Quarterly Economic Review of the Food and Beverages Industry in South Africa

Transcription

1 Quarterly Economic Review of the Food and Beverages Industry in South Africa October - December 2017 DIRECTORATE: AGRO-PROCESSING SUPPORT agriculture, forestry & fisheries Volume 4, number 2

2 PREFACE The agro-processing industry is among the sectors identified by the Industrial Policy Action Plan (IPAP) and the National Development Plan for its potential to spur growth, development and job creation via its strong backward and forward linkages with the other sectors of the economy. DAFF established the Directorate: Agro-processing Support in 2011 to facilitate the processing of raw primary agriculture, forestry and fisheries commodities into value added products. One of the functions of the directorate is to provide timely and updated economic information regarding the agro-processing industry as part of monitoring and evaluating the performance of the industry. Additionally, economic indicators provide an insight into the effects of economic policies and other exogenous factors. To achieve this purpose, the directorate publishes regular quarterly economic reviews of the agro-processing industry. The main economic indicators reviewed are the changes in prices, production, capacity utilisation, value of sales, formal employment and trade. An outlook of the industry for the next quarter is also presented. In addition, some indicators of the food and beverages service industry, wholesale and retail sectors are reviewed to evaluate the forward linkages of the food and beverages industry. Any comments and suggestions on the content of the publication are most welcome. Mahlagedi Victor Thindisa Director: Agro-processing Support Pretoria Disclaimer: The Department of Agriculture, Forestry and Fisheries did everything to ensure the accuracy of the information reported in this publication. The department will, however, not be liable for the results of action based on this publication. i

3 CONTENTS PREFACE... i 1. INTRODUCTION FOOD PRODUCTS PRICE PRODUCTION VALUE OF SALES INCOME FROM FOOD SALES IN THE SERVICE INDUSTRY TRADE EMPLOYMENT OUTLOOK BEVERAGES PRICE PRODUCTION VALUE OF SALES INCOME FROM BAR SALES IN THE SERVICE INDUSTRY TRADE EMPLOYMENT OUTLOOK CONCLUSION REFERENCES NOTES: Compiled by Directorate: Agro-processing Support Department of Agriculture, Forestry and Fisheries Sefala Building 503 Belvedere Street, Arcadia, South Africa All correspondence can be addressed to: Director: Agro-processing Support Private Bag X416, Pretoria 0001, South Africa Tel.: +27 (12) Fax: +27 (12) VictorTH@daff.gov.za This publication is also available on the internet at: ii

4 1. INTRODUCTION The South African growth in the real value added by the primary sector decelerated notably to 4,9% in the final quarter of 2017, following three consecutive quarters of double-digit increases. The slowdown reflected a contraction in the mining sector and a slight moderation in real output growth in the agricultural sector. For 2017 as a whole, the real gross value added (GVA) by the primary sector increased by a firm 7,5% and contributed 0,7 percentage points to overall annual gross domestic products(gdp) growth. This turnaround in the agricultural sector was brought about by the end of the prolonged drought in the northern parts of the country, which benefited field crop production as reflected by the 2017 bumper maize crop and positive spillovers to some other sectors of the economy (Reserve Bank, 2017). During, the quarter-to-quarter physical volume of production of meat, fish, fruit, etc. and dairy products rebounded as compared to the last quarter. However, grain mill products and other food products grew during the period under review. The year-on-year meat, fish, fruit, etc., dairy and other food products grew while grain mill products registered an improved negative growth of 2,6% during the period under review. The quarter-to-quarter seasonally adjusted value of sales of food products grew by 2,0%, following a 0,3% growth in the previous quarter. Similarly, the year-on-year seasonally adjusted value of sales grew by 2,1%, as compared to a growth of 0,9% in the previous quarter. The trade balance of food and beverages grew from R2 241,6 million in the previous quarter to R3 054,6 million in 2017:Q4. The employment in the food, beverages and tobacco divisions rebounded quarter-to-quarter by 0,4% from 1,3% growth in the preceding quarter. However, employment contracted by 1,9% year-on-year. As a result, 957 jobs were created in the division during the quarter. This quarterly review provides an analysis of the economic performance of the food and beverages industry. The variables that are analysed are exports and imports of food and beverages, employment, net balance survey, price index, volume of production, sales, utilisation capacity, and wholesale and retail performances. 2. FOOD PRODUCTS According to the Standard Industrial Classification, the food industry incorporates groups of products that are categorised into the following four codes: Code 301 refers to manufacturing, processing and preservation of meat, fish, vegetables, fruit, oils and fats Code 302 refers to manufacturing, processing and preservation of dairy products Code 303 refers to manufacture of grain mill products, starch products and prepared animal feeds Code 304 refers to manufacture of other food products like bread, sugar, chocolate, pasta, coffee, nuts and spices. 1

