Profit maximisation is why exporting food remains agri-businesses’ first prize, for it is much more profitable than selling on the home market.
Part One in a three-part series.
Panic was the order of the day a few months ago. Agriculture was at the heart of the fear affecting the government, the DA and business in equal measure.
But a threat to our constitutionally guaranteed right to food for everyone had nothing to do with the panic. The alarm bells were for agriculture and a trade agreement made vulnerable by the US’s displeasure with South Africa for not falling in line with US foreign policy following Russia’s invasion of Ukraine.
Such was our government’s concern about protecting this trade agreement that as early as June last year, a delegation headed by the then ministers of trade, and foreign affairs, along with the still current minister of finance made a placatory visit to the US.
This was followed by a more urgent one in May this year when President Cyril Ramaphosa sent a delegation to the US under the leadership of his national security adviser, Sidney Mufamadi. Parks Tau, the new trade minister, headed a follow-up delegation a few months later, in July.
John Steenhuisen, the DA Leader, also went to the US, more than a month before becoming Minister of Agriculture in the Government of National Unity (GNU). According to his own press statement, his trip was to “spearhead” a campaign “to save South African agriculture”.
In a subsequent press statement, he added that he went to the US to prevent “whole industries” from “collapse(ing)”. Above all, his mission was to assure the US that the “ANC is not South Africa”.
Even Business Unity South Africa (Busa) felt compelled to urge the government to “plead South Africa’s case to the US Congress”.
What, one may well ask, is so special about this agricultural agreement to warrant the government assigning it to its ministers of trade? Or that the DA leader saw as a threat to “whole industries” and that Business Unity South Africa should make its own special pleadings? Agoa is the name of the agreement. I anticipate most readers asking “A” who?
We will return to Agoa — the African Growth and Opportunity Act — in due course. First, a few words about what, unlike Agoa, is presented as a major threat of global importance.
China 'endangers world agriculture'
Our daily diet of the crafty Chinese taking over the world means there’s always space on the anti-Chinese menu for still more. (I should add, I am no friend of China any more than I am of Russia.)
A recent Bloomberg article, republished by Daily Maverick, headlined “China’s Waning Appetite for Grain Spells Danger for World Market”, is a case in point.
Note, the danger is not for people – let alone hungry people – but the world market! Nor is there any Chinese “waning” for grain. The “waning” is for imports only. Consecutive Chinese bumper harvests have forced the government to stockpile both wheat and maize to support local farmers, while overseas maize shipments have been restricted or even cancelled to prop up the domestic market.
In a world full of hungry – if not starving – people, imagine a bumper harvest being a problem!
The “danger” lies entirely in the Chinese decision to prioritise its food sovereignty. Food security has long been a priority for China, with its history of famine and a commitment to feeding nearly 20% of the global population. Supply chain disruptions during the Covid-19 pandemic, the Russia-Ukraine conflict and the US-imposed trade war – its number two agricultural supplier after Brazil – has given renewed urgency to reducing China’s substantial import of grains from the US.
Improved wheat harvest conditions now enable China to cut its wheat demand in half. This goal, seen as “feeble consumption” of wheat, is a “blow” to imports.
A similarly alarming picture faces US maize exporters. In the last week of May 2024, the US had just 86,300 tons of maize left to ship to China in the current marketing year that ends in August, drastically below last year’s 631,600 tons, according to the US Department of Agriculture. For next season, there are no outstanding US maize sales to China.
But all is not lost for US maize and wheat farmers. Business Day reassures food exporters by republishing an article by a Reuters journalist that “China’s food security dream faces hurdles”.
The journalist tells us that: “China, the world’s biggest agriculture importer, has set targets to drastically reduce its reliance on overseas buying… in line with its push for food security.”
Targets ‘exceedingly difficult to meet’
But apart from food security being a cause for alarm, worry not is the calming message, for the targets “will be exceedingly difficult to meet”.
The targets are indeed ambitious — 92% self-sufficiency in staple grains and beans by 2033, up from 84% during 2021-2023. Over the 10 years to 2033, a 75% plunge in maize imports and a 60% drop for wheat is expected. For soybeans, the biggest item on a farm import bill that totalled $234-billion last year, Beijing sees imports falling 21% in a decade.
As reassurance, the exporters are told that these targets “defy the trends of the past decade in which grains and oilseed imports have surged 87%”.
