SA’s agricultural export diversification strategy will take time to pay off

This week marks the cut-off date for the 10% universal tariff that the US administration offered as a 90-day reprieve from the higher tariffs imposed on Liberation Day.

There remains profound uncertainty about the path forward after the expiry of the relief period.

South African businesses and the government have engaged, and continue to interact, with US authorities regarding the path forward.

However, the path forward remains unclear, though we would all like to see the continuation of the 10% tariffs rather than the 31% tariffs SA faced.

For the Eastern Cape, where both agriculture and the auto industry account for a notable share of the economy, the US tariff presents a significant challenge.

The auto industry is also facing competition from cheaper vehicle imports from China, which add to an already challenging operating environment. 

Observing this situation, the idea often proposed by some is that we should channel our energies into export diversification to new regions for all of our major exporting industries, such as auto, mining and agriculture.

The export diversification part is, of course, sound advice. However, we cannot completely abandon the US market — it is vital to SA and crucial to us in the agricultural sector.

Looking at this purely from an agricultural perspective, the export diversification comments typically point to China, suggesting that we should focus more on that area.

Indeed, regular readers of this column will be aware that China has been a primary focus for some time.

China is a significant agricultural market, accounting for roughly 11% of global agricultural imports, which totalled $218bn (R3.8-trillion) in 2023.

However, accessing China is not as easy, despite the country’s optimistic statements about lowering import tariffs for goods from various African countries.

Until there is clarity about this process and timelines, we continue to face higher tariffs in China and some phytosanitary barriers.

These limit South African agricultural penetration into the Chinese market for now.

Thus, SA remains a negligible player in the Chinese agricultural market, accounting for a mere 0.4%,or $979m (R17.3bn), of China’s agricultural imports of $218bn (R3.8-trillion) in 2023.

These exports include a variety of fruit, wine, red meat, nuts, maize, soybeans and wool.

Another matter that is also important to appreciate is that switching export markets is not as easy as stopping selling citrus to Garry and selling it now to Bulelani.

There is a business relationship development side and marketing that the private sector or export agents must establish, after the tariff issues and the phytosanitary matters are resolved. 

There is also an issue of consumer taste and buying power per region, which all influence the demand for the various products that SA exports to specific markets.

Therefore, we need to build on an export diversification strategy, but it cannot be viewed as an overnight solution to avoiding the challenges in the US market. 

The export diversification strategy requires focus, firstly, from the government, and thereafter, time for the private sector to establish the necessary business relationships and address logistical challenges, especially in agriculture.

It is partly for this reason that you may have heard me say that we must work to retain the market access we have in the US for SA’s agricultural products, while also expanding our market access in various countries in the Middle East and Asia. 

We cannot view other countries as the replacement of the US; if anything, they can be an addition to our access in the US over time.

We also have significant potential for increased horticulture and other products that will require greater access to various export markets.

Importantly, the complexity of opening new export markets is also a matter that policymakers must underscore in their comments when guiding on trade matters at this time of heightened uncertainty in trade policy.

There also needs to be dedicated teams within the trade departments that work tirelessly on matters of export market expansion, so that policy adjustments are backed by actual work under way.

Still, much of this takes time and is costly to businesses and other stakeholders.

But it is vital and the only path to broadening our exports and strategically derisking our industries in the medium to long term.

• Wandile Sihlobo is the chief economist of the Agricultural Business Chamber of SA (Agbiz).

The Herald