The risk profile for African swine fever is increasing

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The year 2019 came with its own challenges for the local meat producers. First it was the dry conditions during the planting period for summer grains (an important input in meat production) at the end of 2018, which prevented grain producers from planting the intended area. Not long after that, a Foot and Mouth disease (FMD) occurrence was reported by the Department of Agriculture in cattle in the Vhembe District of Limpopo Province. The export market was immediately halted, which then led to oversupply of cattle in the market, and subsequently declines in meat prices.

While the focus was on stabilising the FMD disease to protect the export market, there were reports of African Swine Fever (ASF) which was detected in the Ditsobotla Municipality in the North West Province at the beginning of April. Not long after that, three more outbreaks were identified outside of the ASF controlled area of South Africa, in the Delmas area in Mpumalanga, the Daveyton region in Gauteng and recently another one reported near Heilbron in the Free State. The risk profile for this outbreak is clearly increasing, posing a potential risk to stakeholders in the pork industry. A large ASF outbreak would severely impact South Africa’s exports, resulting in these markets closing.  It is important for producers to implement effective biosecurity systems to ensure that diseases, such as AFS, are contained. This is crucial to ensure access to more export markets and the industry’s profitability.

ASF is a serious disease if it gets out of control. China, the biggest global producer and consumer of pork by volume is battling a major AFS epidemic. The international financier Rabobank has projected as much as a 30% decline in Chinese pork production for 2019. The situation in China is expected to trigger an increase in meat prices globally, thereby provide some temporary support to the local prices.

The profitability of the pork industry is highly dependent on the price of feed grains, especially maize. Following the drought in 2016 which was characterised by high grain prices, feed grain prices declined substantially during 2017, and combined with strong domestic pork prices, profitability levels improved.

These positive trading conditions continued into early 2018, with producer margins benefitting from the improving industry. However, the industry suffered another blow early 2018 when the Department of Health announced that they had traced an outbreak of listeria in an Enterprise production facility in Polokwane, and advised people to avoid all processed meat products. This led to declines in the consumption of pork products, leading to oversupply of fresh pork in the market.  About 50% of pork is processed in South Africa compared to about 30% in beef.  Average producer prices came under severe pressure. For the period January and April 2018, the average porker price declined by 30%, whilst the average baconer prices dropped by 34%. After massive promotions at selected retail stores, demand picked up and average prices started to recover to reach just under R30/kg levels at the end of 2018.

At the end of 2018, one challenge that became eminent was dry conditions experienced in the grain and oilseed producing areas of the country, which led to delays in plantings. The reduction in area planted and expectations of relatively poor yields in some areas are expected to lead to overall lower crop in 2019, and thus adding support to agricultural grain prices, particularly maize. Maize and soybeans are key inputs in the pork sector, hence an increase in their prices is viewed as a concern for the industry.

At the beginning of 2019, pork prices eased in line with seasonal demand trends and added pressure originating from the outbreak of Foot and Mouth (FMD) disease in Limpopo. The spill over impact from lower beef prices due to the immediate closure in export markets following FMD outbreak weighed on pork prices. Pork prices are likely to remain under pressure in the short term in line with seasonal trends, as we are heading into the colder winter period.

The environment of increasing feed costs, low producer prices as well as the latest AFS outbreaks could pose challenges in this sector. The economy has also been under pressure, with consumers experiencing the burden of low growth, and the ever increasing costs such as fuel and electricity, thereby eroding their purchasing power. Effective biosecurity systems must be prioritised, to ensure the success of the export market, which provides long term opportunities for the industry.

Karabo Takadi is an Agricultural Economist at Land Bank. She writes in his personal capacity and the views expressed in this article are her own and do not necessarily represent policy positions of Land Bank.