The final comfort lies in China’s physical geography: “China will struggle to meet its targets mainly due to a lack of land and water”.
This very brief look at what is seen as the “Chinese danger” to agriculture should alert us to the fairy-tale that agriculture is for feeding people.
Commercial agriculture is a food business in which feeding people is a fortuitous outcome.
“The (agricultural) industry needs exports to maintain revenue, economies of scale, and thereby jobs and domestic product affordability. If exports are put at risk, agricultural jobs and indirectly domestic food security will be put at risk.”
We will be unpacking these claims made by Wolfe Braude, of the agricultural business chamber Agbiz, in the course of this article.
Key question
For now, the key question emerging from the section on China is why should reduced food exports be a disaster for food exporters, if agriculture’s primary purpose is to feed its own citizens?
Agriculture originally served this socially essential purpose until the Agricultural Revolution in Britain during the mid-17th to late 19th centuries finally resulted in food productivity outpacing population growth.
The consequential, supposed “surplus” then became the expected outcome, weather permitting. This turned land into a profitable enterprise, along with the commodification of agriculture, commodification being the turning of something, such as an intrinsic value or a work of art, into a commodity produced not for its social necessity, but rather to return a handsome profit by selling on the “market”.
The impact of food being transformed into a commodity had a profound effect on the British working class, as displeased generals discovered at the outbreak of World War 1. Turning malnourished men into soldiers fit for war was a costly challenge, notwithstanding the food “surplus” available – but not for many among Britain’s working class.
“Food moves where purchasing power is highest, not where needs are most urgent,” the then United Nations Special Rapporteur on the Right to Food, Olivier de Schutter noted, noted almost 100 years after the outbreak of World War 1.
Profit maximisation is why exporting food remains agri-businesses’ first prize, for it is much more profitable than selling on a home market. This is tellingly illustrated by the US Department of Agriculture, which compares the average South African domestic orange price with its export market price, for the years 2014/15 to 2021/22.
The South African trade union Solidarity, with more than 202,000 members, would applaud this export of “surplus” food. They see the virtue of exports being the prevention of “a greater surplus of produce on the local market, lowering the price that producers can obtain”.
Botswana provides a peek into what happens when expected export markets are lost, even when the exports are small. Botswana’s recent three-month ban on South African citrus will “hurt” both farmers and the economy, according to the Mail & Guardian.
Redirecting the lost exports to the South African market will increase supply and thereby “benefit the consumer”, with the implication of this being an unwelcome outcome. Left unsaid is that this benefit will come from lower “consumer” prices and hence lower profits for the citrus industry, according to an agricultural economist at FNB, the Mail & Guardian informant for the article.
Food, as a profit-maximising business, traps most countries in a vicious cycle. This production of food insecurity was, although ignored, well expressed, in 2011 by Olivier de Schutter, the former United Nations Special Rapporteur on the Right to Food: “The more (these countries) are told to rely on trade, the less they invest in domestic agriculture. And the less they support their own farmers, the more they have to rely on trade.”
Haiti provides an egregious case study of this vicious cycle in which food prices invariably soar. By 2008, local production of food amounted to only 42% of Haiti’s food consumption, compared with 80% in 1986. Haiti now has among the fewest trade restrictions in the Americas. Succumbing, after being pressured for years — mainly by the US — to open its food market still further, food imports were up to 90% in 2015. Once self-sufficient in its production of rice – its main staple food – 80% of its rice is now imported. As one the poorest countries in the world, it has nonetheless had to spend $356-million importing rice, with $232-million (79.26%) going to the US (in 2022).
It is with good reason that an article focusing on Haiti is headlined “LET THEM EAT FREE MARKETS — How Deregulation Fuels the Global Food Crisis”.
A final word from 2011, by De Schutter. In a letter to the then director-general of no less a body than the World Trade Organization, he advised:
“The impact of trade rules can no longer be seen at the level of states alone. It must be sensitive to what really determines food security: who produces for whom, at what price, under which conditions, and with what economic, social and environmental repercussions. The right to food is not a commodity, and we must stop treating it that way.”
Asking for whom the sustainable agriculture is being promoted takes us back to the African Growth and Opportunity Act (Agoa), where we began this article.
