SA is flush with barley and needs to find new export markets for it
The alcohol ban added to SA’s barley bounty, and the government needs to prioritise countries for export, such as China, amid strong competition
The SA barley industry is set to face a demand slump emanating from the coronavirus-induced alcohol ban, when there is a predicted record 2020/2021 farm production harvest. SA could produce about 505,215 tonnes of barley in 2020/2021, up 46% from the previous season. This is a result of increased area plantings and expected higher yields following favourable rainfall in the Western Cape.
Such a harvest means SA will likely be a net exporter of barley. The key export markets for SA’s barley over the past five years were on the African continent, primarily Uganda, Namibia, Zambia, Botswana, Lesotho and Togo.
Meanwhile, the 2020/2021 marketing season has also been affected by the Covid-19 lockdown regulations, which led to bans on alcohol sales between March 27 and June 1, and again between July 12 and August 17. These bans could lead to a lower intake of barley by the domestic beer industry.
The irony of a historically large barley output amid a predicted fall in demand from processors creates new market uncertainty — where are farmers going to sell their barley? SA might have to explore export opportunities for its surplus beyond traditional markets. It would be worth considering key barley importing countries in the global market such as China, Iran, Saudi Arabia, the Netherlands and Belgium.
Data trends show that SA hasn’t exported barley to any of the world’s largest importing countries. The country has, nonetheless, exported various agricultural commodities to these countries such as maize, citrus, beef and wine. So there is existing agricultural trade movement between SA and these countries. However, the existence of trade flows of other agricultural products is not a sufficient predictor of whether barley exports could follow a similar path.
China has since placed import tariffs of 80.5% on Australia’s barley, which provides a window of opportunity for other competitive suppliers. SA could be one such supplier
Barley producers and exporters could consider key additional factors such as tariff and non-tariff barriers associated with exporting to these countries. The full scope of the latter is a matter that requires further analysis and technical support from the department of agriculture, land reform and rural development, which will provide perspectives around the plant health regulations that would need to be met to access these markets.
From a tariff perspective, SA barley exports to the EU (mainly the Netherlands, Belgium, Germany and Spain) remain duty free under the SADC.economic partnership agreement preferential trade arrangement. The picture for the other markets — from the Middle East and Far East markets — is mixed. SA barley exporters will face tariffs in Japan (175%), Brazil (10%), Iran (5%) and China (3%). Some Middle East markets, such as Jordan and Saudi Arabia, are duty free.
To identify the feasibility of accessing these markets, the department of trade, industry and competition should begin to arrange outward bound trade missions, which should predominantly have private sector representation, to understand the product and client specifications and requirements.
The departments should work together with industry in a co-ordinated effort to access these markets. The public-private partnership effort of developing a market entry strategy should ideally form part of a longer-term strategy designed to provide alternative options in the event of a decline in domestic usage of barley, as many in the market anticipate.
It is an opportunity for closer co-operation between the private sector and the government, and a model that can be used in other sectors
With the domestic barley crop now at advanced stages and set to reach the harvest stage by end of this year, efforts towards expanding market access in these countries for SA’s barley need to begin immediately. We recommend that the top 10 countries be prioritised. The competitors SA will potentially face in the various markets are France, Russia, Argentina, Australia, Canada, the UK, Kazakhstan, Germany, Denmark and Estonia. In key markets such as China, which accounted for 21% of global barley imports by volume in 2019, Australia supplied roughly half the imports, followed by Canada, France, Ukraine and Argentina.
However, China has since placed import tariffs of 80.5% on Australia’s barley, which provides a window of opportunity for other competitive suppliers. SA could be one such supplier to China, and this is a path SA’s government and industry should explore and prioritise, in addition to other key markets. We think Australia might also be looking for markets for its barley, which could present tough competition for SA. Hence, China should be prioritised.
Iran, which accounts for 10% of the world’s barley imports, typically receives supplies from Russia, the UK and Germany. In the case of Saudi Arabia the key suppliers are usually Argentina, Russia, Ukraine and Estonia. These are all suppliers SA will have to compete with in these markets.
It will be important to assess the extent of the country’s competitiveness against these suppliers, and determine if lower tariffs present a meaningful competitive advantage for SA to attempt access to these markets. If this is done with speed it could prove to be an alternative outlet for the excess barley SA will likely have in the 2020/2021 marketing year.
• Sihlobo is chief economist of the Agricultural Business Chamber of SA (Agbiz) and author of Finding Common Ground: Land, Equity and Agriculture. Kapuya is head of the value chain analytics division at the Bureau for Food and Agricultural Policy.
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