Meeting the Needs of South Africa’s Ag-Chem Market

AgChem Asia Summit 2011

20-21 October 2011

Dr John Purchase

Outline of Presentation

• Overview of South Africa’s agriculture landscape

• Overview of its pesticide demand

• Identifying opportunities for trade and future business development

• Market analysis: Understanding what works and what doesn’t

• Concluding remarks

Overview of South Africa’s agriculture landscape

Overview of SA’s agriculture landscape

• Well developed commercial sector and subsistence oriented sector – dual economy

• Only ~12% of land area arable, of which 22% high potential

• ~1.3 million hectares under irrigation • Water major limiting factor – SA mostly semi-arid • Deregulation & market economy • Number of competitive advantages - ‘World-class’ infrastructure - Counter-seasonality to Europe/Asia - Biodiversity - Trade agreements - Competitive input costs - Access to latest technology & innovation

Role of Agriculture in

SA Economy • Strategic sector – provides food, fiber, wine & beer,

satisfying two basic needs of man (+ others!)

• Has provided national food security since the start

of the 20th century (Pop: ~4,0 million), right

through to the 21st century (Pop: ~50,0 million,

~60% in urban areas)

Status and Trends

South Africa

Contribution of Primary Agriculture to GDP (Source: Statssa)

2

3

4

5

94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 06 07 08 09

%

Graph: ABC

SA economic growth: Tradable goods sectors lag the non-tradable goods sectors

Source: StatsSA

Graph: ABC

0

50

100

150

200

250

300

20002001200220032004200520062007200820092010

IND

EX

GDP % per Sector of Economy

GDP

Agric

Mining

Manufacturing

Construction

Trade

Transport

Finance

Inflation

Source: AMT, 2011

Exchange rate

Source: AMT, 2010

SAARF LSM Segments: Proportion of SA adult population and average monthly household

income in 2009

Source: SAARF (2010a) & BFAP, 2010

LSM class mobility: All adults during the period 2004 to 2010

Source: SAARF AMPS data for the period 2004 to 2010, as quoted by BFAP

SA Resource Situation • Land issue: sensitive now, Green Paper released.

• Energy crisis and energy security situation

- Electricity price hikes (31% + 25% pa over 3 years)

• Scarce high potential agricultural land to mining, esp. Mpumalanga, and urban development.

• Water management and water quality crisis

• Climate Change effects create uncertainty

• Soil degradation/erosion

• Biosecurity threats (FMD, Avian Flu, etc.)

• Question: Resources for sustainable expansion?!

• Greater competition for resources – price effect?

Performance of Sector Gross Value of Production in Rand million

0

10000

20000

30000

40000

50000

60000

70000

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

Field Crops Horticulture Animal Production

R'm

illio

n

Source: DAFF, 2010. 1 Chinese Yuan = 1.2 South African Rand

Field crops

• Maize – major importance, net exports, GM

• Wheat – also staple food, net imports

• Sugar – net exports, move into Africa

• Soya – growing importance, cake imports, GM

• Sunflower – growing importance, S/D balance

• Groundnuts – net exports, but declining

• Dry beans – net imports, also from China

Horticulture

• Totally deregulated market

• Viticulture & Wine – major export industry

• Citrus – 2nd biggest global exports, growing

• Deciduous fruit – major net exports

• Table grapes – major net exports

• Sub-tropical fruit – net exports

• Vegetables – S/D balance, some imports/exports

Animal Production

• Value of production in 2009:

- Broilers R22.5 billion

- Beef R13.3 billion

- Fresh milk R9.1 billion

- Eggs R6.6 billion

- Mutton R3.1 billion

- Pork R3.1 billion

- Wool R1.1 billion

SA Agribusiness • Strong input sector: Seed, fertilizer, crop

protection and veterinary chemicals, animal feed, packaging, agricultural machinery, fuel, etc.

• Financial sector: Major banks, DFI’s, insurance companies, auditors, agribusinesses, etc.,

• Storage, trade and agro-logistics

• Agro-processing and packaging

• Retail Sector

Agricultural trade trends

19

Source: DAFF/NAMC, 2009.

