Study on the Market Potential for the Commercial Viability of Almond Production in South Africa Client
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Study on the market potential for the commercial viability of almond production in South Africa Client: IDC APCF FINAL REPORT 1 DECEMBER 2017 OABS Development (Pty) Ltd 258 Main Street, PO Box 3426, Paarl, 7622 Tel: +27 (0) 87 095 2108 Fax: +27 (0) 86 616 4970 Contact persons: Dr Daan Louw Cell: 082 857 3458 Email: [email protected] Dr Hamman Oosthuizen Cell: 082 783 6192 Email: [email protected] Mr Clifford Flandorp Cell: 072 518 1658 Email: [email protected] ACKNOWLEDGEMENTS A number of people made important contributions to this study by sharing their experience, knowledge, advice and encouragement with the authors. It is therefore appropriate to thank the following persons and organisations who contributed indirectly or directly to the completion of this assignment. First of all we wish to thank the Industrial Development Corporation (IDC) for their support during this assignment, in particular, Mr Kenneth Chauke, Mr Johan Botha and Ms Sibongile Zulu. A special word of appreciation is expressed to everyone who shared their knowledge of the industry and information, in particular Dr Hans le Roux and Mr Stephan le Roux from Amanteco Almonds; Mr Thomas Mehl, Mr BJ van Zyl and Mr Retief du Toit from Cape Almonds (ZZ2); Mr Johan Schoeman, Mr Dawid Malan and Mr Pieter Burger from Klein Karoo Agri; and Mr Johan Burnett from Unlimited Group. Finally, to the specialists of the OABS team who devoted long hours to ensure that the study milestone could be completed in accordance with the work plan. They are: Dr Daan Louw (Project Leader) Dr Hamman Oosthuizen (Deputy Project Leader and Lead Author) Mr Clifford Flandorp (Project Coordinator) Ms Suzelna Louw Mr Ariel Hugo Mr Dries Alberts Ms Diteboho Lebeko Mr Ryan Newborn Ms Marsha Cawood Ms Helen Heyns i EXECUTIVE SUMMARY Introduction Almonds are the most produced tree nut in the world that also had experienced the greatest growth, doubling its production in only ten years. The South African almond industry however is inferior when compared to global standards and has not shown any real growth in the past decade (IDC, 2016). According to the South African Development Community (SADC), the global demand for almonds has increased steadily, driven by the interaction of various macro and micro economic factors. This is a clear indication that a future viable South African almond industry must produce the volumes and quality of product that will allow them to compete in an export market. In 2015, more than 2 800 tons of almonds were imported and according to industry role-players the local market was not yet saturated. In contrast, the Australian almond industry has tripled its production in the last decade and almonds are one of the main drivers of the Australian export business. The aim of a call for a study on the viability of establishing a local commercially viable almond industry is well timed. The current market conditions are, despite the large quantities of almonds already being marketed in global export markets, still very viable for satisfying the growing South African demand as well as to explore viable export opportunities. Objective of the study a. Conduct a detailed market study of almond nut and processed product consumption in South Africa and in preferred destination countries and of competitive advantages for export in future. b. Identify options, develop and structure an industry enabling model that will address the constraints listed. c. Investigate and propose a model through which BBBEE can be incorporated into the establishment of an almond industry. d. Conduct a techno-economic investigation dealing with the further processing of almonds (from farm gate and informed by the market study and industry enabling model). Condensed summary per chapter Chapter 1 is an overview of the context, problem statement, objectives and the methodology that was used. Chapter 2 summarises the results of the market study, including an almond market overview; identification of role-players in South Africa; identification of processing activities; product and market application and segmentation; pricing; and an analysis of existing and expected future market applications. World almond production is growing. Production is dominated by the USA mainly due to extensive plantings in California since 2004 (Californian Department of Food ii and Agriculture (CDFA), 2016). In season 2015/16 world production of almonds achieved almost 1 110 000 metric tons (kernel basis), 4% up compared to the previous season and 93% up compared to 2005/06, which confirms the upward trend over the last years (INC), 2015/2016). Global almond production for 2016/17 is forecast to be 7% higher at 1 170 000 metric tons (shelled basis) on record production in the United States and to a lesser extent, China (USDA-FAS, 2016). Global exports are expected to rise 10% to a record 717 000 tons on strong USA shipments