2013-02-28 12:31:20 - New Food market report from Business Monitor International: "South Africa Agribusiness Report Q2 2013"

BMI View: We hold a positive view on the South African agricultural sector especially see growth potential in the grain and livestock sectors. Both sectors' growth will be boosted by export demand in the region. The sugar sector also presents interesting growth opportunities mainly thanks to renewed investment and improved technologies. Overall, the country's grain and livestock producers have been hit by the recent hikes in grain prices and subdued corn supply on the domestic market. Margins have plummeted and foreign competition for exports has made it even more difficult for producers to stay afloat. We believe the country's main companies, AFGRI, Rainbow Chicken and Astral Foods have managed to weather well this crisis and profitability can only increased from

here.

Key Forecasts

* Sugar production growth to 2016/17: 15.7% to 2.2mn tonnes. This is based on our view that, over the long term, macroeconomic fundamentals, together with the increasing use of sugar for biofuel, will have a positive impact on sugar production levels.
* Poultry consumption growth to 2016/17: 18.9% to 2.0mn tonnes. As more South African consumers move towards diets containing higher levels of protein, poultry (predominately chicken but also turkey and duck) is increasingly being viewed as a convenient, healthy and affordable source of nutrition.
* Corn production growth to 2016/17: 29.9% to 14.4mn tonnes. This relatively high growth rate reflects the influence of base effects. Growth will be supported by an improved macroeconomic outlook and the introduction of new corn varieties that generate increased crop yields.
* Real GDP growth: 2.8% in 2013, up from 2.3% in 2012; predicted to average 3.2% over the five years to 2017. GDP per capita expected to rise to US$10,306 in 2017 (from an estimated US$7,624 in 2012).
* Unemployment: 23.0% in 2013, from 25.0% in 2012, then to 20.4% by 2017.
* Consumer price inflation: 5.6% in 2013, down from an average of 5.7% in 2012.
* BMI universe agribusiness market value: 5.6% year-on-year (y-o-y) increase to US$9.7bn in 2012/13; growth forecast to average 4.4% annually between 2011/12 and 2016/17.


Full Report Details at
- www.fastmr.com/prod/541303_south_africa_agribusiness_report_q2_2 ..


Key Revisions To Forecasts

* Rice 2011/12 Consumption revised up from 750,000 tonnes to 796,000 tonnes. This is in line with our view for the domestic rice market to be better supplied than the corn and wheat markets, triggering substitution effects in demand.

Industry Developments

The land reforms were first proposed in 1994 and have three main tenets. The first is land redistribution, which endeavours to give the poor and underprivileged access to land for constructive purposes. The second is land restitution, which aims to amend forced removals that took place in South Africa after 1913, when the Natives Act set aside over 80% of all land to whites. Since then, land ownership ratios have been virtually constant. Finally, there is land tenure reform, which is expected to allow a more diverse range of land uses in the country, with the main goal of the programme to contribute to reconciliation, stability and growth in a sustainable way. Economic development is naturally a key aim of the reform, essentially by increasing employment opportunities and encouraging investment in land, with specific encouragement for small- to-medium-size land holdings. So far, of the 30% of farm land that was supposed to be transferred by 2014, less than one-third of the project has been completed, and the Zuma government now has the plan under review.

Tongaat Hulett has seen increasing profit from operations from both Mozambique and Zimbabwe. Profit in the two countries increased to ZAR270mn and ZAR437mn respectively in H113, compared with ZAR267mn and ZAR364mn in H112. The company is continuously expanding its area planted and estimated 137,652ha planted for the 2012/13 season compared with 129,513ha in 2011/12. Cane yields should increase to 49.40-49.44 tonne/ha in 2012/13 compared with 47.3tonne/ha in 2011/12. The target for the 2013/14 season will be to plant 9,506ha more than in 2011/12, the largest increase in the past 5 years.

South African meat producer Astral Foods' latest annual results confirm our view of a challenging environment for livestock producers in South Africa owing to tight corn supply on the domestic market and increased competition from cheap Latin American imports. The company's net income declined from ZAR435mn in 2011 to ZAR332.5mn in 2012. This came mainly on the back of higher costs of goods sold, with operating profits tumbling 29.0% y-o-y to ZAR477.1mn. On the other hand, we believe the company was able to minimally transfer cost increases to customers, and revenues increased 13.0% y-o-y thanks to higher volumes. This implies that increases in poultry product prices were not sufficient to result in demand destruction.

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