5 Hereafter, food products refer to those primary agricultural and fisheries products that have undergone some form of change through manufacturing and processing or performed some value addition activities such as preservation. 2.1 PRICE Consumer Price Index (CPI) 1 During 2017:Q4, with the economy boosted by growth in consumption expenditure by households, the quarter-to-quarter consumer price index of all items grew by 0,9%, following a growth of 0,6% in the previous quarter. Some of the items that grew in this period were: milk, eggs and cheese by 1,5% from a 1,0% growth in the last quarter. Fruit moderated by 3,9%, vegetables and fish moderated by 4,2% and 0,1% respectively. Oils and fats rebounded by 0,6%(See Table 2.1). Similarly, the year-on-year consumer price index of all items moderated by 4,5% in, following a 4,6% growth recorded in the previous quarter. Food items that moderated year-on-year were: meat; sugar, sweets and desserts; and fish, which moderated by 15,1%; 4,8% and 2,6%, respectively. However vegetables rebounded by 1,8%. Table 2.1: Consumer price index of food products Indices % change between Food products All items (CPI Headline) Food and nonalcoholic beverages Food Processed Unprocessed Bread and cereals Meat Fish Milk, eggs and cheese Oils and fats Fruit Vegetables Sugar, sweets and deserts Weight and 2017: Q4 and ,6 103,2 104,1 4,5 0,9 15,4 99,3 103,0 103,9 4,6 0,9 14,2 99,4 102,9 103,9 4,5 0,9 6,8 99,9 103,1 102,9 3,0-0,1 7,4 98,9 102,8 104,6 5,8 1,8 3,5 99,7 96,0 94,3-5,4-1,8 4,6 98,1 110,6 112,9 15,1 2,1 0,4 100,6 103,2 103,3 2,6 0,1 1,7 100,1 102,6 104,1 4,0 1,5 0,5 100,3 96,9 97,4-2,9 0,6 0,2 98,3 90,5 94,0-4,3 3,9 1,6 99,7 97,4 101,5 1,8 4,2 0,6 100,1 106,7 104,8 4,8-1,7 1 Stats SA defines CPI as a current social and economic indicator that is constructed to measure changes over time in the general level of prices of consumer goods and services that households acquire, use, or pay for. 2

6 Other food 0,9 99,8 101,5 100,1 0,1-0,1 Source: (Stats SA, 2017a) Producer price index (PPI) 2 The quarter-to-quarter and year-on-year producer price index for all final manufactured goods registered a positive growth of 1,8% and 5,1% respectively during the period under review. Sugar, oils and fats; fruits and vegetables; food products; and dairy products grew by 2,5%, 1,4% and 0,7%, 0,3% and 0,2% respectively. However, grain mill products, bakery products, meat and meat products, and other food products registered a negative growth of 3,3%, 0,6%, 0,6% and 1,2% respectively in. Fish and fish products remained unchanged during the period under review. Grain mill products; sugar; Starch and starch products, animal feeds; Oils and fats; other food products; and meat and meat products registered negative growth of 17,3%, 10,7%,10,6%,1,3%, 1,2% and 1,2% respectively during. Table 2.2: Producer price index of food products Indices Food products Weight Final manufactured goods (Headline PPI) Food products Meat and meat products Fish and fish products % change between and and ,5 102,8 104,6 5,1 1,8 26,3 85,0 85,9 86,2 1,4 0,3 4,5 89,2 88,6 88,1-1,2-0,6 1,6 82,2 83,1 83,1 1,0 0.0 Fruit and vegetables Oils and fats Dairy products Grain mill products Starch and starch products, animal feeds Other food products Bakery products Sugar 2,4 98,9 102,9 103,7 4,9 0,7 0,5 99,8 97,1 98,5-1,3 1,4 3,3 100,0 101,8 102,0 2,0 0,2 1,8 100,7 86,1 83,3-17,3-3,3 1,6 100,1 90,4 89,5-10,6-1,0 0,9 100,6 99,7 99,4-1,2-0,3 6,9 100,4 101,3 100,8 0,3-0,6 1,9 102,1 88,9 91,1-10,7 2,5 Source: Stats SA (2017b) 2 OECD defines the Producer Price Index (PPI) as a measure of the change in the prices of goods either as they leave their place of production or as they enter the production process. The PPI can be used as an economic indicator of inflation, as an escalator in contracts and as a deflator in the calculation of the national accounts. 3

7 2012: Q4 2013: Q1 2013: Q2 2013: Q3 2013: Q4 2014: Q1 2014: Q2 2014: Q3 2014: Q4 2015: Q1 2015: Q2 2015: Q3 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q2 Index (2010 = 100) Import unit value index 3 Table 2.3 presents the import unit value of selected food products. On a demand perspective, an increase in unit value is an indicative of a growing demand. During the period under review, the import unit value of food products registered a positive growth of 1,4% quarter-to-quarter and negative growth of 6,8% year-on-year. The fats and oils registered a negative growth of 6,8% year-to-year and 1,4% quarter-to-quarter, while grain mill products grew by 0,5% year-onyear and 1,6% quarter-to-quarter. Table 2.3: Import unit value index of food products Food products Indices % change between and 2017: Q4 and 2017: Q4 Food (total) 100,6 92,5 93,7-6,8 1,4 Fats and oils 100,6 92,5 93,7-6,8 1,4 Grain mill products 104,4 103,3 105,0 0,5 1,6 Source: Stats SA (2017c) 2.2 PRODUCTION Figure 2.1: Seasonally adjusted physical volume of production: food products Meat, fish, fruit etc Dairy products Grain mill products Other food products Source: Statistics SA (2017d) 3 IMF defines export and import unit value index as a measure the overall change in the prices of transactions in goods and services between the residents of an economic territory and residents of the rest of the world. The average unit value is obtained by dividing the value of exported/imported goods in monetary terms with the respective volume/weight of the goods. 4

8 Figure 2.1 presents a physical volume of production of the food products. The quarter-toquarter physical volume of production of meat, fish, fruit, etc. and dairy products rebounded by 0,7% and 0,3% from a 0,1% and 0,6%, respectively in the last quarter. Grain mill products and other food products grew by 1,5% and 1,7% as compared to a growth of 0,6% and 1,0%, respectively in the last quarter. Conversely, meat, fish, fruit, etc., dairy and other food products grew by 4,0%, 5,3% and 9,7%, respectively year-on-year, while grain mill products registered an improved negative growth of 2,6% as compared to a 6,3% contraction in. The growth in food production could be a attributed to an increase in households expenditure in 2017:Q4. Production capacity Table 2.4: Utilisation and reasons for underutilisation of production capacity by large enterprises: Food products (percentage) Period Utilisation Reasons for underutilisation Total underutilisation Shortage of Raw materials Labour Skilled Semi and unskilled Insufficient demand Other 82,2 17,8 1,8 1,5 0,3 9,9 4,3 82,0 18,0 2,6 1,4 0,3 10,8 2,9 82,7 17,3 2,0 1,4 0,6 10,4 2,9 Source: Statistics SA (2017e) The utilisation of production capacity by large enterprises of food products showed a marginal growth year-on-year and moderate growth quarter-to-quarter (see Table 2.4). Insufficient demand and other reasons such as low productivity and shortage of raw materials are the main reasons of underutilisation during the period under review. 5

