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Agro-processing sector pivots to new realities and innovative products amid challenges

By staff reporter.

SOUTH Africa’s agro-processing sector is being forced to optimise manufacturing processes and to explore new markets by introducing new ranges of products. This in the wake of the stagnation the sector is facing in output, investment, and employment, as well as increasing commodity prices and economic instability.

Christo van der Rheede, CEO of South Africa’s largest agricultural federation, Agri SA, said in an interview the Western Cape is not exempt from these challenges, caused by a range of factors, including the national havoc caused by loadshedding, and high prices of inputs, including diesel price increases.

Cost spiral

“The price of electricity, packaging, and shipping are also impacting the industry massively,” he said.

In addition, the cost of production has gone up, driven by the repo rate that’s risen by more than 475 points since 2021, making the cost of capital much more expensive and production or infrastructure development costly.

“Agro-processors depend on farmers who produce the raw material. Preparing and packaging meat; and turning maize into bread or products involves a highly cost-intensive process.

“We have seen the impact of Covid and of the (Russia-Ukraine) war on the entire global economic system which has driven up prices. While prices are coming down in some parts of the world, in South Africa, the opposite is happening. Inflation is at an all-time high. Food inflation has been at 14 percent, the highest in years, caused by own goals. Failure to supply enough electricity is a big challenge for an energy-intensive industry.”

Van der Rheede said the solution to these challenges involves addressing the concentration of market power, promoting competition, and supporting the growth of small and medium-sized agro-processing firms to unlock the economic potential and address inequality in South Africa.

Agro-processing – particularly on-farm agri-processing – is crucial to the agricultural sector as it opens up new markets, stimulates economic growth and creates jobs, while enabling farmers to diversify and spread risk.

The head of the Western Cape Department of Agriculture (WCDoA), Dr Mogale Sebopetsa said the sector – whose products include fruits, vegetables, wine, grain, dairy, and meat products – contributes about 4% into the provincial GDP and creates about 250 000 jobs. “The combined primary and agri-processing sectors account for 17% of the Province work force. “However the current challenges relating to load shedding and general increase in production inputs will not only affect primary, but also extend to agri-processing.

“This sector depends on raw material for inputs and, given the decline in horticultural production in the 1st quarter 2023, there will be challenges as raw material availability dwindles,” he added.

Western Cape – the nation’s breadbasket

Commenting on innovative ways in which the Western Cape is dealing with these challenges, van der Rheede added: “The impact of global competition is compelling certain manufacturing companies to embrace novel technological advancements and business strategies. Some sectors have shifted towards being more reliant on capital investments, aiming to enhance productivity, profitability, and competitiveness.”

He said optimising manufacturing and exploring new markets is critical for the industry. “We must stay competitive. As part of the global village, we have to compete with chicken, grain, meat, and other imports. If we’re inefficient in terms of operations we lose our ability to compete internationally.

Dumping, power & water woes

“Farmers in America, Europe, and Brazil receive production support from their governments so they can put agricultural products on the market more cheaply than us. We’ve seen large-scale dumping of agricultural products on the SA market which has had a devastating effect on the sugar, dairy, and poultry industries, so we must remain competitive.

“But how do you remain competitive if you don’t have electricity or clean water? Some agro-processing companies have packed up and moved from towns where municipalities don’t deliver proper services. That’s a costly exercise. Agro-processors face many unfavourable circumstances.”

Van der Rheede’s view is that agro-processing companies have turned to innovative explorations of new branding and packaging of their project “to be appealing to the new generation.

“There is huge emphasis on the health value of the products. We have also seen processing companies adapting to new legislation especially with regard to sugar content … and, various plant-based products are being developed for vegetarians. Food manufacturing companies are continuously adapting. It’s important that they explore this even further to adapt to new trends”. 

Dr Sebopetsa said the Western Cape Department is conducting an impact analysis on the industry, which will be concluded by the end of June 2023. “The sector will benefit from the investment in energy infrastructure announced during the Budget Speech of the Provincial Minister of Finance and Economic Opportunities; and from the incentives such as diesel rebates for manufacturers of foodstuffs. The department is also hosting an Agriculture Energy Summit on 22-23 June 2023 to look for more solutions.”

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