Absa AgriBusiness’s latest projections suggest that the rand is currently undervalued and likely to appreciate over the next 18 months, potentially stabilizing at around R17 to the US dollar.
“This trend presents a double-edged sword,” said Dr. Marlene Louw, senior economist at Absa AgriBusiness, during the report’s launch. “While a stronger rand could lower export returns, it would also alleviate the significant cost pressures producers have faced in recent years.”
Consumer spending pressure is also decreasing, with fuel prices dropping by 15.5% since May, providing households with additional disposable income. This could lead to increased spending on luxury products like red meat and blueberries.
“We estimate that the reduction in fuel prices could return R3 billion to consumers’ pockets by the end of 2025,” Louw said. “Fuel, which contributed up to 3% to headline inflation in 2022 and early 2023, is expected to exert a moderating influence on inflation through 2025.”
Interest rates are also expected to ease, with Absa forecasting a 125-basis point cut by the end of 2025, offering further relief to consumers.
Another factor contributing to economic relief is the implementation of the two-pot retirement system. “The South African Reserve Bank estimates that consumers could access around R40 billion from this system, with the figure potentially reaching R100 billion under a more aggressive scenario,” Louw explained. This additional liquidity could help consumers reduce debt while supporting government revenue. Under the aggressive scenario, the system could contribute up to 1% to economic growth, providing indirect benefits to the agricultural sector.
The future of the COVID-19 Social Relief of Distress grant, set for review in March 2025, will significantly impact staple and vegetable sales. Louw noted that when the grant was suspended for two months in 2022, potato prices were pressured, and the effects lingered through the third quarter of that year. “The future of the grant remains uncertain, and its implementation will notably affect vegetable prices and demand, as around nine million people benefit from it,” she added.
Vegetable demand is also being influenced by reduced exports of key produce like potatoes, onions, and tomatoes due to import bans from neighboring countries such as Botswana, Namibia, and Zimbabwe. These export restrictions have likely mitigated some price shocks, but their impact will become more pronounced in the coming months.
Louw highlighted that South Africa is not alone in facing rising protectionism. Globally, many nations are adopting more inward-looking policies. For instance, the potential re-election of Donald Trump in the US could heighten regional protectionism and increase import tariffs, potentially exacerbating tensions between the US and China. “Our research indicates that such a conflict could heavily influence soya bean and pork markets and lead to efforts to include pork in AGOA trade talks between the US and South Africa,” Louw noted.
The diversification of export markets will be crucial for high-value fruit producers. In 2023, about 51% of South Africa’s fruit and nut exports were sent to the EU, with an additional 20% reaching the Far East, primarily China, and 13% going to the Middle East. India presents a significant growth opportunity for South Africa, with over 100 million consumers able to purchase higher-value fruits, nearly double the number in the UK. Despite India’s 8.2% economic growth last year, challenges such as high youth unemployment (15%) and high import tariffs, including a 30% rate on avocados, macadamias, and citrus, pose obstacles.
Nevertheless, South African agricultural businesses are positioning themselves to tap into India’s market potential. “India presents exciting prospects despite these hurdles. Market access is the first step, but ongoing discussions to reduce tariffs will be key,” Louw concluded.