9 2012: Q4 2013: Q1 2013: Q2 2013: Q3 2013: Q4 2014: Q1 2014: Q2 2014: Q3 2014: Q4 2015: Q1 2015: Q2 2015: Q3 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q2 R million 2.3 VALUE OF SALES 34,000 32,000 30,000 Figure 2.2: Seasonally adjusted value of sales (current prices): food products 28,000 26,000 24,000 22,000 20,000 Source: Statistics SA (2017d) During, in line with respective increases in food production and households expenditure, the quarter-to-quarter seasonally adjusted value of sales of food products grew by 2,0%, following a 0,3% growth in the previous quarter. Similarly, the year-on-year seasonally adjusted value of sales grew by 2,1%, as compared to a 2,1% growth in the previous quarter (see Figure 2.2). Figure 2.3 below shows the performance of meat, fruit and fish; dairy products; grain mill products; and other food products. Meat, fruit and fish and other food products grew by 1,7% and 3,4%, respectively, quarter-to-quarter. Dairy products moderated by 1,3%, while grain mill products rebounded by 0,5% quarter-to-quarter. However, meat, fruit and fish; dairy products and other food products grew by 5,3%; 7,7% and 8,7%, respectively year-on-year. Moreover, dairy products registered an improved negative growth of 15,1% in 2017:Q4 as compared to a 15,5% contraction recorded in the last quarter. 6

10 2012: Q4 2013: Q1 2013: Q2 2013: Q3 2013: Q4 2014: Q1 2014: Q2 2014: Q3 2014: Q4 2015: Q1 2015: Q2 2015: Q3 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q2 Index (2010 = 100) 14,050 12,050 10,050 8,050 6,050 4,050 2, Figure 2.3: Seasonally adjusted value of sales (current prices): food products Meat, fish, fruit etc Dairy products Grain mill products Other food products Source: Statistics SA (2017d) Wholesale and retail sales 4 The current value of wholesale and retail sales of food, beverages and tobacco are given in Figure 2.4. The quarter-to-quarter wholesale and retail sales of food, beverages and tobacco accelerated by 15,3% and 21,0%, as compared to a 0,5% and 3,8% growth, respectively, in. However, the year-on-year retail sales of food, beverages and tobacco moderated by 9,2%, while wholesale grew modestly by 6,1%. As a result, the current value of income from wholesale and retail sales of food, beverages and tobacco increased from R26,2 billion and R7,0 billion in the previous quarter to R30,3 billion and R8,5 billion, respectively in. This is boosted by an increase in households expenditure, which is the case during festive seasons. 4 Statistics South Africa (Stats SA) conducts a monthly survey covering enterprises in the wholesale and retail trade industry. The results of the monthly wholesale and retail trade sales survey are used to compile estimates of the gross domestic product (GDP) and its components, which are used in monitoring the state of the economy and formulation of economic policy. These statistics are also used in the analysis of comparative business and industry performance. 7

11 2012: 2013: 2013: 2013: 2013: 2014: 2014: 2014: 2014: 2015: 2015: 2015: 2015: 2016: 2016: 2016: 2016: 2017: 2017: 2017: 2017: R million 2012: Q4 2013: Q1 2013: Q2 2013: Q3 2013: Q4 2014: Q1 2014: Q2 2014: Q3 2014: Q4 2015: Q1 2015: Q2 2015: Q3 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q2 R million 35,000 30,000 25,000 20,000 15,000 10,000 5,000 Figure 2.4: Wholesale and retail trade sales of food, beverages and tobacco (current prices) 0 Wholesale Retail Source: Statistics SA (2017f, 2017g) 2.4 INCOME FROM FOOD SALES IN THE SERVICE INDUSTRY 6 Table 2.5 below shows the income from food sales in the service industry, which includes food sales in restaurants and coffee shops, take-away and fast food outlets and catering services. 5,500 Figure 2.5: Income from food sales in the service industry 5,000 4,500 4,000 3,500 3,000 Source: Statistics SA (2017) The total current income from food sales in the service industry moderated by 9,2% in, from a 9,5% growth in the preceding quarter. The quarter-to-quarter increase can be attributed to moderate growth in restaurant and coffee shops and catering services by 7,7% and 5,0% from 13,7% and 5,4% in. However, take-away/fast food accelerated by 12,5%, as compared to a 5,6% growth in the last quarter. Similarly, the year-on-year income from food sales moderated by 5,4% following a 9,5% growth in. Restaurants and 8

12 2012: Q4 2013: Q1 2013: Q2 2013: Q3 2013: Q4 2014: Q1 2014: Q2 2014: Q3 2014: Q4 2015: Q1 2015: Q2 2015: Q3 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q2 R million coffee shops and take-away/fast food moderated by 5,8% and 5,2%, respectively, while catering services rebounded by 4,9% year-on-year. As a result, the industry grew by R4 698,9 million in the current quarter, from R5,131,3 million in the last quarter (see Figure 2.6) 3,000 Figure 2.6: Income from food sales in the service industry 2,500 2,000 1,500 1, Restaurants and coffee shops Catering services Take-away/fast food outlets Source: Statistics SA (2017h) 2.5 TRADE Main food export destinations and products Figure 2.7 shows food export destinations share of continents. Asia was the main export destination during. It accounted for 36% of the total share of exports, which is followed by Africa at 26%, then Europe and Asia with a share of 26% and 21%, respectively. The Americas share was 10%, while Oceania s share is minimal at 1,0%. The dominance of Asia is likely linked with its population size and a move towards the consumption of processed food driven by an increasing e in households income. Europe 21% Figure 2.7: The food export destinations'share of continents in 2017: Africa Q4 26% Oceania 1% Others 8% Americas 10% Asia 34% 9

