How To Get Your Agri Business Export Ready

SA has been so good in increasing production of high quality citrus fruit that some international competitors are actively trying to curb our market presence. This means that the industry must now actively and urgently develop new markets to absorb our increasing production.

The citrus sector is proof that South African agriculture products are not only world-class, but they are also a powerful source of foreign exchange for the fiscus.

If one puts together the agriculture, food produce and beverages combined, the South African agriculture export market is valued at over $12.4bn per annum and is forecasted to maintain robust growth for the foreseeable future.

As South Africa’s largest funder of agriculture projects, we are passionate about seeing this sector grow and develop and letting local businesses take their place in the global economy.

The first thing to consider when looking at export markets is to tap into advice from specialists who have operated in these markets and understand local nuances. Absa enjoys arguably the premium agriculture financing team in the country and they have experience of both intra-Africa trade as well as the global market. Agriculture producers looking to access these markets should view their banking partners as key advisors here and should lean on them for expert advice before leaping.

For example: How well do you really understand the African export market?

While the African Continental Free Trade Area (AfCFTA) is expected to boost intra-African trade – and represents an opportunity in the agri sector – one needs to be careful of seeing this as a silver bullet for exporters attracted to growth markets in East and West Africa. Approximately 89% of South Africa’s agriculture product exports into Africa are in fact into the Southern African Customs Union (SACU) and Southern African Development Community (SADC) – the larger markets are incredibly competitive and many of these markets have seen significant investment and government subsidised investment in their own agriculture capacity.

Secondly, they should look to understand the power of Export Letters of Credit as these can materially de-risk export transactions. Typically, payment is only made to exporters when they present documents that comply exactly with specified terms and conditions. The exporter may be able to use their Letters of Credit (LoC) from their banking partners to receive payment immediately and these LoC’s can be issued for any value and in any freely traded currency – subject to certain conditions.

Your next consideration will be the foreign exchange market and how this will impact your bottom line. The South African Rand is one of the most actively traded currencies in the world and as an emerging market, the country is susceptible to sharp movements in response to monetary policies or geopolitical risks. Your banker will be a key partner here as they help you navigate their suite of products, including the Spot and Forward Markets, as well as Hedging strategies to de-risk your export journey.

The final consideration for would-be exporters is something which is completely out of their control yet a major input cost: The deteriorating state of logistics and warehousing infrastructure in the country. While there have been some encouraging signs out of Transnet in recent months, port infrastructure in KwaZulu Natal is still recovering from a cyber-attack and flooding which has materially impacted operations. The grain sector, for example, is giving serious consideration to utilsiing the East London port to get around the challenge of the constraints at the Durban port. With rail infrastructure in need of major upgrades, the costs of moving goods around the country remain a real inhibitor of growth for the agriculture and agri-processing sectors.

That said, we are incredibly optimistic about the prospects for the agriculture sector in South Africa and see it as playing a pivotal role in generating much needed foreign exchange for the country. To be successful in your export journey, you need to ensure that you work with credible partners, and in this respect, we believe we can be the team of choice for growth-minded agri entrepreneurs.