09.11.2010

South Africa Urges Switch to Yellow Corn, Asian Markets

South Africa’s government said the country should change the type of corn it plants to target markets in Asia and suggested setting up an agency to promote exports.

An investigation conducted by a team of officials from the Department of Agriculture and the National Agriculture Marketing Council recommended that South Africa “aggressively” move toward producing more yellow corn to meet demand from Taiwan, Japan and South Korea. South Africa, the biggest producer of the grain in Africa, grows mainly white corn, locally known as maize.

South Africa’s government said the country should change the type of corn it plants to target markets in Asia and suggested setting up an agency to promote exports.

An investigation conducted by a team of officials from the Department of Agriculture and the National Agriculture Marketing Council recommended that South Africa “aggressively” move toward producing more yellow corn to meet demand from Taiwan, Japan and South Korea. South Africa, the biggest producer of the grain in Africa, grows mainly white corn, locally known as maize.

“African countries use white maize and we’ve exported when there were regional shortages,” the department said in a report to lawmakers today. “Now all African countries have good crops due to improved productivity and the white maize demand is down.”

Favorable weather conditions and increased use of genetically-modified seed have resulted in bumper harvests and an over-supply in South Africa with this years’ harvest expected to be the biggest since 1982 at 13.04 million metric tons. Of that 60 percent is expected to be white corn and the rest yellow.

That has cut corn prices, eroding farmers’ profits. White corn has slid 20 percent to 1,338 rand ($196) a ton this year on the South African Futures Exchange in Johannesburg while yellow corn has fallen 10 percent to 1,426 rand. In South Africa white corn is used to make corn meal, a staple food, while yellow corn is mainly fed to animals, with chicken producers Rainbow Chicken Ltd. and Astral Foods Ltd. being among the biggest buyers.

Unutilized Stock

The government has failed in its efforts to significantly cut the country’s estimated 4.5 million ton corn surplus as plans to export to Egypt, Tunisia and China were thwarted, Agriculture Minister Tina Joemat-Pettersson told lawmakers in Cape Town.

“We are intervening as government to assist these farmers” get rid of their excess corn, she said. “We know we have a national interest to safeguard this industry.”

South Africa had 2.1 million tons of unutilized corn stocks in the marketing season through April this year, according to the Pretoria-based South African Grain Information Service, which is known as Sagis. That stockpile stood at 8.86 million tons at the end of September with two thirds of that being white corn.

Despite the setbacks the county has managed to find new markets for some of its corn in the marketing year that began May 1.

Japan, Kuwait, Spain

In that period South Africa has shipped 500,900 tons of yellow corn to nine African countries as well as to Spain, Taiwan, Japan, Kuwait and South Korea, according to Sagis. That compares with 261,338 tons in the whole of the last marketing year when shipments went to 12 African countries as well as to Iran and Malaysia.

White corn exports this marketing year have totaled 340,932 tons to 12 African countries compared with 1.42 million tons to 11 African countries in the last marketing year. This year Malawi and Zambia have declared corn surpluses. Zimbabwe’s crop is expected to rise 38 percent, according to the U.S. Department of Agriculture.

In the week ended Nov. 5 South Africa exported 1,089 tons of yellow corn to five African countries and 6,691 tons of white corn to five neighboring states, Sagis data showed.

Export pool

The government backs a request by the corn industry for the formation of an export pool to rid the country of its grain surplus, Langa Zita, the director-general of the agriculture department, said in an interview in Cape Town. The pool would separate surplus corn from that needed for domestic use.

“The decision doesn’t lie with us, it’s with the Competition Commission,” he said. “We wouldn’t want going forward to say every year there is a surplus, this will be the path we will follow. Collective interventions like this are not in the long-term interest of vibrant markets.”

The Pretoria-based Commission is considering Grain SA’s application for exemption from some antitrust laws to reduce the surplus, which Grain SA, which represents growers, estimates at about 3.6 million tons to 3.7 million tons in the corn marketing year that ends April 30 next year. Kobus Laubscher, the chief executive officer of Grain SA, wasn’t available for comment when his office in Bothaville was called today.

Sagis, which provides grain market data on behalf of the industry, is “quite comfortable” with the minister’s estimate, while it views Grain SA’s estimate as “quite conservative,” Anna Enslin, general manager of the organization, said from Pretoria.

The agriculture department also recommended that there be increased support for the production of wheat, soybeans and sunflowers and that the markets for biofuels and animal feed be explored. South Africa is a net importer of wheat.

An export agency or trading desk shouldn’t move South Africa back to the pre-1994 regulated-market system as the government doesn’t have the capacity or skill to sell all corn through a single state-run channel, Lindie Stroebel, economic intelligence manager at the Agricultural Business Chamber said from Pretoria today. Such an agency or desk should focus, instead, on promoting the local industry to develop new markets abroad, she said.

Article source: www.bloomberg.com