‘Tools of economic diplomacy’
Agoa – a mild instance of trade being the diplomatic politics of war by other means. While adapting this aphorism of the German war theoretician Carl von Clausewitz (1789 to 1831) to include trade might not be recognised by the previously quoted Wolf Braude, Braude does, with the act in mind, note that “trade preferences and market access are often used as tools of economic diplomacy”.
Braude is one of the economists who consider the act to be “vital” to South Africa, not just the agricultural sector.
So, what is Agoa, in brief? In the standard double-speak of diplomacy it stands for the African Growth and Opportunity Act (emphasis added). Agoa was unilaterally introduced by the US in May 2000 to give preferential access to its market to qualifying sub-Saharan African countries.
The act was renewed in 2008 and again in 2015, and has recently been further extended to 2025. While far from being vital to either South Africa or its agricultural exporters, it is nice to have. But at what cost?
Agoa comes armed with two big teeth. First is that, being unilateral, it can be unilaterally withdrawn by the US. Second, it remains entirely at the US’s discretion whether to remove a country that it considers to be non-compliant with Agoa’s preconditions.
These criteria, what Braude euphemistically calls the “tools of economic diplomacy”, include whether a country has established, or is making continual progress, toward establishing:
- A market-based economy that protects private property rights and minimises government interference in the economy through measures such as price controls, subsidies, and government ownership of economic assets, the elimination of barriers to United States trade and investment, including by: (i) the provision of national treatment and measures to create an environment conducive to domestic and foreign investment; (ii) the protection of intellectual property; and (iii) the resolution of bilateral trade and investment disputes.
- The rule of law and political pluralism.
- Expands physical infrastructure, promotes the development of private enterprise, and encourages the formation of capital markets.
- Protects internationally recognised worker rights, including the right of association, the right to organise and bargain collectively, a prohibition on the use of any form of forced or compulsory labour, a minimum age for the employment of children, and acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health.
- (The country) does not engage in activities that undermine United States national security or foreign policy interests.
- Does not engage in gross violations of internationally recognised human rights or provide support for acts of international terrorism, and cooperates in international efforts to eliminate human rights violations and terrorist activities.
- If the (US) president determines that an eligible sub-Saharan African country is not making continual progress in meeting these, the president shall terminate the designation of the country.
Aggravating these qualifying conditions – some of which actually sound progressive – are the double standards the US uses when appointing itself as judge and jury. I offer a few examples.
- The reason Ethiopia was kicked out of Agoa in 2022 was its war with Tigray and what President Joe Biden termed its “gross violations of internationally recognised human rights”. Yes, this is the same Joe Biden who repeatedly used his veto at the UN Security Council to protect Israel from the consequence of its gross violations of internationally recognised human rights. And, yes, this is the same president who, following each of the worst violations, increased US financial and military support to Israel.
- Mauritania rejoined Agoa after having made “substantial and measurable progress on worker rights and eliminating forced labour”. However, the same provisions of workers’ rights (see above) also specifies “a minimum age for the employment of children, and acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health”. Yet the DRC, like Zambia (among others), has never been expelled despite the voluminous evidence of its disregard of this provision.
- While it is questionable how many African countries practise “political pluralism”, the absolute monarchy in Swaziland does not.
- It falls to Donald Trump to reveal the naked meanness of Agoa presented as the US’s allegedly altruistic contribution to African growth and opportunity. In July 2018, Trump suspended Rwanda’s right to export clothing duty free under Agoa after the East African nation banned the import of second-hand clothes. This ban followed an agreement adopted by the East African Community in 2016 to prohibit used clothing imports by 2019 in order to boost the local clothes manufacturing business. The East African Community wanted all second-hand clothes imports stopped by 2019. However, a US trade organisation objected to the East African Community’s decision, saying that it would impose “significant economic hardship” – all of $124-million! – in exports on America’s used-clothing industry. As a result, the US threatened to remove four East African countries – Kenya, Uganda, Tanzania, and Rwanda – from Agoa.
Agoa, however, is like a Christmas present given by punitive parents to naughty children when compared with how the world’s few economic powers use the World Trade Organization and some of their own food initiatives dressed up as philanthropy, like the US’s Food for Peace. These reformist measures to give some credibility to claims of food security for everyone will be the subjects of Part Two of this series. DM
This article is published jointly with the journal Amandla.