13 2012: Q4 2013: Q1 2013: Q2 2013: Q3 2013: Q4 2014: Q1 2014: Q2 2014: Q3 2014: Q4 2015: Q1 2015: Q2 2015: Q3 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q2 % Figure 2.8: The food export destination's share of the continents (2012: Q4 ) Africa Americas Asia Europe Figure 2.9 shows the food export destination s share of the main regions 5 in. Among the main regions, Eastern Asia accounted the highest share of food exports (21%), followed by the European Union (20%), SADC (Excluding SACU) (11%), while SACU (Excluding RSA) accounted for 11% share. NAFTA accounted for 8%, while South central Asia, Western Asia and South-Eastern Asia accounted for a combined share of 14% during the period under review. Figure 2.9: The food export destinations's hare of main regions in 2017: Q4 SADC Others (excluding 15% SACU) 11% Western Asia 4% SACU (Excluding RSA) 11% Eastern Asia 21% European Union 20% South-eastern Asia 3% NAFTA 8% South-central Asia 7% Source: Quantec EasyData (2016) 5 The main regions which are included in the analysis are the top eight regions: SADC, Western Africa, EU; NAFTA (North Atlantic Free Trade Area consists of USA, Canada and Mexico); Eastern Asia (includes China, Japan, North Korea, South Korea); Western Asia (mostly middle east countries); South Central Asia (include India, Pakistan and Bangladesh) and Australia and New Zealand. 10

14 China United States India Japan Botswana United Kingdom Namibia Mozambique Netherlands Republic of Korea % Figure 2.10: The share of top ten food export destination countries in Figure 2.10 shows that the eight countries that accounted for food exports share during 2017: Q4 were from: China (11,1%), the United states of America (7,9%), India (5,2%), Japan (4,5%), Botswana (4,4%), the United Kingdom (4,1%), Namibia (4,0%), Mozambique (3,2%), the Netherlands (3,0%) and the Republic of Korea (2,5%). Table 2.5 presents the major exported food products during, while Table 2.6 shows the high and low export performers of food products during the quarter under review by comparing the export values of the present quarter to the same quarter of the previous year (year-on-year). Table 2.5: Major exported food products in HS Code Food product Total amount (R million) HST Oil-cake and other solid residues 587,0 HST Sweet biscuits 108,0 HST Chewing gum 90,1 HST Cocoa butter, fat and oil 76,8 HST Vegetable fats and oils and their fractions 62,4 HST Other pasta 57,0 HST Cocoa powder 51,4 HST Wheat or meslin flour 49,2 11

15 HST Waffles and wafers 29,1 HST Ice cream and other edible ice 19,5 HST HST HST Prepared foods obtained by the swelling or roasting of cereals or cereal products Sausages and similar products, of meat, meat offal or blood Prepared foods obtained from unroasted cereal flakes 13,5 8,7 8,3 Table 2.6: Export performance of food products HS Code Food products High performers % Change compared to a year ago HST HST Cocoa powder, containing added sugar or other sweetening matter Butter 218,5 122,2 HST HST HST HST HST HST Prepared baking powders Sausages and similar products of meat, meat offal or blood; food preparations based on these products Sweet biscuits Stuffed pasta, whether or not cooked or otherwise prepared Waffles and wafers Glucose and glucose syrup, containing in the dry state at least 20% but less than 50% by weight of fructose, excluding inverted sugar HST Yogurt 27,1 HST Ice cream and other edible ice, whether or not containing cocoa HST Other pasta 21,2 HST Cocoa butter, fat and oil 12,7 HST Gingerbread and the like 9,4 HST Rusks, toasted bread and similar toasted products 9,0 Low performers 84,1 72,0 62,6 40,8 37,1 35,9 21,6 HST Glucose and glucose syrup, not containing fructose or containing in the dry state less than 20% by weight of fructose -12,7 12

16 HST Other cheese -21,8 HST Roasted chicory and other roasted coffee substitutes and extracts, essences and concentrates thereof -25,9 HST Couscous -29,3 HST Soya sauce -30,8 Main source of food imports and imported food products South Africa s main source of food imports by continents during is presented in Figure The Americas accounted for a large share of food imports of 61% in the period under review, followed by Europe with a 23% share, Asia and Africa with a share of 6% each, while Oceania accounted for 4% share. Figure 2.11: The share of continents as a source of food import () Europe 23% Oceania 4% Unallocated 0% Africa 6% Asia 6% Americas 61% 13

17 2012: Q4 2013: Q1 2013: Q2 2013: Q3 2013: Q4 2014: Q1 2014: Q2 2014: Q3 2014: Q4 2015: Q1 2015: Q2 2015: Q3 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q Figure 2.12: The share of continents as a source of food import (2012:Q4 2017:Q4) Africa Americas Asia Europe Amongst the trading regions, South America accounted for a large share of South African food imports, which is approximately 47%, followed by the European Union with 23% share, while NAFTA, SACU (Excluding RSA), Eastern Asia and Australia and New Zealand have a share of 14%, 6,0%, 5,0% and 4,0%, respectively (see Figure 2.13). Figure 2.13: The share of regions as a source of food import () European Union 23% Australia and New Zealand 4% Unallocated 1% SACU (Excluding RSA) 6% Eastern Asia 5% NAFTA 14% South America 47% 14