Total

-

5

10

15

20

25

2004 2005 2006 2007 2008

R b

illi

on

Year

Primary exports Primary imports Primary trade balance

Primary

-10

-5

-

5

10

15

20

25

30

35

2004 2005 2006 2007 2008

R b

illi

on

Year

Processed exports Processed imports Processed trade balance

Processed

Agricultural trade

1 Chinese Yuan = 1.2 South African Rand

South African Agricultural Trade

(Source WTA & GTA, USDA-FAS)

(US$ billions) 2007 2008 2009

Agricultural exports $4.0 $5.2 $5.2

% of total SA exports 5.7% 6.5% 8.3%

Agricultural imports $4.2 $4.7 $4.2

% of total SA imports 5.3% 5.2% 6.4%

Major agricultural products exported:

(US$ millions) 2007 2008 2009

Wine $673.6 $753.9 $727.5

Citrus $613.1 $711.4 $667.1

Corn $32.1 $510.3 $444.6

Table grapes $364.5 $387.6 $379.7

Apples $329.5 $367.3 $364.7

Sugar $276.1 $217.9 $386.7

Major export destinations (2009)

United

Kingdom

Netherlands

Zimbabwe

Kenya

Mozambique

Germany

United States

China

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

Major agricultural products imported:

(US$ millions) 2007 2008 2009

Rice $302.1 $463.9 $458.8

Wheat $261.6 $444.6 $282.0

Soybean cake $209.8 $311.9 $297.1

Palm oil $195.7 $299.3 $232.1

Soybean oil $212.0 $288.5 $106.9

Whisky $212.5 $202.9 $201.6

Major countries imported from (2009)

Argentina

Brazil

Thailand

Germany

Malaysia

China

Netherlands

Indonesia

United States

0% 2% 4% 6% 8% 10% 12% 14% 16%

Challenges • Government: - Food security, both household and national: Access to safe, nutritious and affordable food for all - New Growth Path: Job creation, Shared Growth & Opportunities - Empowerment of PDI’s, e.g. AgriBEE, EE, etc. - Land Reform & Rural Development - Industrial Policy Action Plan II: Agro-processing - Competitive environment (Competition Act) - Sustainable resource management, e.g. CC - African development, etc.

Challenges • Private Sector: - Profitability and competitiveness - Transparent and reliable markets (Integrity!) - Engage Govt ito enabling policy environment: Create confidence for long term investment - Need for inclusive Strategic Framework/Plan - Sustainable transformation - Institutional and value chain support (R&D, SPS matters, resource base management, trade facilitation, training & skills development, agro-logistics, Act 36 of 1947, etc.) - African opportunities

Overall Prospects • Much greater food security awareness, both globally and

locally – very positive. Priority for G20, Paris.

• Awareness by government to work closer with Private Sector

• Greater awareness by all of the need to support both commer- cial and developing agriculture. Better implementation NB!

• Substantial markets: locally, regionally, globally, and especially to the East. Need market development, though!

• General commodity and agribusiness infrastructure is good basis – build on this & other institutional capacity.

• New technology/expertise through especially multinationals.

• New global investors looking to Africa for food production

- major development.

Conclusion • Healthy and robust agro-food industry

• Technologically advanced, globally competitive

• Challenges: ‘Nationalisation talk’, Agro-logistics, climate change, water availability and quality, environmental sustainability, food safety regulations, R&D, etc.

• Opportunities: Growing population, consumer spending trends, new markets (esp. to East), etc.

• Major contributor to Food Security, growth and employment in RSA.

Conclusion • We live in uncertain times – many risks and

variables, some controllable, others not or less so.

• Must fully understand both macro- and micro-environment, and the risks and opportunities posed.

• Develop strategic plan and develop business plan accordingly.

• Must clearly articulate and live the value proposition you bring to the value chain.

• BUT, maintain flexibility and adaptability.

Overview of its crop protection chemicals demand

South African sales for crop protection

products: (At grower level, in millions)

Year 2000 2001 2002 2003 2004 2009 est*

SALES (Rand) (x1 000 000)

R 1 712 R 2 092 R 1 850 R 1 500 R 2 100 R 3 104

EX RATE (R/$) 6.92 8.58 10.54 7.55 6.50 7.34

US$

(x1 000 000) $ 247.4 $ 243.8 $ 175.5 $ 198.7 $ 323.1 $ 422.9

VOLUME (kg) (x1 000 000)

50.0 46.6 42.0 35.0 49 53.7

R PRICE/kg R 34.24 R 44.89 R 44.05 R 42.86 R 42.86 R 57.80

$ PRICE/kg $ 4.95 $ 5.23 $ 4.18 $ 5.68 $6.59 $ 7.88

Source: AVCASA, 2011 • *Industry Estimate, as no official figures available since 2004. ~95% accurate. • AVCASA no longer collects data as it could be in breach of Competition Act

1 Chinese Yuan = 1.2 South African Rand

Identifying opportunities for trade and future business development

Market and market features • Highly competitive market – requires innovation

and new product lines continuously. • Crop protection market comprises 4 major segments: - Insecticides - Herbicides - Fungicides - Other chemicals (Adjuvants, PGR’s, etc.) • South Africa is ± 1.5% of the world market • Rest of Africa is ± 1.5% of the world market • Total Africa is ± 3.0% of the world market • SA has growing market (~2% consumption growth in real terms)

Market and market features (Cont.)

