South Africa is the first agricultural Power in Africa and the front door of most products and consumer goods destined for Countries in austral Africa, which use its logistics and distributive facilities as well as technological equipment in order to supply its markets. But which sort of prospects does South Africa propose today to the protagonists in the world of machines and agricultural equipment? Let’s start with numbers: in South Africa the agricultural production is worth, in terms of value, about 180 billion Rands (15.3 billion USD) and agriculture is worth between 2 and 3% of the GDP of the Country. Variations can take place related to the rainfall regime, which is often irregular and thus significantly affects the trends of this sector. The agricultural domain, which now employs 4.8% of working population, is also worth 6.5% of exports. The total agricultural land, which amounts to 100 million hectares, corresponding to 82% of the territory, is composed by 11% of arable lands, 1% of which are irrigated, 14% potential arable land, and, as the climatic conditions of the Country are favourable for cattle breeding, 67% permanent pasture lands. Only 18% of agricultural lands consist of nature reserves, forests, and other typologies, including desert. The most practised and widespread cultivation is the one of maize (2.8 million cultivated hectares), followed by wheat and soybeans (0.51 and 0.515 million hectares respectively), sunflower (0.5 million hectares) and such other extensive cultivations as barley, rapeseed, and sorghum. In the domain of animal products, poultry stands out, followed by sheep, goat, pig, and horse breeding. In recent years, farms noticeably increased their sales abroad, exporting more than twice as much as they import, and today there are good prospects for further development, thanks to the entry into force of the Free Trade Agreement with the EU and a new free trade zone within the SADC Area (Southern Africa Development Community).
From Simple Tool to New Technologies
With regard to mechanization, the rise in agricultural wages allowed South Africa to become one of the main bets for almost all chains. The differences concerning South African agriculture bring about much diversified equipment requirements: from simple tool without electronic to the most technological and sophisticated satellite-guided machines. The total market value is worth between 523 and 697 million Euros (source: Saama). Almost 80% of agricultural equipment are imported, in particular the machinery characterized by the most advanced technology, while the simplest equipment or the ones designed to be adapted to the particular local conditions are locally produced. Because of the limited local production, combined with the importance of ensuring sources of supply concerning significant production inputs in such a strategic sector for this Country’s economy, most imports of agricultural machinery and equipment are duty-free. Imports in this Country must fulfil the payment of Value Added Tax, whose rate is equal to 14% of CIF (Cost, insurance and freight) of imported goods.
Tractors, Combine Harvesters, and Baling Machines
The market is dominated by three types of equipments: tractors, combine harvesters, and baling machines. They reflect the main agricultural cultivations. The most important segment is the one concerning tractors, which account for about 60% of the agricultural machinery used in South Africa. Recently an increase in demand for mechanical mowers, too, has been recorded, because the high demand for meat has motivated some producers to invest in livestock and production of feed. In addition, the demand for tractors and equipment at reasonable prices has been high, because this segment is still crucial in the process of mechanization in South Africa and neighbouring African markets. In the region of Cape Town, for example, a significant presence of machinery and equipment coming from Italy and other EU countries has been recorded.
Bell Equipment and Internal Monopoly
In this Country there is only one big producer of agricultural machinery: Bell Equipment. This South African group was established in 1954 and since 1995 it has been quoted on the Johannesburg stock exchange. It produces and globally supplies agricultural machinery, earth-moving machinery, hoists, and forklifts for applications in mining, forestry, construction, agricultural, and industrial sectors. The presence of this strong local producer, which has 3000 employees and boasts annual turnover of 2.3 billion Rands (about 200 million USD), has generated small and medium linked enterprises that produce low-tech parts and components. These companies are the reference suppliers of Bell Equipment, which also makes use of a series of strategic partnerships with such international companies as John Deere in the United States, Hitachi in Asia, Liebherr in Germany, and Kato Works in Japan.
Competitive Distribution System
The main multinational manufacturers of agricultural machinery and equipment have their own distribution subsidiaries in South Africa. Beside them, this highly competitive sector is dominated by some important South African operators who have strong market power and widespread control of distribution as well as related trading margins for every significant segment of agricultural mechanization. These operators are often sole agents for their manufacturer companies and distribute their products on the national market. Many of them import from Italy and boast well-established business relationships with our producers.
Many Competitive Advantages
Assessing all these aspects, and summing up, we can say that there is still a lot of room in this Country and many strengths characterize the South African agriculture, beginning from good agricultural infrastructures and performant agriculture, oriented to exports thanks to the season reversal compared to the northern hemisphere. In addition, the significant diversity of climates allows a wide variety of productions. A noteworthy development of domestic demand, too, has been recorded, thanks to higher living standards and population growth. Consequently, business trade developed at a higher extent, thanks to the political stability of this Country, increasing regional integration (SADC), protection of foreign investments, and increasing number of trade treaties. On the other hand, this sector is disadvantaged by scarce water resources and rainfall variability, in a context of climate change, reduction of agricultural land, due to the development of mining, limited security in the country, and difficulties as for implementing the Land reform, which began 18 years ago. If South African agriculture overcomes these obstacles, its many competitive advantages will enable it to face the issues related to food security and allow it to contribute to the growth concerning both economy and jobs, so positively affecting, and at higher and higher extent, too, business trades related to the sector of agricultural machinery and equipment.
by Laura Turrini
Sources:
Ubifrance, Service Études Agrotech 2014 – FAO 2013
ICE – Italian Trade Commission – Trade Promotion Office of the Italian Embassy, Johannesburg Office, South Africa & sub-Saharan Countries
Ambasciata d’Italia a Pretoria – Ufficio ICE-ITA di Johannesburg
South African Revenue Service
Assocamere – Camera di Commercio Italo-Sudafricana
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Main importers and distributors of South African agricultural machinery and equipment
Afgri; Agriponent; Andrag Agrico; Barloworld Equipment; Bell Equipment Discount Implements & Discount Used Tractor Spares; Ernest H Johnson; Falcon Equipment; GMC Power; LP Spares International; Morning Dew Farms; Northmec; Reapers; Rovic & Leers; Senwes; Smith Power Equipment; South Trade; Spray Nozzle; Staalmaster; Valtrac; Van Breeda Tractors.
Source: Embassy of Italy in Pretoria – ICE-ITA Office in Johannesburg
An agreement for trade relations with the EU
In August 2014 the Economic Partnership Agreement (EPA) was signed between the EU and SADC Countries (Southern Africa Development Community). The Economic Partnership Agreement (EPA) will have to be ratified by all EU member States and SADC Countries before entering into force. For South Africa, this Agreement represents the overcoming of the regulatory framework concerning trade relations with the EU provided by the EU-South Africa Trade, Development and Cooperation Agreement (TDCA) dating back to 1999. EPA Agreement will guarantee to the products coming from South Africa even more favourable access to the EU market compared to the TDCA. The Country will benefit, especially as for agricultural products. However, in the agribusiness sector a trade dispute between the EU and South Africa emerged. It has been widely reported in the South African press, especially in the past year. As a matter of fact, South Africa questions the restrictions imposed by the European Commission to the import from their Country of citrus fruits contaminated with the fungal disease called “Citrus Black Spot”. According to the South African authorities, it is not transmitted to the climatic conditions of the European Countries.
Source: Embassy of Italy in Pretoria – ICE-ITA Office in Johannesburg