18 Brazil United States Argentina Germany Ireland Denmark Australia Namibia Spain Botswana % share Figure 2.14: The share of top ten countries as a source of food import in The top ten countries that accounted for a large share of food imports are: Brazil (39,2%), the United states of America (11,4%), Argentina (6,2%), Germany (5,1%), Ireland (4,9%), Denmark (4,7%), Australia (3,9%), Namibia (3,3%), Spain (2,8%) and Botswana (2,7%) (See Figure 2.14). Table 2.6 presents the major imported food products during. Oil cake (HST230400) was the leading imported product with an import value of around R587,0 million. Table 2.7: Top 10 imported food products in HS code HST Food product Oil-cake and other solid residues, whether or not ground or in the form of pellets, resulting from the extraction of soya bean oil Total amount (R million) 587,0 HST Sweet biscuits 108,0 HST Chewing gum, whether or not sugar coated 90,1 HST Cocoa butter, fat and oil 76,8 HST Vegetable fats and oils and their fractions 62,4 HST Cocoa powder, not containing added sugar or other sweetening matter HST Wheat or meslin flour 49,2 HST Animal or vegetable fats and oils and their fractions, boiled, oxidised, dehydrated, sulphurised, blown or polymerised by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of heading 15.16; inedible mixtures or preparations HST Margarine, excluding liquid margarine 2,1 51,4 8,1 15

19 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q2 2012: Q4 2013: Q1 2013: Q2 2013: Q3 2013: Q4 2014: Q1 2014: Q2 2014: Q3 2014: Q4 2015: Q1 2015: Q2 2015: Q3 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q2 R million 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Figure 2.15: Quarterly trade balance of food products Export Import Figure 2.15 shows the quarterly trade balance of food products. The quarter-to-quarter and year-on-year exports and imports of food products grew by 5,7% and 16,5% from a 1,8% and 10,7% growth, respectively. Conversely, the quarter-to-quarter imports moderated by 4,0% from a 10% growth in, while year-on-year exports registered an improved negative growth of 2,7%, as compared to a 5,3% in the last quarter. As a result, the trade balance widened from R456 million in the last quarter to R598.7 million in the current quarter. An increase in domestic demand could be a reason for growth in imports. 2.6 EMPLOYMENT 210,000 Figure 2.16: Total number of formal employment: food products 200, , , , , ,000 Source: Statistics SA (2017i) 16

20 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q2 Figure 2.16 shows the total number of formal employment in the food products division. The quarter-to-quarter food products rebounded by 0,8% as compared to a contraction of 2,5% registered in the previous quarter, however, it grew marginally by 3,9% from 3,4% in the last quarter. The division created jobs during the period under review, which is likely as a result of an increase in food production. Figure 2.17: Number of formal employment: food products 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Production, processing and preservation of meat, fish, fruit, vegetables, oils and fats Dairy products Grain mill products, starches and starch products and prepared animal fat Other food products Source: Statistics SA (2017i) Figure 2.17 shows the number of formal employment in food products division. The quarter-toquarter formal employment of meat, fish, fruit, etc. and other food products rebounded by 5,2% and 0,8% from a 2,9% and 2,5% respective contraction recorded in the previous quarter. Dairy products registered an improved negative growth of 2,2% as compared to 3,0% contraction in the last quarter. However grain mill products moderated by 1,8% from 3,8% growth in the last quarter. The year-on-year formal employment of meat, fish and fruit, etc., decelerated by 5,5%, dairy products contracted by 3,4%, grain mill products grew modestly by 3,3% and other food products grew marginally by 3,9%. 17

21 2.7 OUTLOOK Table 2.7: Net balance 6 of BER manufacturing survey: food products 2017: Q2 2018: Q1* Domestic sales volumes Export sales volumes Production volumes Domestic order volumes received Export order volumes received General business conditions Number of factory workers Fixed investment Business confidence Expected volume of goods imported in 12 months time Expected volume of goods exported in 12 months time Expected real investment in machinery and equipment in 12 months time Expected business conditions in 12 months time * Expected Source: BER (2017) A survey of food manufacturing by the Bureau for Economic Research (BER) is presented in Table 2.7. The survey shows that the year-on-year outlook for 2018: Q1 is positive for all the variables, except for general business conditions and fixed investment. 6 BER calculates the net balance statistics by subtracting the percentage of the respondents replying down from the percentage replying up to a particular question. Respondents are asked to compare the current quarter s experience to that of a year ago. A positive net balance implies an improvement (i.e. positive year-on-year growth) and vice versa. Therefore, the net balance varies from -100 to 100 where -100 is the most negative response; zero is a situation of no change and 100 is the most positive response. 7 BER calculates the business confidence index by asking respondents to rate current business conditions as satisfactory or unsatisfactory. Then the index is derived as a gross percentage of the respondents replying satisfactory. A value of 50 is indicative of neutrality, 100 indicative of extreme confidence and 0 of extreme lack of confidence. An index greater than 50 shows the majority of respondents are satisfied with the prevailing economic conditions. 18

