India and China should be a key target for SA agricultural exports

South Africa’s trade policy is underpinned by an export-led growth strategy. This means the country essentially wants to grow its economy by deepening and expanding its export markets.

Such efforts can be seen through South Africa’s participation in trade negotiations which seek to increase market access with traditional trading partners such as the European Union (EU) and penetrate new markets in Africa through the African Continental Free Trade Agreement (AfCFTA).

The focus on these two key regions comes as no surprise since they represent a significant portion of South Africa’s export revenue, specifically in the case of the agricultural sector. More than two-thirds of South Africa’s agricultural exports are concentrated within the African continent and the European Union (EU).

More recently, Asia and the Far East (particularly India and China) have become a key growth frontier that present South Africa with new opportunities to expand its exports. Overall, Asia has accounted for a quarter of South Africa’s agricultural exports, with indications that the country can potentially increase its market presence substantially in the future.

In Asia and the Far East, India and China are especially interesting because they account for 36% of the world’s population, whose economic sizes are $3.2-trillion and $15.5-trillion respectively. With India and China headlining the growth potential in Asia and the Far East, this region overall is significant enough to warrant more attention, especially given that there is no preferential market access for South Africa’s agricultural sector in this region.

South Africa has to compete with the likes of Australia and Chile, which have secured trade agreements that have afforded them a significant competitive advantage which could end up threatening South Africa’s market share and future growth.

India

India’s agricultural imports have nearly doubled over the past decade — from $11.2-billion in 2009 to $21.2-billion in 2018 — but is currently not on the list of Asian countries that import a reasonably large value of agricultural products from South Africa. Yet, if one looks into Asia’s leading agricultural products importers, India is ranked second after China.

The products that underpinned this tremendous growth in India’s agricultural and food imports included palm oil, soybean oil, sunflower seeds, coconuts, cashew nuts, cotton, sugar, apples, dates, greasy wool, whiskies, coffee and grapes.

South Africa, although a key producer and exporter of some of the aforementioned products (namely greasy wool, sugar, apples and grapes), doesn’t feature even on the top 40 countries supplying agricultural products to India. In 2018, South Africa was ranked the 46th-largest supplier of agricultural products to India by value, accounting for a mere 0.3% of the $21.2-billion worth of India’s agricultural imports.

The key agricultural products that South Africa exported to India were pears, dog and cat food, greasy wool, oranges, apples, maize seed for sowing, cotton, and mandarins, among other products.

South Africa — with its Southern African Customs Union (SACU) partners — has been negotiating a preferential trade agreement (PTA) since the mid-2000s. However, 15 years of on and off negotiations have not amounted to a favourable outcome. India is known for its highly protectionist policies, especially in agriculture, and exceptionally complex and high technical barriers to trade.

Negotiations for opening up India’s market have inevitably come with difficult conditions, especially given their substantially larger tariff book. However, given the market size and potential of India, it is important that further considerations be made to allow South African agriculture to capture its export market opportunities.

China

In the case of China, its agricultural imports increased from $70.7-billion in 2009 to $129.7-billion in 2018, and South Africa is also down on the list of the supplying countries, at number 32. South Africa’s agricultural exports account for 0.5% in China’s agricultural imports. The key agricultural products China imports include soybeans, cotton, malt, beef, palm oil, wool, wine, strawberries, pork, citrus and barley.

South Africa’s presence within the Chinese market is mainly wool, citrus, nuts, sugar, wine, beef and grapes. But within these products, South Africa’s share remains negligible, with the exception of wool.

What has constrained South Africa’s growth in these markets over the past few years is not only the fact that the products in demand are not produced in South Africa, but trade barriers. In part, this is because of the way China facilitates agricultural trade agreements — mainly focusing on one product line at a time — which ultimately slows trade.

Strategic approach to the Far East and Asia

If India and China — as Asia’s leading agricultural importers — are to be areas of focus for South Africa’s export-led growth in agriculture, then a new way of engagement will be essential to soften the current barriers to trade.

Most importantly, all three countries are members of BRICS — a platform which should help improve economic activity across its member countries.

South Africa should also encourage foreign direct investment in agriculture, specifically for potentially new production areas such as Eastern Cape, KwaZulu-Natal and Limpopo, which still have large tracts of underused land. Having Chinese and Indian nationals as partners to agricultural development might be one of the ways of easing trade and way of doing business among these countries.

A number of instruments can be devised, but one certainty is that China and India should be key to South Africa’s agricultural sector as places for export-led growth. The growing population and income provide a good base for the demand for higher-value agricultural products which South Africa intends to focus on in its development agenda. BM

Wandile Sihlobo and Tinashe Kapuya are agricultural economists.