• Use changing with huge adoption of GM-crops, e.g. glyphosate versus atrazine use

• Revenue growth very uncertain, depending on exchange rate movements, move to generics, etc.

• Generic products from the Far East (mostly PRC)

already have major market share in South Africa.

• Current market share of generic products is

around 75% and growing as increasingly major

products come off patent.

Regulatory features

• Agricultural chemicals are controlled by the Fertilizers, Farm Feeds, Agricultural Remedies and Stock Remedies Act, No. 36 of 1947.

• GM-crops controlled by the Genetically Modified Organisms Act, No 15 of 1997.

• Current registration process problematic due to capacity problems (toxicologists) at the Department of Health.

• Database of Agricultural Remedies on:

www.croplife.co.za

Registration requirements • The registration holder must be a South African registered

company • Requirements are of a high standard and in line with EU

and USA requirements • The formulated product is registered, not the active only. • Efficacy, phytotoxicity and residue data must be generated

in field and laboratory trials • For generic products 3 successful trials for an identical

registration are required • Registration process takes between 6 to 18 months • All products must be re-registered every year

• The South African importer/agent is responsible for all the above functions.

Registration requirements (Cont.)

Chemical equivalence of the technical to be provided by the manufacturer:

• Must be proven by an accredited GLP laboratory (University of Beijing?).

• All impurities must be identified and quantified.

• Full analysis of 5 commercial batches required.

General features • South Africa is a good market to do business in

because:

- It is a reverse season sales opportunity

- It has a well developed and stable agricultural

sector = predictable use and sales

- Legislative and financial infrastructures are very

secure = transparent procedures and

guaranteed payments

- It is the gateway to Sub-Sahara Africa = growth

opportunity

Major role players in SA Crop Protection Chemicals Market

• Syngenta • Arysta LifeSciences • Villa Crop Protection • Bayer Crop Science Ag • Monsanto • BASF • Du Pont • Others (~7 more) • Distributors also play a major role in the

supply chain and are organized in ACDASA – See www.acdasa.co.za

How do foreign manufacturers sell to the SA market?

OVERSEAS MANUFACTURER / EXPORTER

SOUTH AFRICAN IMPORTER / AGENT

CO-OPERATIVES/ AGRIBUSINESS

FORMULATORS

DISTRIBUTORS / DEALERS

SALES AGENTS

END USERS / FARMERS

Determining factor in entering market

• Commercial farmers require the most effective crop protection solution at the most affordable cost, i.e. productivity consideration is of paramount importance.

• Suppliers therefore have to ensure that a range of good quality products are provided for a range of crops by reputable distributors to ensure maximum customer satisfaction.

Market analysis: Understanding what works and what doesn’t

How can manufacturers/exporters from the PRC enter the South African market

• Not necessary to have own local office in South Africa.

• Appoint a reputable South African importing company as your agent.

• Provide samples for formulation and local registration tests and field trials.

• Provide chemical equivalence of the technical and 5-batch analysis by a recognized GLP laboratory.

• Agent then obtains registration.

• Chinese manufacturer / exporter then sells technical material or formulated product (in US$) to agent.

• Agent then sells to distributors / dealers.

Important points • Many PRC origin products already registered and sold in

South Africa – limited opportunities however available.

• Product must be out of patent in South Africa before generic product can be sold.

• After registration the technical or finished product must always come from the same factory.

• Quality of the technical or finished product must always be the same as that of the original sample.

• Chemical equivalence data, quality and competitive prices are the most important factors determining the market share of products from the PRC.

• Severe price competition exists now because of an over supply of Chinese products .

• To obtain a significant market share, it is better to work with one local agent only.

What doesn’t work

• CropLife very active in Africa with Africa Stockpiles Programme (FAO Bilateral Programme) and CropLife Clean Farms Project – major challenge!

• Unfortunately significant volumes of counterfeit or fake product emerging from Far East – please don’t bring to Africa – see www.agropages.com .

• Counterfeit and fake product having a dreadful effect on man and the environment, whilst the social implications are enormous.

• Food safety at serious risk.

Concluding remarks

• Growth opportunities especially in Africa.

• South Africa an excellent gateway to especially Sub-Sahara Africa.

• Commercial farmers require the most effective crop protection solution at the most affordable cost.

• Focus on chemical equivalence, formulation, labelling, price and especially quality.

• Approach industry with responsibility,

and the environment with stewardship.

THANK YOU

www.agbiz.co.za