22 3. BEVERAGES Beverages according to SIC classification is code 305 and comprises of the following beverage products: Distilling, rectifying and blending of spirits; ethyl alcohol production from fermented materials Manufacture of wine Manufacture of beer and other malt liquors and malt Breweries, except sorghum beer breweries Sorghum beer breweries Manufacture of malt Manufacture of soft drinks; production of mineral waters. 3.1 PRICE Table 3.1 below shows the consumer price indices, producer price indices and export unit value of beverages. The year-on-year and quarter-to-quarter consumer price inflation for alcoholic beverages grew by 4,5% and 0,9% respectively. The beverages products that grew during the period under review were: wine, spirits, beer, hot beverages and cold beverages by 2,0%, 1,1%, 0,2%, 0,2% and 0,2%, respectively, quarter-to-quarter. Similarly, hot beverages, spirits, beer, wine and cold beverages registered positive growth of 6,9%, 6,9%, 5,2%, 4,5% and 3,5%, respectively, year-on-year. The growths are likely a result of an increase in demand during the quarter under review. Table 3.1: Price indices of beverages Indices % change between Beverages products Weight 2016: Q4 2017: Q3 2017: Q4 and and Consumer price indices All items (CPI Headline) Alcoholic beverages Spirits Wine Beer Non-alcoholic beverages Hot beverages Cold beverages ,6 103,2 104,1 4,5 0,9 3,9 99,9 103,4 105,0 5,1 1,6 0,8 99,8 105,5 106,7 6,9 1,1 0,7 99,9 103,0 105,0 5,2 2,0 2,5 99,9 104,2 104,4 4,5 0,2 1,2 99,4 104,0 104,2 4,8 0,2 0,3 100,1 106,8 107,0 6,9 0,2 0,9 99,2 102,4 102,6 3,5 0,2 Producer price index 19

23 2012: Q4 2013: Q1 2013: Q2 2013: Q3 2013: Q4 2014: Q1 2014: Q2 2014: Q3 2014: Q4 2015: Q1 2015: Q2 2015: Q3 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q2 Index (2010 = 100) Beverages 8,5 100,0 103,5 104,5 1,0 4,5 Export Unit value Beverages 135,2 100,6 92,5 93,7 1,4-6,8 Source: Stats SA (2017a, 2017b, 2017) 3.2 PRODUCTION 110 Figure 3.1: Seasonally adjusted physical volume of production: beverages Source: Statistics SA (2017d) Figure 3.1 presents the seasonally adjusted physical volume of production for beverages. During, as demand for beverages products improves, the quarter-to-quarter seasonally adjusted physical volume of production for beverages registered an improved negative growth of 0,5% as compared to a 3,0% contraction in the last quarter. However, the seasonally adjusted physical volume of production for beverages rebounded by 3,5% yearon-year as compared to a 0,8% contraction in. 20

24 2012: Q4 2013: Q1 2013: Q2 2013: Q3 2013: Q4 2014: Q1 2014: Q2 2014: Q3 2014: Q4 2015: Q1 2015: Q2 2015: Q3 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q2 R million Production capacity Table 3.2: Utilisation and reasons for underutilisation of production capacity by large enterprises: Beverages division (percentage) Period Utilisation Reasons for underutilisation Total underutilisation Shortage of Raw materials Labour Skilled Semi and unskilled Insufficient demand Other 88,1 11,9 2,1 1,0 0,3 6,3 2,1 84,7 15,3 4,0 0,9 0,3 7,6 2,5 87,6 12,4 1,4 0,9 0,6 6,6 3,2 Source: Statistics SA (2017e) Table 3.2 shows that the year-on-year utilisation capacity moderated during. However, it increased modestly as compared to the previous quarter. Insufficient demand remains the main reason for underutilisation, followed by other reasons such as seasonal factors. 3.3 VALUE OF SALES Figure 3.2: Seasonally adjusted value of sales (current prices): beverages 12,000 11,500 11,000 10,500 10,000 9,500 9,000 8,500 8,000 Source: Statistics SA (2017d) During, in accordance with improvement in demand, the quarter-to-quarter and year-on-year seasonally adjusted value of sales for beverages grew by 1,9% and 3,6% in the quarter under review, following a growth of 0,1% and 1,9% in the previous quarter, respectively (See Figure 3.2). 21

25 2012: Q4 2013: Q1 2013: Q2 2013: Q3 2013: Q4 2014: Q1 2014: Q2 2014: Q3 2014: Q4 2015: Q1 2015: Q2 2015: Q3 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q2 R million 3.4 INCOME FROM BAR SALES IN THE SERVICE INDUSTRY 8 Figure 3.3 below shows the total income for bar sales in the food and beverages service industry in. The income from bar sales in the food and beverages service industry grew by 18,0% as compared to 8,2% in the previous quarter. However, it moderated by 3,9% year-on-year. The total income during the period under review stood at R451,2 million from R382,3 million in Figure 3.3: Total income from bar sales in the service industry Source: Statistics SA (2017h) Figure 3.4 below shows the performance of the bar sales in the service industry, which include restaurant and coffee shops, take-away/fast food outlets and catering services. During 2017: Q4, restaurant and coffee shops and catering services grew by 17,5% and 22,4%, following a growth of 9,1% and 2,5%, respectively, in the last quarter. However, during the period under review, take-away/fast food outlets moderated by 6,1% from a 15,8% growth in the last quarter. On the other hand, the year-on-year income for restaurants and coffee shops, take-away/fast food outlets and catering services moderated by 1,1%, 18,3% and 20,4% from a growth of 1,9%, 21,0% and 15,3% in the last quarter, respectively. 8 Income from bar sales refers to income from liquor sales. 22

26 2012: Q4 2013: Q1 2013: Q2 2013: Q3 2013: Q4 2014: Q1 2014: Q2 2014: Q3 2014: Q4 2015: Q1 2015: Q2 2015: Q3 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q2 R million Figure 3.4: Income from bar sales in the service industry Restaurants and coffee shops Catering services Take-away/fast food outlets Source: Statistics SA (2017h) 3.5 TRADE Main export destinations of beverages products Figure 3.5 below shows that during the quarter under review, Africa was the largest export destination for beverages. Africa accounted for 44% share, followed by Europe (36%), the Americas and Asia accounting for 9% and 10%, respectively. Oceania has the least share of about 1%. Figure 3.5: The beverage export destinations' share of continents in Europe 36% Oceania 1% Africa 44% Asia 10% Americas 9% 23

