and Argentina, amongst others. More importantly, the majority of the existing export markets for South Africa are concentrated, this then calls for a strategic approach to establish new maize export markets to unlock emerging markets opportunities in diversified target countries.
My MSc thesis (published in 2015 by the Stellenbosch University), "An Evaluation of Competitiveness of South African Maize Exports", evaluated the competitiveness of South African maize exports relative to the global exporters. Specifically, to assess whether South Africa can increase its market share in the existing maize market. My study endeavoured to identify other unexploited potential markets for the South African maize industry.
The key assumption underlying my research was that maize is a homogeneous commodity. This is due to the fact that global trade databases do not offer more nuanced product differentiation and, as a result, both yellow and white maize statistics conflate into a single product. To address this issue, I used the International Trade Centre's Harmonized Systems classification data, which essentially treats maize as a homogeneous product.
Different growth, trade and market indices were applied to assess (1) the competitiveness of South African maize exports, (2) the scope to expand the market share in existing markets and to (3) identify unexploited and attractive markets.
Simply stated, my study found that South African maize exports are competitive relative to leading global exporters, such as Argentina, Ukraine, Brazil, USA, India and Russia. However, production costs analysis showed that South Africa is less competitive relative to Argentina, Brazil, the USA and Ukraine due to exposure to higher input costs such as fertiliser and agrochemicals.
Japan, Mexico, Taiwan, the United Arab Emirates, Thailand and Zimbabwe were identified as high-potential and attractive markets that South Africa should prioritise to increase its export share in the short to medium term.
In addition, the Market Attractiveness Index, which is one of the models applied in the study, showed that Indonesia, Nigeria, Malaysia, Saudi Arabia, Mauritius, the United Arab Emirates, Taiwan, Iran, the Democratic Republic of Congo and Yemen are the top ten most attractive markets for South African maize exports.
With South Africa's total maize exports expected to be a hefty 2.5 million tonnes in the 2017/18 marketing year, the country might need to reach more than its traditional markets. Of late, countries such as Zambia are seeing notable improvements in their domestic maize production, thus further increasing competition for South Africa's maize industry in regional markets.
In essence, as South Africa continues to promote agriculture as an epicentre of growth and economic development, and also encouraging new players to join the sector, the same energy will need to be dedicated to opening up new export markets. For some sectors, such as maize and horticulture, amongst others, the starting point would be to explore the existing academic research material as it could provide evidence-based approaches.
*This blogpost is an extract from my Business Day Column on 30 March 2017