BMI View: W e maintain a subdued outlook for many industries within South Africa's agricultural sector. P roduction will increase year-on-year in the 2015/16 season , but for s ugar, wheat, corn and barley this will merely represent a rebound after severe decline s in 2014/15 caused by drought. G rain production growth will be slow over the coming years due to low prices , while yields will be constrained due to the weak rand, weather volatility and lower farm incomes. The sugar sector will remain relatively stagnant with production growth rates below 1% annually. That said, t he livestock sector will s ee more positive trends in production growth owing to a multitude of factors , such as increasing demand and a higher population with more discretionary spending power. We believe that the country's main agribusiness companies could reap benefits if drought conditions do not deteriorate and cattle and poultry feed prices are not severely impacted.
Sugar production contraction 2013/14 to 2018/19 : 0.4 % to 2. 3 mn tonnes . Much lower global sugar prices, relative to the last few years, will lead to a decline in South African sugar output. We believe that production from Brazil will keep the global market well supplied.
Poultry consumption growth to 2019 : 7.9% to 1.9 mn tonnes. As more South African consumers move towards diets containing higher levels of protein, poultry (predominantly chicken but also turkey and duck) is increasingly being viewed as a convenient, healthy and affordable source of nutrition.
Corn production contraction 2013/14 to 2018/19 : 6.6 % to 1 4.0 mn tonnes. Growth will be constrained over the next few years as a result of slower yield growth and weather droughts.
Real GDP growth: 1.9% in 2015, up from 1.5% in 2014.
Consumer price inflation: 4.4% in 2015, down from an average of 6.1% in 2014.
US-based beverage company PepsiCo has opened a new manufacturing unit in the KwaZulu-Natal province of South Africa for its potato chips business under its Simba brand. The new unit will join the two existing plants located in Gauteng and the Western Cape in South Africa, boosting the brand's regional presence and helping to support South Africa's agribusiness segments. The move will offer the company further opportunities to expand its business in the coming years. The unit has advanced technology for efficient and stable operation, including processes to boost machinery efficiency while lowering electricity consumption and increasing water reuse.
We have revised down our 2014/15 corn production forecast for South Africa due to the effects of a significant drought felt in the country at the beginning of 2015. We expect production to decline by 24.6% y-o-y to 11.3mn tonnes. This is below our previous (yet still below-consensus) forecast of 13.0mn tonnes. The severity of the 2015 drought still plagues South Africa and our current forecast for corn production may be revised further downward in the coming quarters. This has forced corn prices higher and yields lower, imposing higher production costs for the poultry and red meat industry. We believe that corn production will gradually recover to 2018/19, when it will reach 14mn tonnes. In our view, corn yields will not significantly improve over the coming years, nor will the area devoted to the crop considerably expand.
We have considerably revised down our forecasts for sugar production in South Africa owing to the lower sugar price environment. Global sugar prices have fallen by more than 15% y-o-y in rand terms, making sugar production in South Africa much less attractive. The global market will be well supplied over the next year due to strong output from Brazil and Thailand.