27 2012: Q4 2013: Q1 2013: Q2 2013: Q3 2013: Q4 2014: Q1 2014: Q2 2014: Q3 2014: Q4 2015: Q1 2015: Q2 2015: Q3 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q2 % Figure 3.6: The beverages export destinations' share of the continents in (2012:Q4 2017:Q4) Africa Americas Asia Europe Among the main trading regions, the European Union (34%) accounted for the largest share of the total beverages exports, followed by SACU (Excluding RSA) (21%), SADC (Excluding SACU) (17%), NAFTA (8%) and Eastern Asia (6%). Eastern Africa and Western Africa accounted for a combined share of 5% (see Figure 3.7). Figure 3.7: The share of top beverage export destination regions in Eastern Africa Rest 3% Others 9% Western Africa 2% SADC (excluding SACU) 17% European Union 34% SACU (Excluding RSA) 21% Eastern Asia 6% NAFTA 8% 24

28 Namibia Botswana United States China Zambia Lesotho Canada Swaziland Angola Sweden % Figure 3.8: The share of top ten beverages export destination countries in Figure 3.8 above shows the share of top ten beverages export destinations during. The main export destinations for beverages are: Namibia (10.4%), Botswana (4,9%), the United States of America (4,3%), China (4,1%), Zambia (3,8%), Lesotho (3,2%), Canada (3,1%), Swaziland (2,6%), Angola (2,4%) and Sweden (2,4%). Table 3.3 presents major exported beverages products in, while Table 3.4 shows high and low export performers of beverages during. Export performance compares the export values of the present quarter to that of the same quarter of the previous year (year-onyear). Table 3.3: Major exported beverages products in HS Code Beverages products Total amount (R million) HST Whiskies 838,5 HST Beer made from malt 408,7 HST Waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured 218,8 HST Spirits obtained by distilling grape wine or grape marc 131,5 HST Sparkling wine 104,5 HST Liqueurs and cordials 77,4 25

29 HST HST Undenatured ethyl alcohol of an alcoholic strength by volume of 80% vol. or higher Other fermented beverages (for example, cider, perry, mead); mixtures of fermented beverages and non-alcoholic beverages, not elsewhere specified or included 52,6 49,3 HST Gin and Geneva 41,4 HST Vodka 30,8 HST HST Rum and other spirits obtained by distilling fermented sugar cane products Vinegar and substitutes for vinegar obtained from acetic acid 19,6 19,6 HST Mineral waters and aerated waters 8,9 3.4: Export performance of beverages in HS Code Beverages High performers % Changes compared to a year ago HST Gin and Geneva 94,4 HST Other fermented beverages (for example, cider, perry, 86,3 mead); mixtures of fermented beverages and mixtures of fermented beverages and non-alcoholic beverages, not elsewhere specified or included HST Other green tea (not fermented) 45,8 HST Whiskies 39,8 HST Other black tea (fermented) and other partly fermented tea 32,5 HST Rum and other spirits obtained by distilling fermented 32,0 sugar cane products HST Liqueurs and cordials 24,5 HST Beer made from malt 17,5 HST Black tea (fermented) and partly fermented tea, in immediate packings of a content not exceeding 3 kg 21,3 HST Mineral waters and aerated waters 11,9 26

30 HST Spirits obtained by distilling grape wine or grape marc 7,9 HST Ethyl alcohol and other spirits, denatured, of any strength Low performers HST Maté -73,9 HST Vodka -11,8 6,7 HST Waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured -5,6 HST Sparkling wine -1,9 Main imported beverage products and their source Figure 3.9 illustrates the share of continents as a source of beverages imports in. Europe was the largest source of beverages imports and accounted for 72% share, followed by the Americas (13%) and Africa (11%), while Asia and Oceania have a share of 3% and 1%, respectively. Figure 3.10 shows that during the past five years, Europe, followed by the Americas, accounted for a huge share of beverages imports, followed by Africa and Asia, while Oceania accounted for a 1% share. Figure 3.9: The share of continent's as a source of beverages import in Oceania 1% Africa 11% Americas 13% Asia 3% Europe 72% 27

31 2012: Q4 2013: Q1 2013: Q2 2013: Q3 2013: Q4 2014: Q1 2014: Q2 2014: Q3 2014: Q4 2015: Q1 2015: Q2 2015: Q3 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q Figure 3.10: The beverages import destination's share of the continents (2012:Q4 2017:Q4) Africa Americas Asia Europe Among the top trading regions, the European Union (69%) still accounts for the largest share as a source of imports, followed by NAFTA (12%), SACU (Excluding RSA) with 10%, then Western Europe by 2% and SADC (Excluding RSA) by 1% (see Figure 3.11). Figure 3.11: The share of top regions as a source of beverages import in Unallocated 6% SADC (excluding SACU (Excluding SACU) 1% RSA) 10% NAFTA 12% Western Europe Rest 2% European Union 69% 28

32 United Kingdom France Namibia Mexico Belgium United States Germany Austria Netherlands Switzerland % Figure 3.12: The share of top ten countries as a source of beverages import in Figure 3.12 above shows the share of the top ten countries as a source of beverages imports. During, the United Kingdom accounted a huge share of beverages imports (36,9%), followed by France (15,4%), Namibia (9,4%), Mexico (8,2%), Belgium (4,0%), the United States (3,2%) Germany (2,8%), Austria (2,6%), the Netherlands (2,3%) and Switzerland (2,2%). Table 3.5 below shows the main imported beverages in. Table 3.5: Main imported beverages in HS Code Beverages products Total amount (R million) HST Whiskies 838,5 HST Beer made from malt 408,7 HST Waters, including mineral waters and aerated waters, 218,8 containing added sugar or other sweetening matter or flavoured HST Spirits obtained by distilling grape wine or grape marc 131,5 HST Sparkling wine 104,5 HST Liqueurs and cordials 77,4 HST HST Undenatured ethyl alcohol of an alcoholic strength by volume of 80% vol. or higher Other fermented beverages (for example, cider, perry, mead); mixtures of fermented beverages and mixtures of fermented beverages and non-alcoholic beverages, not elsewhere specified or included 52,6 49,3 29