to the European Union (EU), China, and India. Record world ending stocks are forecast, pushed higher by a continued build-up in the United States (USDA-FAS, 2016). USA exports (2016) account for two-thirds of output and are forecast to rise 8% to 625 000 tons largely on expanded shipments to the EU, China, and India. Ending stocks are expected to continue expanding to a record 206 000 tons (USDA-FAS, 2016). Australia’s exports are forecast to jump 30% to 65 000 tons on stronger demand from top markets, supplied in large part from last year’s stocks build-up (USDA-FAS, 2016). EU import demand is expected to increase by nearly 5% to 275 000 tons on strong demand from the food ingredient, snack food, and confectionary industries (USDA- FAS, 2016). India’s imports are forecast to gain nearly 5% to reach 75 000 tons, driven by an expanding middle class, growing workforce, and increased consumer awareness. Demand peaks during the September to January festive season, although food processors are using more almonds in a broader variety of product categories such as snack foods, health foods, beverages, and confectionary products. In addition, there is growing demand for lower-quality almond kernels for use in the cosmetic industry for oil extraction (USDA-FAS, 2016). China’s imports are forecast more than 20% higher to 70 000 tons, driven higher by demand from food manufacturers as well as the snack food sector (USDA-FAS, 2016). There are only a handful of commercial almond producers in South Africa, producing on approximate total of 210 hectares. The authors are aware of planned expansions of approximately 500 to 1 000 hectares in the Western Cape (Riebeek West and surrounding areas, Robertson and surrounding areas and Ladismith / Calitzdorp area). The majority of almonds imported into South Africa, mainly from the USA, are shelled or peeled. Only a small portion is in shell almonds. The total imports for 2015 were 2 847 tons to the value of R316.34 million. In 2015 the total volume exported was 195 tons to the value of R7.014 million. The market for almonds in South Africa outweighs local production by far. Current local almond production is approximately between 200 and 300 tons per annum compared to imports of 2 847 tons (2015). This presents an opportunity to expand local production by 2 600 tons, which can be produced on roughly 1 040 ha (calculated at 2.5 tons/ha). It is foreseen that, once the South African market is iii saturated, exports of almond kernels will piggyback on the Macadamia industry, which has already developed export markets. Cash flow projection for almond production shows economic viability with an Internal Rate of Return (IRR) on investment of 22%. The almond value chain consists of various value-chain actors, amongst others, primary producers, primary processors, 1st phase and 2nd phase secondary producers, distribution channels and market outlets. The approximate value of the SA almond industry was calculated at approximately R1 billion. Chapter 3 discusses the industry enabling and BBBEE model. International best practices from several countries, i.e. California (USA), Australia and Afghanistan (developing economy) were analyzed. A “snapshot” of almond production in California depicts a highly-developed and highly-organized industry that has been in existence for many years. The federal government of the United States of America initiated legislation in the 1950s to compel growers to mobilize resources to become more competitive locally and in the global markets. The advantages which the Almond Board of California (ABC) growers experience presently can be attributed directly to this transformational and visionary paradigm shift. The Australian almond nut growers have developed highly effective skills and production systems over time to produce a high quality product that is experiencing high and expanding demand by global markets. This unique set of “tools” is the key success determinants of the almond industry that have elevated Australian almond nut growers to the number two slot in global production. The principal market for Afghan almonds is the domestic market. The distribution chain involves: 1) producers/growers who sell to 2) merchants, who supply 3) local markets located in urban areas. Pricing information is non-existent due to reticence on the part of all the actors mentioned. Therefore, no central data base of any pricing, volumes or trends is available. Apart from the local sales, almonds are also exported to neighbouring Pakistan and India, with the latter being the preferred destination due to potential of achieving higher prices. International experience has taught that mobilization and collectivisation of local almond production can best be served by creating an industry body or commodity organization that can represent the interest of all stakeholders involved in the value chain. In the USA the Almond Board of California has approached the federal government to issue a marketing order to facilitate growth in their industry.