The potential exclusion of South Africa from the African Growth and Opportunity Act (Agoa) raises questions about its impact on agricultural exports. Agoa, a U.S. trade preference program established in 2000, allows certain South African exports to enter the U.S. market duty-free. South Africa, a leading agricultural exporter under Agoa, exported over $7 billion worth of agricultural products to the U.S., according to a November 2023 report by the United States Department of Agriculture Foreign Agricultural Service.
A report by the Brookings Institution in November 2023 examined the possible effects of losing Agoa benefits. It suggested that the impact on South Africa's exports and GDP would be minimal. The report estimated a potential decline of 2.7% in total exports to the U.S., with the food and beverages, transport equipment, and fruit and vegetable sectors experiencing the most impact. Overall, a loss of Agoa benefits might reduce GDP by 0.06%.
The Western Cape is the primary beneficiary of Agoa trade, accounting for 49% of South Africa's agricultural exports to the U.S. from 2018 to 2022. Mpumalanga follows, contributing 15% of South Africa's total agricultural exports in 2022. Gauteng, Eastern Cape, and KwaZulu-Natal are also notable beneficiaries.
Three potential scenarios exist regarding Agoa's future. First, South Africa might lose preferential treatment, impacting competitiveness in the U.S. market. Second, the duty burden could be shared between South African producers and U.S. importers, maintaining trade but reducing profitability. Third, the full duty could be passed to U.S. consumers, although this scenario seems unlikely with the imposition of "liberation day" tariffs.
To mitigate risks, South African suppliers should model these scenarios, understand tariff risks, and negotiate with importers. Diversifying markets is recommended. Exploring opportunities in Canada, the European Union, and the UK, where economic partnership agreements exist, could be beneficial. Regional agreements like the SADC Protocol on Trade and the African Continental Free Trade Area (AfCFTA) offer additional avenues for trade.
Building relationships with importers and organizational bodies in the U.S. and South Africa is essential. Diversification and competitiveness remain key strategies for agricultural exporters.
Source: The Star