Despite the stability in the combined turnover value of the pome and stone fruit industries at R19.7 bn year-on-year, and improved business confidence, several producers are still recovering from losses over the past two seasons. The weakening of the rand bolstered net export realisation, yet was counterbalanced by steep rises in input costs. Between January 2021 and April 2024, the prime interest rate escalated from 7% to 11.75%, input costs surged by 34-69%, and global reefer container freight rates in dollar terms rose by approximately 13%. The depreciation of the rand by 25% during this period further exacerbated the impact on the South African perishable export industries.
Transitioning from nominal to real terms for export prices and inputs reveals price movements relative to inflation, highlighting the increased cost of a typical basket of inputs by an average of 8.0% per annum over the last decade, outpacing the average inflation rate of 5.5%. This scenario indicates that horticultural input costs have risen faster than inflation, eroding market returns in a high-cost environment.
From 2014 to 2022, export prices for most fruits declined in real terms, except apricots. A combination of global and local factors pressured gross returns, while the sharp increase in costs along the value chain exacerbated the impact on net returns. In 2023, a recovery in prices was noted, largely attributed to a post-pandemic normalization of global logistics and a spike in freight rates, alongside a decrease in Peruvian production due to El Nino.
Despite the short-term recovery in prices, the long-term projection indicates a slight negative trend. The competition in the market, as production and export volumes generally increase, necessitates investment in cost-effective, higher-yielding, and higher-density plantings to maximize output and revenue per input unit.
While the total planted hectares for apples, pears, apricots, and plums are expected to remain stable, a decline in peach areas with a slight expansion in nectarines is anticipated. However, a positive production trend is projected, driven by young orchards coming into production and average yield improvements. The marketing split is also expected to shift slightly more towards exports.
Additional market access, changes in tariffs, and more fruit-friendly SPS measures could improve average market returns. The potential opening of the Chinese market for stone fruit, where Australia and Chile are currently the only Southern Hemisphere countries directly supplying peaches and plums, presents an opportunity for South African producers. A simulated increase in marketing to China could positively impact the South African stone fruit industry, potentially improving average export prices and mitigating some of the negative projections.
Access to the Chinese market could increase the profitability of harvested volumes, with the premium prices in China and a reduction in volumes shipped to other markets creating a positive trend. This could lead to an increase in the value of exports, projected under baseline conditions to equate to R1.13 bn for peaches and nectarines and R2.04 bn for plums, increasing by 12 and 8 percent respectively in the simulated scenario.
Although the risk of negative returns will be reduced, the long-term sustainability of production units remains a concern. However, as cost-effective yield improvements counteract the impact of rising input costs faster than market returns, volumes are expected to grow. With exports generating the bulk of revenue, improving pack-out percentages should be prioritized.
Source: HORTGRO