33 2012: Q4 2013: Q1 2013: Q2 2013: Q3 2013: Q4 2014: Q1 2014: Q2 2014: Q3 2014: Q4 2015: Q1 2015: Q2 2015: Q3 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q2 R million HST Gin and Geneva 41,4 HST Vodka 30,8 HST Rum and other spirits obtained by distilling fermented sugar 19,6 cane products HST Vinegar and substitutes for vinegar obtained from acetic 14,5 acid HST Mineral waters and aerated waters 8,9 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Figure 3.13: Quarterly trade balance of beverages Export Import During : The quarter-to-quarter import of beverages moderated by 8,7%, following a 50,4% growth recorded in the last quarter. However, the year-on-year exports rebounded by 12,1% from a 3,2% contraction in the preceding quarter. Quarter-to-quarter imports, on the other hand, rebounded by 22,5% from a 0,6% contraction, but grew by 12,4% year-on-year. As a result, the trade surplus widened from R1 758,6 million in the previous quarter to R2 455,9 million in the current quarter. 30

34 2015: Q4 2016: Q1 2016: Q2 2016: Q3 2017: Q1 2017: Q2 3.6 EMPLOYMENT Figure 3.14: Number of formal employment: beverage and tobacco products 45,000 44,000 43,000 42,000 41,000 40,000 39,000 38,000 37,000 36,000 35,000 Source: Quantec EasyData (2017i) Figure 3.14 shows the number of formal employment in the beverage and tobacco products industry. The quarter-to-quarter formal employment in the beverages division contracted by 6,1% from a 1,0% growth in the last quarter. However, it decelerated by 10,9% year-on-year from a 3,4% contraction in the preceding quarter. As a result, jobs were shed in the division this quarter. 3.7 OUTLOOK Table 3.6: Net balance of BER manufacturing survey: Beverages 2017: Q2 2018: Q1* Domestic sales volumes Export sales volumes Production volumes Domestic order volumes received Export order volumes received General business conditions Number of factory workers

35 2017: Q2 2018: Q1* Fixed investment Business confidence Expected volume of goods imported in 12 months time Expected volume of goods exported in 12 months time Expected real investment in machinery and equipment in 12 months time Expected business conditions in 12 months time *Expected Source: BER (2017) The survey of the beverages division by BER shows that the year-on-year outlook for 2018: Q1 is negative for all variables except for production volumes. 4. CONCLUSION The real gross value added (GVA) by the primary sector in increased by around 7,5% and contributed 0,7 percentage points to overall annual GDP growth. This turnaround in the agricultural sector was brought about by the end of the prolonged drought in the northern parts of the country, which benefited field crop production as reflected by the 2017 bumper maize crop and positive spillovers to some other sectors of the economy (Reserve Bank, 2017). In terms of trade, Asia as a continent accounted for a large share of food exports during 2017: Q4, while regions such as Eastern Asia accounted for a large share followed by the European Union and SADC countries. The countries that accounted for a huge share of food export destinations are China, the US, India, Japan, Botswana, the UK, Namibia, Mozambique, the Netherlands and the Republic of Korea. In terms of imports, the Americas, accounted for 61% of the huge share of food imports. The region that accounted for a huge share was South America (47%), followed by the European Union and NAFTA with a share of 23% and 14%, respectively. The beverages division trade saw Africa as a continent accounting for larger share of imports during the period, while regions that accounted for a larger share were: the European Union, followed by SACU (Excluding RSA) and SADC (Excluding SACU). In terms of exports, the European Union still accounts for the largest share of exports, followed by NAFTA, SACU, (Excluding RSA) then Western Europe rest and SADC (Excluding SACU). The quarter-to-quarter and year-on-year seasonally adjusted value of sales of food products grew under the period as compared to the previous quarter. The trade balance of food and beverages grew from R2 241,6 million in the previous quarter to R3 054,6 million in the current quarter. Employment in the food, beverages and tobacco divisions rebounded quarter-toquarter by 0,4%, however, contracted by 1,9% year-on-year. 32

36 REFERENCES BER (2017), Manufacturing Survey. Bureau for Economic Research, University of Stellenbosch. Quantec EasyData (2017), RSA International Trade. Accessed in December Statistics SA (2017a), Consumer Price Index, various issues. Statistics South Africa. Statistics SA (2017b), Producer Price Index, various issues. Statistics South Africa. Statistics SA (2017c), Export and Import Unit Value Indices, various issues. Statistics South Africa. Statistics SA (2017d), Manufacturing: Production and Sales, various issues. Statistics South Africa. Statistics SA (2017e), Manufacturing: Utilisation of Production Capacity by Large Enterprises. Statistics South Africa. Statistics SA (2017f), Wholesale Trade Sales, various issues, Statistics South Africa. Statistics SA (2017g), Retail Trade Sales, various issues, Statistics South Africa. Statistics SA (2017h), Food and Beverages, various issues, Statistics South Africa. Statistics SA (2017i), Quarterly Employment Statistics, various issues. Statistics South Africa. Reserve Bank (2017), Quarterly Bulletin, December 2017, South African Reserve Bank. NOTES: 33

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